USDA to look into pricing margins

Price manipulation, collusion, restrictions of competition, and other unfair practices are what investigators from the USDA’s Packers and Stockyards Division are looking for evidence of following the fire at a Tyson beef plant earlier this month. Secretary Sonny Perdue announced his directive for the investigation Aug. 28, 2019.

Nebraska Farm Bureau is among the agriculture trade groups applauding Sec. Sonny Perdue’s announcement of a Packers and Stockyards investigation to examine beef pricing margins following the fire at a Holcomb, Kansas, Tyson beef facility. On August 22, NEFB sent a letter to USDA Undersecretary of Agriculture for Marketing and Regulatory Programs Greg Ibach urging USDA to fully “investigate monitor and address concerns steaming from the fire.” NEFB asked the agency to shift additional USDA regulatory staff to other plants as needed and to utilize the Packers and Stockyards Division to monitor any unfair, unjustly discriminatory, or deceptive practice in the procurement of livestock.

The Holcomb plant processes about 6 percent of the U.S. beef and since the fire closed operations indefinitely, cattle have been trucked to Tyson plants in Amarillo, Texas, and Lexington, Nebraska.

Dr. Jayson Lusk, a distinguished professor and Head of the Agricultural Economics Department at Purdue University, said the packers made more money after the price of cattle tumbled and the cost of beef increased following the fire but the “economic effects are exactly what one would expect even in a perfectly competitive market.”

At this point, according to Colin Woodall, NCBA Senior Vice President of Government Affairs, the next steps hinge on the findings of the investigation.

“Our request has simply been to make sure they’re using all resources available both internal and external sources so they get all the facts they can and, more importantly, to get this done as quickly as possible,” Woodall said. “Markets don’t like uncertainty, industries don’t like uncertainty, so let’s not let this drag out.”

Slaughter reports indicated a 9,000 head increase the week following the fire and closure of the Holcomb plant, garnering the attention of producers. However, Woodall said tumbling prices were the bigger attention getter.

“Ultimately, folks want to know, why did cattle prices go down,” he said.

The 9,000 head increase in slaughter numbers, Lusk said, could be a reflection of underutilized capacity in some plants that “ramped up given the change in economic incentives.” He said it could also be counter-factual, with seasonal or economic issues that would have prompted increased slaughter numbers but still be less than expected.

According to the Aug. 23 Cattle Fax Update, the fed cattle slaughter has been largely unaffected since the fire with weekday slaughter averaging 91,000 head per day, 5,000 head below the prior May to July average even with a 16,000 head increase in Saturday slaughter numbers. With seasonally declining supplies, Lance Zimmerman said the pace has remained nearly identical to the monthly CattleFax forecast. He said margins for packers exceed $500 per head, attracting plants to shift production away from weigh cattle to steers and heifers but it may not be sustainable. Labor Day, he said, will be the next post-fire test for the fed cattle market.

R-CALF filed a lawsuit in April alleging the four largest beef packers, Tyson, JBS, Cargill, and National Beef/Marfrig unlawfully depressed beef prices. The group is among the industry groups pleased with Perdue’s announcement. In a release, CEO Bill Bullard said they “will continue to fight alongside producers to ensure a competitive American cattle market.”

A statement from the North American Meat Institute said the fire “created market uncertainty and disrupted cattle slaughter capacity. No one, not producers, packers, processors, retailers or consumers could have anticipated the fire and its impact on the market. Our member companies rely on their suppliers, have operated in the marketplace with integrity and we are confident have acted appropriately.”