'We're fighting for a way of life': Pandemic causes Iowa cattle farmers to lose money while consumers pay more
HULL, IA. - Until recently, Craig Moss could get four or five bids for his cattle, competition that helped the 37-year-old feel he was getting a decent price for his livestock.
That changed with the coronavirus. Moss had no buyers bidding on his cattle for seven weeks. When he finally received a bid, he had less than 5 minutes to respond. “I said I wanted to talk over the bid real quick with my dad, called back and he said, ‘Nope, we’re not going to do it. We’re full,’” Moss said.
Still, Moss was lucky. His family sold hundreds of cattle before the public health pandemic started shutting down meatpacking plants this spring.
“We would have been in a world of hurt if we hadn’t sold cattle early,” said Moss, who farms with his dad, Arlan. “We got nervous. We knew we had a lot of cattle to move. ... I didn’t necessarily like the price, but I held my nose and went ahead.”
Prices for fed cattle dropped about 30% as the pandemic cut nearly 40% of the nation’s beef processing capacity, market data and a U.S. Department of Agriculture report shows. At the same time, packers — dominated by four large corporations — saw wholesale beef prices spike nearly 120%. And consumers saw prices for ground beef, steaks and roasts at the meat counter soar.
The spread between producer and packer prices grew by 1,500%, setting a record in nearly two decades of data, the USDA report shows. The disparity set off a wave of federal and state antitrust investigations into the $66 billion industry, and legislative calls for market fixes.
Critics say big corporations are using their market power to manipulate prices for cattle as well as suppress sales data that can help smaller producers like those in Iowa get better prices for their livestock.
“The cattle market has been dysfunctional for many years. But it recently became acutely dysfunctional,” said Bill Bullard, CEO of R-CALF USA, a national group of independent cattle producers.
Bullard said the current system has resulted in consumer prices climbing while prices for cattle producers have plummeted and losses have mounted. “Producers are losing their share of the consumer beef dollar at an alarming rate,” he said.
“When the grocery store shelves were bare, it exposed the fact that our industry had become so highly concentrated . . . it threatened our national food security,” said Bullard, whose group, along with the National Farmers Union, is suing Cargill, Tyson Foods, JBS USA and National Beef Packing Co., claiming the companies conspired to fix cattle prices.
The companies, which control about 80% of the market, reject the claims as they fight the lawsuit. A federal judge dismissed it in September, but gave the farm groups time to amend their suit.
Iowa, the nation’s fourth-largest cattle producer based on sales, has a large stake in what comes next. It’s among a few states where half or more of the farmers negotiate cash deals with buyers to sell cattle, instead of using formula contracts with individual packers.
At the peak of the coronavirus outbreak, packers negotiated few cash trades. That hit Iowa cattle producers hard. The state had the highest percentage of inventory queued up on farms while prices plummeted, said Matt Deppe, CEO of the Iowa Cattlemen’s Association.
Even though packers are beginning to buy more cattle through the cash market, Moss said the number of bidders he sees has declined to two or three. “It’s disheartening when you hear about big corporations posting big profits and you’re struggling to keep everything together,” Moss said.
And producers fear plants could shut down again as COVID cases rise across Iowa and the nation. So far this year, about 41,000 U.S. meatpacking plant workers tested positive for COVID-19, the illness caused by the coronavirus, and at least 275 employees have died.
“I don’t know anybody in any industry who’s not concerned,” Deppe said.
goes into ‘abyss’
U.S. Sen. Chuck Grassley, an Iowa Republican, has called for a massive change to the way cattle are purchased, introducing legislation that would mandate packers buy at least half of their livestock through negotiated cash deals.
“The impact of consolidation doesn’t just hurt producers. Prices for ground beef and steaks, a staple in many Americans’ diets, doubled and tripled,” said Grassley, announcing the bill, along with other lawmakers.
And U.S. Sen. Deb Fischer, a Nebraska Republican, has called for similar changes to Grassley’s, but wants regional cash market percentages.
