USDA releases pricing report
The U.S. Department of Agriculture released its report on cattle and beef pricing resulting from both the August 9, 2019 Tyson plant fire and in the ongoing 2020 COVID-19 pandemic.
USDA says in the 21-page report published July 22, 2020, that it does not examine potential violations of the Packers and Stockyards Act. President Trump asked the Department of Justice earlier this spring, to investigate possible anti-trust violations by the big four packers: JBS, National Beef/Marfrig, Cargill and Tyson. The DOJ has given no indication of when its investigation will be completed.
The report, which can be found here, and has been greatly anticipated by cattle producers and feeders across the country, shares the prices of boxed beef and fed cattle throughout the two events.
Charts show the significant spike in the spread between boxed beef prices and fed cattle prices during both the pandemic, and the weeks following the plant fire. The increase in the “spread” or difference between beef and live cattle prices of course coincides with data that shows spikes in beef prices and drops in cattle prices. These market irregularities have been discussed in many, if not all, circles of cattle producers and cattle feeders over the past year. Cattle and beef organizations have discussed a myriad of potential political efforts intended to help return a larger percentage of the consumer dollar to the US producer and feeder – something that has steadily declined in recent years.
The report specifically states that findings thus far do not preclude the possibility that individual or groups of entities violated the Packers and Stockyards Act.
“The investigation into potential violations under the Packers and Stockyards Act is continuing. USDA does not solely own investigatory authority over anticompetitive practices in the meat packing industry and has been engaged in discussions with the Department of Justice (DOJ) regarding allegations of anticompetitive practices in the meat packing industry. Should USDA find a violation of the Packers and Stockyards Act, it is authorized to report the violation to DOJ for prosecution,” said the report.
The report discusses mandatory price reporting and how the lack of market participants reduces the amount of information being reported, particularly because of confidentiality rules that preclude many of the sales from being publishable.
The report then goes on to discuss Iowa Senator Chuck Grassley’s 50/14 bill and addresses regional concerns regarding the suggested 50 percent “spot market” mandate.
“Such regional disparities might be addressed in part by tying the minimum purchase thresholds to regional reporting abilities. Under this approach, if an LMR region began to fail to meet confidentiality guidelines due to packers not procuring cattle on a negotiated cash basis, with the proper legislative authority, AMS could track and inform packers of the requirement to make an additional percentage of such purchases in the following week to allow for reporting…”
Risk management options and small and medium sized packer opportunities were talked about later in the report, along with possible updates to the Packers and Stockyards Act.
United States Cattlemen’s Association (USCA) President Brooke Miller issued the following statement:
“The top-line considerations detailed in this report provide a roadmap for returning transparency and true price discovery in the cattle marketplace. USCA has long since advocated for making these changes through the reauthorization of Livestock Mandatory Reporting (LMR), a program which is due to expire on September 30, 2020.
USDA’s findings do not preclude the possibility that individual entities or groups of entities violated the Packers and Stockyards Act, said Miller. “We appreciate the work of USDA leadership and staff in thoroughly examining these historic market disruptions and look forward to the findings of the Department of Justice investigation for a complete overview of the allegations of anticompetitive and market distorting practices employed by the meatpacking industry.”
Miller also pointed out that his group has asked Senate Agriculture Committee Chairman Pat Roberts for a hearing on the state of the U.S. cattle industry, which has been “met with silence.”
According to the Hagstrom Report, National Cattlemen’s Beef Association Vice President of Government Affairs Ethan Lane said, “We are pleased that USDA has produced a report into the market dynamics impacting cattle producers across the country. Since NCBA initially requested this investigation, this issue has remained a central topic of conversation for NCBA, our state affiliates, and cattle producers throughout the country. While we are collectively still awaiting the results of the Department of Justice’s ongoing investigation into these issues, the information in this report will be very helpful and timely to the cattle industry’s robust discussion of cattle markets and price discovery during our Summer Business Meeting in Denver next week.”
The Senate Finance Committee Chairman Chuck Grassley, R-Iowa, a critic of the current cattle market structure, praised the report in a Hagstrom story, “It’s a breath of fresh air to see President [Donald] Trump and Secretary Perdue take this issue seriously, when so many others before them ignored it. We must continue to investigate anticompetitive actions by corporate packers who value profits over the economic livelihoods of farmers, ranchers and rural America. In the meantime, the considerations outlined in this report are a good place to start. I will continue to be a voice for independent producers who, for generations, have raised quality meat for the country and world.”
The North American Meat Institute claimed that the report “identified no wrong-doing,” when in fact the report, in two different instances, stated that it did not examine potential anti-trust violations.
According to the NAMI, Dr. Stephen Koontz of the Department of Agricultural and Resource Economics at Colorado State said, “Record high meat prices are not a surprise. Record low livestock prices are also not a surprise. If packers cannot run at typical throughput levels – especially if supplies are abundant –then the marginal value of that last group of animals that is not-sold is close to zero. The grocery store supply chain was emptied during the closures of the local economies and then had difficulty catching up. Further, prices associated with specific cuts that consumers typically prepare at home were the highest. Prices of cuts sold at restaurants initially dropped to record lows and then rallied as consumers made substitutions and began purchasing cuts they did not typically buy. However, all rallied as total of beef supplies diminished with closures and partial operations.”
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