LAWSUIT: R-CALF alleges “big 4” packers are colluding to lower prices

R-CALF USA announced a lawsuit against the “big four” packers who, they allege, violated U.S. antitrust laws, the Packers and Stockyards Act, and the Commodity Exchange Act by unlawfully depressing the prices paid to American ranchers.

On April 23, 2019, the cattlemen’s group based out of Billings, said Tyson Foods, Inc., JBS S.A., Cargill, Inc., and National Beef Packing Company, LLC, and certain of their affiliates from at least January 1, 2015 through the present, conspired to depress the price of fed cattle they purchased from American ranchers, thereby inflating their own margins and profits.

Weinreis Brothers Partnership, Minatare Feedlot, Inc., Charles Weinreis, Eric Nelson, James Jensen d/b/a Lucky 7 Angus, and Richard Chambers as trustee of the Richard C. Chambers Living Trust are plaintiffs in the lawsuit, along with R-CALF USA (Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America). The plaintiffs feed cattle in Iowa, Nebraska, Kansas, and Wyoming.

The suit will likely last for years, predicted R-CALF USA CEO Bill Bullard, and is intended to uncover some truths and data not yet known.

“We do not know if there is more blame on one packer than another,” said Bullard. “Our evidence and analysis strongly indicates that all four of them are engaged in coordinated activities that caused the artificial reduction in cattle prices.”

“For many years, Cargill has served as a trusted partner to American cattle ranchers, committed to supporting their family farms and livelihoods. We believe the claims lack merit, and we are confident in our efforts to maintain market integrity and conduct ethical business,” said Cargill spokesman Daniel Sullivan.

The suit seeks to recover damages for two classes believed to be directly harmed by the packers’ buying practices:

1. Anyone who sold fed steers or heifers from Jan. 1, 2015 through the present time to those packers.

2. Traders who transacted live cattle futures or options contracts on the Chicago Mercantile Exchange from Jan. 1, 2015 to the present.

Bullard believes cattle ranchers would also benefit from a court win because “the price that cow-calf producers receive is based largely on the expected future value of a fat animal, so stopping the abuse that occurs in the pricing of the fat animal will essentially free up competitive forces to provide economic rewards to cow-calf producers.”

The fed cattle market is the initial price discovery market for the entire industry, said Bullard.

The amount of damages sought is not yet known, said Bullard, but initial analysis indicates that fed cattle prices have been artificially depressed by 7.9 percent since Jan. 1 of 2015 through present, he said.

In addition to potential damages that would be paid out in the case of a court win, Bullard believes by the filing of the suit could result in better prices across the board.

“By virtue of filing the lawsuit we have put the packers on notice that we’ll no longer tolerate the unlawful conduct that we’re alleging in the complaint. That in itself should have a disciplinary effect on the marketplace. Additionally because of the awareness created by the lawsuit, there may be actions outside of this litigation that could resolve additional problems.

One of the illegal activities the packers use to artificially lower the cash market is purchasing cattle outside of their own USDA “reporting area,” claimed Bullard.

“We allege this is part of the conspiracy. The four packers would transport cattle uneconomically long distances – outside of the area they’ve tied their formula contracts to – in order to obtain cattle that are not reported in that pricing structure, and won’t eleveate that pricing structure.” Bullard said this includes shipping cattle from Canada and Mexico in order to avoid affecting the cash market in the particular region the packer reports in.

By sourcing cattle outside of the region, and avoiding reporting regulations, the packers can buy cattle that may be higher priced, but because they aren’t reported, the official “cash price” in that region remains depressed. This not only results in artificially low cash deals, but affects all formula deals in that region because they are based on the cash market, said Bullard.

“This is just the beginning. We have essentially taken a stand and said ‘we’re going to address this,’ and we’re in a forum where it will be addressed, in the judicial branch of government.”

The two firms representing the plaintiffs, Scott+Scott Attorneys at Law LLP (“Scott+Scott”), and Cafferty Clobes Meriwether & Sprengel LLP (“Cafferty Clobes”) specialize in securities and anti-trust law, and are working on a contingency basis, said Bullard.

JBS, Tyson and National Beef have not responded to a request for comments.

–Editor’s note: We continue to seek a source who can speak about packer buying practices from the buyers’ perspective. Please contact me at cstadheim@tsln-fre.com if you are willing to talk about this.