Packers buy roughly 70% of their cattle through formula agreements, deals that favor big producers in states like Texas and Kansas who provide guaranteed supplies — or “a captive herd” — to U.S. plants, experts say.
The majority of producers in Iowa, Nebraska and other Midwestern states — generally running smaller operations — negotiate deals with buyers at farms, feedlots and auctions, looking for competition to give them the best possible price.
Those negotiated cash sales, about 20% of the market, give producers important information about pricing their livestock, said Cora Fox, the Iowa Cattlemen’s government relations director.
The percentage was reversed just a couple of decades ago: Negotiated sales were about 70% of the market and formula contracts were about 20%, Fox said. The remaining sales include those on the futures markets.
With fewer buyers competing for livestock, prices for cattle have fallen, including those purchased through formula contracts, since cash purchases provide the foundation for pay in those agreements, the R-CALF lawsuit says. Producer prices have fallen about 40% since 2015, the group says.
Making it more difficult for producers, USDA often withholds data about formula agreements. Because a packer’s size within the market can be so large, divulging information would disclose its identity and activity, considered proprietary and confidential.
Moss, the northwest Iowa cattle producer, said the information that is released is so broad, it provides little useful data. A large chunk “of market information goes into a black hole,” Moss said. “It’s an abyss.”
Mandates provide ‘almost no benefits’
However, Stephen Koontz, a Colorado State University agricultural economist, wrote in a white paper in May that mandating cash trades would create “almost no benefits and considerable costs due to lost efficiency and product quality.”
Mandates like Grassley’s would cost $2.5 billion the first year and $16 billion over a decade, Koontz estimated, based on a 2007 study looking at formula contracts across the livestock industry. Producers would carry much of the costs, he wrote.
Mike Schwarck, a marketing agent for the Iowa Cattle Marketing Cooperative, said producers in Iowa, Nebraska and other states that bid on cattle in cash markets bear the costs now. “We’re carrying that burden,” said Schwarck, 37, who owns a feedlot with his brother near Riceville in northeast Iowa.
“They’re using the cash trades and price transparency, but they’re not offering anything toward it ... They’re just hitting the easy button,” he said. The Grassley bill would “just spread that cost out across the industry.”
Bullard said that requiring packers to negotiate more cash purchases would help to “immediately restore much of the lost competition in the industry” and help reverse the “alarming decrease in the number of producers and a decrease in the size of our U.S. cattle herd.”
“We’ve lost 75% of our feedlots in just under 25 years,” said Bullard, whose group also supports labeling meat so consumers know when beef they’re buying was raised in the U.S. “It’s hollowing out rural America.”
Fire, pandemic raise antitrust concern
A fire at a Tyson beef processing plant in Holcomb, Kansas, in August 2019 was the first of two market crashes cattle producers experienced over the past year.
“It made a lot of folks wake up and realize that something is not quite right in the way the market reacted,” said Mike Naig, Iowa’s agriculture secretary.
The spread between prices for cattle producers and meatpackers’ wholesale beef climbed 143% after the Holcomb fire, a record until the coronavirus hit, the USDA says in its report, which examined market fluctuations both after the Kansas blaze and the coronavirus outbreak.
The two events pushed the nation to “a tipping point,” Naig said. Fast-food restaurants like Wendy’s stopped offering hamburgers at the height of the pandemic, and large retailers such as Costco and Kroger rationed meat purchases.
Lee Schulz, an Iowa State University economist, said the bottleneck at the packing plants restricted supplies to consumers, who were filling freezers, driving prices higher. At the same time, prices for cattle fell as supplies increased. “The constraint was packing capacity,” he said.
Even though the market disruption was extreme, Naig said the government “shouldn’t be afraid to look at anticompetitive behavior.”
Iowa’s Tom Miller is among 11 attorneys general who wrote to the U.S. Justice Department in May, urging the agency to investigate market manipulation.
