Jones: Ask for a DOJ investigation
Back in August, a fire at a beef packing plant in Kansas created a “black swan” market disruption like many have never seen. It was nearly the perfect storm of cattle supply and short-term seasonal demand – grocery stores and the like gearing up for Labor Day. The chaos in the months that followed left “burning” questions in the minds of producers across the country. How could cattle prices fall so dramatically, while boxed beef prices skyrocketed? Before the smoke even cleared, packer profits soared and cattlemen were left in the ashes.
As you may well remember, within a few weeks of the fire, USDA Secretary Purdue opened a Packers and Stockyards investigation to monitor beef pricing margins to determine if there was any evidence of price manipulation, collusion, restrictions of competition or other unfair practices. (Six months later, we’ve yet to see any results from that investigation.)
Fast forward to February 2020 and we see a similar response in the market, rapidly growing packer margins and sinking live cattle prices, as a result of COVID-19. USDA Secretary Perdue has already announced they have expanded their investigation of the markets in the wake of the packing plant fire to include the market response to the coronavirus. However, I don’t believe that goes far enough.
The live cattle market has experienced exceptionally high volatility for several years and this, combined with rampant speculation in the futures markets, has led to an even greater than “normal” level of uncertainty for cattlemen and women. As the cattle market has strayed from its somewhat predictable cyclical pattern and the futures markets have strayed from their intended purpose of risk management, beef producers are facing unprecedented challenges in managing for these unknowns in a profitable fashion.
We’ve seen efforts from state cattlemen associations like the South Dakota Cattlemen’s Association and Nebraska Cattlemen calling for the DOJ to start their own investigation. Both members and nonmembers across the Midwest have expressed significant frustration with the packers and their outrageously high profit margins while live cattle prices continue to struggle. I applaud the groups that have made direct requests to the DOJ and am optimistic an expanded DOJ investigation may provide the answers our industry needs, as well as suggest potential solutions, which is preferable to letting our emotions drive those decisions.
Some have said going back to the August fire isn’t a long enough look-back. I would argue investigating two similar market responses, within a short amount of time, could potentially answer many questions. The results of a DOJ investigation will be beneficial in figuring out what, if anything, can be done to improve the markets for cattle producers going forward.
If your state cattlemen’s association hasn’t called for a DOJ investigation of beef packer margins, I suggest you get on the horn and ask them to follow the leadership shown in SD and NE.
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A short essay by Justin Tupper, Vice President, United States Cattlemen’s Association