R-CALF to Senate Judiciary: Investigate Price Collapse
April 15, 2016
In its highly detailed and well-documented first request to the U.S. Senate Judiciary Committee (Committee), R-CALF USA provides evidence indicating that antitrust and anticompetitive conduct by dominant meatpackers and certain traders in the cattle futures market in 2015 caused a severe anomaly in U.S. cattle markets. That anomaly, according to the group, caused an "unprecedented extraction of equity from the U.S. live cattle industry" and harmed consumers as well.
Also included is documentation showing that independent cattle feeders lost more than $500 per head of cattle sold during the collapse and, consequently, "the very foundation of the U.S. cattle industry's feeding sector – its independent cattle feeders – was irreparably damaged."
R-CALF USA's initial request was followed by a presentation to Committee staff. The presentation describes the current state of the U.S. cattle industry and explains why the industry is particularly susceptible to the manipulative buying practices of the largest meatpackers that control most of the U.S. fed cattle market.
In a second follow-up letter, R-CALF USA cites a study that "demonstrates that ongoing purchasing practices of the largest meatpackers unilaterally decrease prices cattle producers receive for fed cattle…[T]he competitive allocation of revenues cattle producers should receive from the meatpackers' sales of beef and beef products are offset in whole or in part by the meatpackers' now predominant cattle purchasing method." The study reveals that substantial price reductions are associated with increasing levels of captive supplies, including formula contracts in which cattle are committed to a packer without establishing a discoverable price.
The letter also states, "The level of statistical significance found in this study is incredibly high and R-CALF USA believes it discloses an antitrust instrument that the largest meatpackers are deploying in a coordinated manner to reduce competition in the marketplace and prices paid to producers."
A third submission to the Committee shares anecdotal evidence R-CALF USA had previously shared with both U.S. Department of Justice (Justice Department) and the U.S. Department of Agriculture (USDA) for a previous investigation into antitrust practices. Additionally included in this submission, are three news articles that support R-CALF USA's position "that the concentrated packers were engaged in practices to limit bidding competition and divide territories."
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In the fourth follow-up letter, R-CALF USA discusses the impact of manipulation by dominant beef packers in the cash market and the cattle futures market.
R-CALF USA contends "that dominant beef packers are continually shifting large volumes of cattle out of the price-discovering cash market and into alternative marketing arrangements, particularly into un-priced formula contracts. Consequently, the price-discovering cash market has become ultra-thin and is highly susceptible to manipulation." Then, these "dominant beef packers are exploiting the ultra-thin cash market that they themselves created and, through their coordinated actions, are driving the cash market downward."
R-CALF USA writes "the cattle futures market was experiencing unprecedented volatility in 2015 at the same time that cattle prices were collapsing at unprecedented rates." The letter also suggests that the volatility in 2015 is not an isolated incident. It reminds the Committee that, "R-CALF USA had been providing the Justice Department and/or the PSA (Packers and Stockyards Administration) with evidence of alleged futures market manipulation by the dominant beef packers since at least 2009."
With four fact filled submissions so far, R-CALF USA is hopeful the Committee will eventually hold a hearing to investigate the 2015 cattle price collapse.