Last week, several Midwestern feedlot owners, along with the Ranchers-Cattlemen Action Legal Fund (R-CALF), filed a class-action lawsuit alleging that dominant meatpackers conspired to depress cattle prices starting in 2015. The case argues that JBS, Tyson, Cargill, and National Beef strategically cut back on open market cattle bids, closed plants, and imported costly foreign cattle in order to force farmers to accept lower prices and manipulate spot market cattle values.
“The impact of the packers’ conduct on American cattle ranchers has been catastrophic,” said David Scott, managing partner at Scott+Scott, the firm representing the ranchers, in a press release. The firm’s economic analysis concluded that collusion among the meat packers “depressed [fed cattle prices] by an average of 7.9% since January 1, 2015.”
At the same time, retail beef prices remained historically high and beef packers pocketed record-setting margins. Peak per-steer margins since 2015 are double the highest margins seen before the alleged conspiracy.
This follows an alarming trend laid out in other class-action suits against pork and poultry corporations, in which powerful meatpackers allegedly manipulated markets to both increase consumer prices and decrease prices paid to farmers, profiting off the difference.
“These are unprecedented levels of packer margins,” says Bill Bullard, CEO of R-CALF. “The American consumer is still paying near-record prices for beef while we have these depressed cattle prices.”
“We’re seeing communities being hollowed out as more and more ranchers and feedlots close their doors,” Bullard adds.
The price of cattle dropped dramatically in 2015, falling over 30 percent in 18 months. The collapse surprised ranchers, economists, and futures traders, who “widely predicted” prices would level out in 2015 after several years of rising prices, according to the suit.
R-CALF and four other feedlot plaintiffs allege that the top four beef packers, which slaughter over 80 percent of all beef cattle, took coordinated action that caused this price drop and suppressed prices afterward. The case claims that packers manipulated the thin cash market, where cattle are sold in open auctions. These transactions determine the base price that packers use to formulate their purchasing contracts, through which roughly three-quarters of all U.S. beef is sold.
Packers allegedly manipulated this spot market by strategically lowering their demand to create a “back-up” or “a glut in” slaughter-ready cattle. Independent ranchers and feedlots have a small window for selling their fattened cattle; if they wait too long, the cattle can become overfed and less valuable. The case alleges that dominant packers stoked “apprehension amongst producers that they might not be able to ‘get their cattle dead,’” in the words of a cooperating witness in the case, who worked as a quality assurance officer at a Big Four packing plant.
Packers started by simply bidding for cattle less frequently and coordinating what limited purchases they made, plaintiffs claim. The case shows a significant spike in the number of days per month without any cash cattle bids starting in 2015. The top four packers all bid for cattle in a short 30- to 60-minute window on Fridays, and they “typically adhere to the price level established” by the first bidder, the complaint says. In other words, packers rarely competed to outbid one another.
Aside from bidding at the same limited time, packers allegedly carved up areas of the country to avoid competition. Sometimes a feedlot would only get one bid from one packer for months on end, the complaint states. Plaintiffs also claim that packers would “[boycott] a region for a number of weeks” to create an oversupply of cattle there and depress prices.
The case also argues that packers uneconomically imported cattle from Canada and Mexico when it was cheaper to buy domestic cattle as another way to decrease their domestic demand. Packers also shut down several facilities from 2013 to 2015 and decreased their slaughterhouse utilization rates from a consistent average of 91 percent between 2000 and 2012 to 82 percent and 80 percent in 2014 and 2015, respectively. To maximize efficiency, packers logically would aim for near 100 percent plant utilization, and the complaint argues that packers purposefully decreased their slaughter capacity against their short-term economic interests in order to decrease cash cattle demand, depress prices, and increase margins long-term.
All told, these alleged actions to manipulate the supply and demand of cattle mirror other purported conspiracies across the meat industry. Dominant poultry and pork processors have been charged with collectively restricting supply in order to increase consumer prices as well as sharing data to depress prices paid to farmers.
These allegations exhibit concentrated meatpackers’ growing ability to corner markets and maximize their margins at the expense of both producers and consumers. The suits also reflect a growing reliance on private litigation to seek remedies for anticompetitive practices in the livestock industry absent federal action.
“We’ve gone to Congress and to the Administration for years seeking reforms in our cattle industry market place and our requests have essentially gone unheeded,” says Bullard. “Our industry is contracting at an alarming rate and action needs to be taken as quickly as possible, and so we believe this [private litigation] is our best chance of addressing the conspiracy that we allege is adversely affecting our industry and artificially depressing our prices.”
In an e-mail to Food & Power, Cargill denied R-CALF’s allegations saying, “We believe the claims lack merit.” Tyson Foods, which is implicated in the poultry, pork, and beef suits, has publicly denied all allegations. JBS and National Beef did not respond to a request for comment.