Beef packing merger threatens last competitive cash cattle market in U.S.

Last month, the nation’s fourth-largest beef packer, National Beef, announced plans to take over Sysco-owned Iowa Premium, a regional packer focused on processing Black Angus steers for the Upper Midwest. National Beef is majority-owned by the Brazilian firm Marfrig.

While this deal may seem innocuous compared to blockbuster mergers of late, rolling Iowa Premium into a Big Four beef packer will shrink the number of alternative bidders in one of the last holdouts of cattle competition and small to medium-sized feedlots. The Iowa-Minnesota region is the only place left in the country where more than half of all cattle are sold into the cash market, which determines the base price for cattle sold on contracts or formulas.

The deal could hasten the death of competitive price setting for cattle, says Bill Bullard, CEO of the Ranchers-Cattlemen Action Legal Fund (R-CALF). “The cash market is the price discovery market for the entire cattle industry,” he says. “If the cash market continues to thin … then it’s essentially game over for cattle producers. … With a lack of a competitive marketplace, the packers will dictate prices to producers.” R-CALF submitted a letter to the Justice Department opposing the merger.

Until the 1980s, the beef industry was a model of independent producers and processors who found fair prices in cash auctions. But over the past four decades, a handful of large beef packers have consolidated control over slaughterhouses, diminishing ranchers’ market access and negotiating power.

Today, four corporations slaughter more than 80 percent of all beef cattle, and only 25 percent of cattle sell on the cash market. Instead, most cattle are sold through either forward contracts or “formula pricing,” in which packers determine the value of cattle based on a non-negotiated pricing formula. In major ranching regions like the Texas-Oklahoma-New Mexico area, an overwhelming 91 percent of cattle are sold on formulas or contracts.

The only semblance of fair pricing comes from the fact that packers base their pricing formulas on cash market values. But as this market and its number of buyers continue to shrink, the Big Four packers’ pricing power grows. “The thinner the cash market is, the more easily it’s manipulated,” says Robert Taylor, professor of agricultural economics at Auburn University. Packers can influence the price of cattle on the cash market by limiting the number of days they bid for cattle, for instance.

Of the five USDA-defined cattle markets, the Iowa-Minnesota region is the only part of the country where more than half of all cattle are still sold on the cash market, giving it an outsized role in setting cash market values nationwide. This is because nearly half of all Iowa cattle come from feedlots with fewer than 1,000 head, which are generally too small to contract with a large packer. Iowa’s cattle feeding industry is less consolidated, with more beef feedlots than any other U.S. state, even though it’s only the seventh-largest cattle-producing state.

“It is the small farmer feeder that is really preserving the cash market, and they’re dropping like flies,” explains Bullard. Over the past two decades, the U.S. has lost more than 70 percent of all feedlots with fewer than 1,000 head of cattle. These vulnerable yet critical farmers stand to lose the most from National Beef’s acquisition of Iowa Premium.

Iowa Premium is a significant regional player in the Upper Midwest cash market and the largest beef-processing facility in Iowa, slaughtering 1,100 head of cattle a day. The plant sources from roughly 1,400 beef producers, particularly smaller operations. It was the 20th-largest beef packer in the country in 2018, and the 12th-largest packer of premium English-bred cattle, such as Angus.

According to Eric Nelson, a fourth-generation Iowa farmer feeder, Iowa Premium has been one of the higher bidders in this market. “Since Iowa Premium has been open, on a yearly basis, the highest-price cattle that I’ve sold have been to them,” he said.

Nelson sells in the cash market and says he typically has three to four buyers. But he notes that ranchers in eastern Iowa and western Illinois have even fewer buyers, Iowa Premium being one of them. Nelson is concerned about losing a regional packer, and about the degree of consolidation in the cattle industry more generally.

“We needed to have more strictly scrutinized every purchase of every plant and every consolidation over the last 35 years,” he argues. “Over time, there are fewer and fewer people bidding for my animals. … Anytime you’re wanting to sell something, you want to have more people buying your product, not fewer.”

“How much concentration is going to be enough? When National, JBS, Cargill, and Tyson already have 85 percent, I think it’s important that somebody steps forward and says no,” Nelson says.

In addition to shrinking the number of regional buyers for Iowa’s small farmer feeders, this merger also increases Brazil’s dominance in American cattle markets, since the country’s third-largest food processor, Marfrig, owns 51 percent of National Beef. Marfrig has a record of colluding with JBS to lower prices paid to Brazilian cattle producers and bribing public officials.

Claire Kelloway, a reporter and policy analyst with the Open Markets Institute, runs the Food & Power site, where this story was first published.