It’s remarkable how much attention the cattle and beef business is receiving from Congress. Last week, the House Subcommittee on Livestock and Foreign Agriculture held a hearing on food supply chains. Then the Senate Judiciary Committee held a hearing on competition and consolidation. The pandemic exposed many vulnerabilities to the food distribution and processing industries. As we all know, the black swan events over the past two years have been tough on cattle feeders.
It’s always interesting to listen to the lines of questioning from Congress people. Most know very little or have superficial knowledge of the cattle industry and it’s frustrating to hear the same questions over and over.
Food industry consolidation has happened. Five grocery retailers have 65 percent of the retail grocery market share. And four packers have 83 percent of the beef processing business. Tyson Executive Shane Miller said they have about 23 percent of the beef market share and JBS Executive Tim Schellpeper said JBS had the same market share; both said that has only fluctuated 1 to 2 percent over the past 20 years.
This hearing was about competition and most all agreed that competition is a great thing and innovates all markets. Packers assured us that they will buy cattle on the negotiated cash market and will also use alternative marketing agreements (AMAs) to buy small producers’ fed cattle. They are active in the fed cattle auctions every week. Seems to me, if you want to see competion for your fed cattle take them to a fed cattle auction. Last week, a cattleman told me he sold fed cattle for $129 at the Lanesboro, MN, auction market—so someone is bidding up those fed cattle—and Tyson got the cattle.
Having both Tyson and JBS testify at this hearing was great. These guys were straightforward and to the point. They discussed the labor issue and said starting wage was $20 an hour. They are investing in their work force; they will pay tuition for the employees and their children to go to community college and a host of other benefits to improve employees’ lives. Miller said that there are over 50 languages spoken within the Tyson team.
David Smith from the Associated Wholesalers Grocers testified and said they have 1,100 retail grocers as owners, and supply 35,000 small grocery stores in mostly small markets. He said their industry has been consolidated and the large stores have buying power with suppliers and use their leverage in the market to get a better price than the small retail chains. Smith said when there is competition, it drives consumer prices lower, and if there is no competition in a market, retail prices will go higher. He also said consolidation leads to more consolidation, and supply chains are vulnerable.
Farm-to-retail price spreads were talked about. Jon Schaben, who operates the Dunlap Livestock Auction in Iowa, said he is concerned that in 2015, farmers and ranchers received 51 percent of the food dollar, and today it’s drifted down to 37 percent. The packers said their portion of the spread is because of more value-added products, which has increased their overall margins.
Senators were asking the witnesses exactly what they wanted from the government. Breaking up the packers was suggested using antitrust laws. Market transparency was discussed, and the packer representatives all said there is plenty of market transparency through Livestock Mandatory Reporting at USDA.
I’m pleased the cattle industry is getting some attention from the government. These congressmen seem like they are close to doing something, and it will be drastic, and I don’t think the industry will really like it. No one could come up with how to improve the Packers and Stockyards Act. And mandating a level of cash sales won’t help price discovery.
We constantly hear about the good old days when auctions would have a half-dozen cull cow buyers and now they have two—so there is a second bidder.
I’m still convinced that we’re turning the corner to better cattle prices and a better retail-to-farm price spread will improve. There is packing capacity in the works and there will be another 6,500-head-a-day plant in the next two years.
The industry is finally producing better beef and it’s being received very well. The government isn’t going to help much and it worries me about what they might do. Who are they going to listen to? Change is going to happen whether we like it or not, and I don’t think breaking up packers will help; they will all be consolidated again in 10 years, because of competition. I still say keep the government out of our market. — PETE CROW
