Livestock Marketing Association Encourages Investigation of Beef Packers
OVERLAND PARK, Kan. (April 13, 2020) – The Livestock Marketing Association (LMA) is encouraged to see Secretary Sonny Perdue’s announcement that the U.S. Department of Agriculture (USDA) will be extending its oversight to determine the causes of divergence between boxed and live beef prices, beginning with the Holcomb, Kansas beef processing plant fire and now incorporating the COVID-19 pandemic.
LMA calls for the investigation of beef packers to be comprehensive and expeditious. It should consider all potential anticompetitive and oligopolistic issues. This investigation should also include Department of Justice (DOJ) participation.
From the beginning, LMA has supported USDA’s investigation into beef pricing margins, which was opened in August 2019 following a beef processing plant fire. At that time, LMA wrote to USDA encouraging the agency to conduct a thorough investigation of all facets of this issue and underlying forces. LMA urged that if unfair trade practices, price manipulation, collusion, or other violations of the Packers and Stockyards Act or antitrust laws were found, rapid enforcement actions had to follow.
LMA went on to point out that the market volatility following the Holcomb plant fire was “only one illustration of long-standing concerns regarding pricing and competition.” The LMA letter urged USDA’s investigation to analyze issues related to competition in a larger context than the fire, including looking at issues experienced due to lack of competition in the entire live cattle marketing complex.
Unfortunately, less than a year later, we still await the results of the initial investigation and the structural concerns are proving true once again. The cattle market in the wake of COVID-19 has responded similarly to how it did after the Holcomb plant fire. Once federal, state, and local authorities began instituting recommended and mandatory economic shutdowns in early March 2020, the cattle industry experienced a sharp decline in fed cattle and feeder cattle prices. At the same time, boxed beef prices skyrocketed. Consumers spoke volumes as evidenced by empty meat cases and high prices paid because they view our beef as essential for survival in this pandemic. The combination of these factors resulted in significant packer profit margins. All the while, livestock producers continue to receive a shrinking portion of the retail beef dollar paid by the American consumer. Additionally, a dramatically depressed futures market only worsens the pain by removing opportunities to manage price risk.
LMA is the national trade organization representing more than 75 percent of the regularly selling fixed facility livestock auction markets in the U.S. LMA also represents online and video marketing entities, and professional buyers: livestock dealers and order buyers. Our more than 800 livestock marketing business members each work with hundreds and even thousands of producers to utilize competitive markets to bring them the best prices for their animals. This adds up to hundreds of thousands of cattle producers served by markets.
Our industry needs producers, feeders, markets, and packers. It is critical that each of these sectors have a reasonable opportunity to make a profit during the business cycle, ensuring a healthy and sustainable industry. However, if anti-competitive practices are at play in one segment, it risks pushing participants in other segments out of business. The cattle industry needs answers regarding what is behind the dramatic spread between live cattle and boxed beef prices and if there is any illegal activity involved. LMA believes that coordination between the USDA and DOJ in conducting an investigation is one step closer to market transparency and participant confidence.