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Where’s the Beef?

| Jul 14, 2020 | Firm News

Have you noticed lately that the price of a Prime T-Bone at the local grocery store seems to have skyrocketed? Did you conclude that those cattle ranchers must be getting rich, buying new Cadillacs with all that extra change? If so, you would be WRONG!

Despite record prices for beef at the grocery store, cattle prices received by the ranchers and producers dropped more than 30% in 2015 alone. Those prices have continued to fall ever since. If cattle prices have been falling, why isn’t that T-Bone cheaper now? The answer is simple—maybe…

The beef packing industry has seen a major consolidation over the past several decades. The market share of the 4 largest beef packers has grown from 25% collectively in 1977 to 85% today. Those four companies now control the price on 85% of beef sold to consumers in this country.

In early 2019, beef packers were averaging $150 profit on each head of cattle processed. By the end of 2019, the packers averaged an unprecedented $415 per head. At the same time, the ranchers and producers were losing $200 per head. Now you know where the beef is!!!

R-CALF Anti-trust Lawsuit

In 2019, cattle producers from across the country, along with the non-profit Ranchers Cattlemen Action Legal Fund (R-CALF) filed a federal anti-trust lawsuit in Chicago against the Big Four, asserting that they have colluded to depress the cattle prices to the producers while raking in huge profits. That case is still winding its way through the litigation process, but it did garner the attention of Congress.

Congressional Action

In April 2020, congressional leaders from cattle producing states, joined by other colleagues began calling for investigation into the alleged price-fixing in the cattle markets. Although the wheels of Congress traditionally turn slow, these calls resulted in the introduction of Senate Bill 3693 on May 12, 2020. Senator Grassley, along with six bi-partisan co-sponsors, introduced the bill that calls for packers that own more than one plant to purchase 50% of the quantity processed each day by the packer from spot market sales from nonaffiliated producers.

The bills seeks to change the packers’ process where they by on large volume contracts that have led to depressed prices for producers. Requiring packers to purchase 50% of their inventory from the spot market sales will force them to purchase beef at market prices. Importantly, this bill does not impact packers that only own one plant.

The bill has been referred to committee, and although it is not yet law, it is a good step in the right direction to put competition back into the beef packing industry so that producers can get a fair price for the cattle they raise.

One consequence of this, that has been further highlighted due to the issues with Covid-19 is that more and more people are turning away from Walmart to get their T-Bone, choosing instead to go to the source—the local ranchers and producers and small meat markets to purchase their beef. They get great qualify, locally-sourced beef, at an affordable price, and the rancher makes enough money to stay in business—a WIN for everyone—except the packers.

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