“With such high concentration and the threat of increasing consolidation, we have concerns that beef processors are well-positioned to coordinate their behavior and create a bottleneck in the cattle industry — to the detriment of ranchers and consumers alike,” the state attorneys general wrote. Miller’s office said it’s working on the issue with the Department of Justice, and declined to comment beyond the letter.
R-CALF alleges in its lawsuit that the big packing companies increased their profits by “working together cooperatively to reduce their respective slaughter volumes,” closing or idling plants, while at the same time increasing imports, to depress the price of fed cattle.
Cargill, JBS, National Beef and Tyson say in filings that market factors drove decisions such as closing plants. For example, Tyson said it closed a plant in Denison, Iowa, in 2015 after a widespread drought that ended two years earlier decreased cattle supplies, reducing the need for slaughter capacity. Prices for corn, which is fed to cattle, reached record highs. “It’s hard to escape the laws of supply and demand,” the company said.
In September, a federal judge in Minnesota dismissed the suit, saying it didn’t provide enough direct evidence of a price-fixing conspiracy. He gave the farm groups 90 days to amend their suit, work that Bullard says is underway.
Bullard said the pandemic led consumers to question how the beef industry works.
It’s the “first time in our memory when consumers went to the grocery store and couldn’t buy the meat they needed for family,” said Bullard, CEO
of the Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America.
“We’ve never seen the spread like this,” Bullard said. “Producers on one side of the supply chain and consumers on the other side are being exploited.”
Schwarck said he’s not sure what the probe will uncover. “The industry is so consolidated, it doesn’t need to collude. There aren’t 10 packers out there buying cattle like there used to be,” he said.
“What producers want more than anything is to know that it’s not happening,” Schwarck said.
‘Fighting for a way of life’
Naig said Iowa, with its many smaller cattle operations, is unlike Texas, Kansas and other states with large feedlots.
For example, Texas, which leads the nation in cattle production, had 13 million cattle and calves on farms and in feedlots at the beginning of the year. Iowa ranked seventh, with 3.9 million cattle and calves.
In 2017, Texas had 567 cattle operations with 1,000 to 4,999 beef cattle, only 11 more feedlots than in Iowa, the Census of Agriculture shows. But the Lone Star state had 165 operations with 5,000 or more head, more than double Iowa’s 73 farms.
Still, Iowa ranks among the top five states when it comes to cattle sales, reaching $4 billion last year, USDA data show. Nebraska led the nation in sales at $10.6 billion; Texas and Kansas came in around $8.4 billion; and Colorado, $3.6 billion.
Deppe said Iowa cattle producers want to avoid vertical integration, where large corporations control the industry from feeding cattle to processing them. It’s a shift more widely seen in the pork and chicken industries.
For example, a company that giant retailer Costco created, has financed and built a $450 million plant in Nebraska, contracting with farmers to raise the millions of chickens it processes. The company provides everything from the chicks to the feed to the livestock transportation for Nebraska and Iowa farmers who supply many of the 90 million rotisserie chickens Costco sells annually.
The highly concentrated poultry industry received a shock this year. Following a Department of Justice investigation, chicken processor Pilgrim’s Pride reached an agreement with the agency in October to pay $110.5 million to resolve price-fixing charges after 10 industry executives and employees were indicted on similar charges.
Moss, the farmer in northwest Iowa, said Iowa cattle producers are struggling to remain independent. “We’re fighting for a way of life,” he said.
Legislation with teeth
The National Cattlemen’s Beef Association is calling for packers to voluntarily provide more pricing information, an effort the Iowa Cattlemen’s Association group supports.
But Deppe, the group’s CEO, said members also support government intervention, such as Grassley and Fischer’s bills.
“We need to support something that has some teeth in it,” he said, adding that the industry would like to see more regional packing plants, similar to Upper Iowa Beef, which processes about 80,000 cattle a year at Lime Springs, built in northeast Iowa. But the costs and regulatory hurdles are significant.
Without action, Naig said: “It will be harder and harder for our producers to successfully get paid what they should be paid for their products.”