Text by Lisa Schmidt, Photos by Eliza Jayne Photography
Editor’s note: This is the second in our series about Montana’s beef industry during the COVID-19 pandemic.
Last February, while the rest of the world curled up with a wool blanket and a good book, Montana cattle producers felt the second gut-punch to the market.
They had not yet recovered from the first market punch, an August fire at a Tyson processing plant in Holcomb, Kansas, that temporarily eliminated 6 percent of the U.S. processing capacity and dropped live cattle prices overnight.
They did not know it yet, but a third punch was looming on the horizon, in the form of a global pandemic.
Ranching is not supposed to feel like a heavyweight boxing match, but for the Becker family of Valier, a bloody nose and black eye might have been preferable to what beef industry economics threw their way.
Seth and Jennie Becker raise cattle and irrigated alfalfa.
As first generation ranchers, they hope their two sons–Henry, 5, and Paul, 3–and their infant daughter, Joanna, will run the ranch someday, but the economics of cattle in the past 12 months keep them awake at night, wondering if their hopes are possible.
Or fair to their children.
In February, an unexpected announcement from U.S. Secretary of Agriculture Sonny Perdue brought a sudden flood of fresh beef imported from Brazil.
The going price for cattle dropped between sunset and sunrise.
Perdue’s announcement was confusing because fresh beef imports from Brazil had been banned only two years earlier, after Brazilian inspectors had been paid to allow rotten, tainted beef into the U.S. and cover it up with cancer-causing chemicals.
This was after less than a year of allowing fresh Brazilian beef to come into the U.S. in the first place.
A little research points to the motivation behind opening the Brazilian fresh beef market in February.
It all revolves around the concentrated U.S. packing industry where the same packers have economic ties to Brazil and a strong profit motive, no country of origin labeling in the U.S., and global disease outbreaks.
The U.S and Brazil are the world’s biggest beef producers.
Brazil exports about $7.3 billion in fresh and processed beef each year.
Brazilian company JBS S.A. is the largest meat processing company in the world. JBS S.A. owns JBS USA.
Marfrig Global Foods, another Brazilian company, owns the majority of National Beef.
JBS USA and National Beef, along with Tyson and Cargill, make up the Big Four U.S. beef processors, together supplying more than 80 percent of beef across the nation.
Last year, Brazil had enough rain to support a growing supply of cattle; so domestic beef prices dropped.
The Brazilian currency was weak while the U.S. dollar was strong; so international companies could make money two ways, on both the product and the exchange rate.
Brazil regularly supplies China with beef, but expected to export much more beef to China in 2020 because African Swine Fever decimated China’s domestic pork industry.
Instead, COVID-19 shut down trade and transportation
Fresh beef doesn’t last long.
Potentially tainted, unlabeled beef came to U.S. grocery stores.
Country of Origin Labeling is voluntary in the U.S. and international processors have no reason to provide information that might deter purchases; so consumers have no way to identify where beef had originated.
Then, in late January, Covid-19 was identified in the U.S.
On March 13, President Trump declared a national emergency.
Consumers were no longer able to treat themselves to a juicy steak at their favorite local diner; so they began cooking at home or ordering take-out.
Grocery stores took up the slack of demand from restaurants.
Meat processing plants became hot spots where the virus spread rapidly.
Then they closed to revamp their health safety systems.
Beef prices climbed even higher and grocery shelves emptied.
By the third week of April, people worried about a shortage and began to stock up.
Demand for beef increased 44 percent.
Still, cattle that were scheduled to be slaughtered remained on feed at feedlots.
Unlike hogs that need to become bacon exactly when they are ready, cattle offer some flexibility on the timing of slaughter. They do not become overfat overnight, like hogs, but their feed costs rise because they need to be fed every day while they wait in line.
Even before COVID-19 hit the U.S., processors were enjoying a profitable market.
National Provisioner, an industry organization, surveyed 32 processing plants in February.
Fourteen plants noted that 2019 was a good year, while seven called it the best year ever.
Nineteen plant managers expected 2020 to be even better.
Savvy managers spent some cash to improve worker sanitation conditions so plants could continue to operate.
They had the cash to spend.
The difference between live cattle prices and boxed beef that is shipped to grocery stores (in other words, the money processors earn by slaughtering and cutting cattle into beef )hit record highs by mid-May.
The average spread between live cattle prices and boxed beef from 2016-2018 was just under $21.
After the Holcomb fire, the spread topped $66.
By the second week of May, that spread was $279.
Meanwhile, cow-calf ranchers were losing the shirts off their backs.
Harsh Montana winters discourage many ranchers from feeding cattle a moment longer than necessary.
Cattle need more feed when the temperatures drop, and they do not grow efficiently in cold weather, expending more energy to stay warm with less to allocate to growing bones and muscles.
The most common financing structure within the beef industry discourages producers from owning calves after fall weaning, too.
Many livestock producers carry both a mortgage on the land and an annual operating loan that must be paid off each fall.
The calves pay for those loans.
The Beckers have more flexibility to respond to markets than many Montana ranchers because they raise more alfalfa than they need to feed their cattle herd.
Normally, they sell the extra hay.
Seth can either sell his weaned calves in the fall or keep them through the winter and hope the market rises high enough to pay for the added winter feed expenses and earn a little more cash.
Last October, Seth chose to keep his calves, feed them all winter, and sell them in March, the typical seasonal high market for yearling calves.
By March, COVID-19 not only erased a bump in the seasonal market, but sent prices plunging.
Any hope of making money by holding calves over the winter dissolved into thin air.
A survey of beef producers by Northwest Farm Credit Services, a premier agricultural lender, revealed that the most efficient ranchers need each cow to return $800 to $1,100 each year, either by selling the calf she raised or, if she did not raise a calf, by going to the sale herself.
Many ranchers have a higher break-even cost.
By April, yearling calves were bringing about $800 and cull cows were bringing around $600.
As prices plunged, bankruptcies and suicides skyrocketed.
The American Farm Bureau Federation (AFBF) conducts an annual survey of bankruptcies across the nation.
In 2019, farm bankruptcies increased 23 percent over 2018. So far, in 2020, bankruptcy filings are up 8 percent over 2019 rates.
In the Northwest region, including Montana, filings are up 70 percent, according to AFBF.
Since 1980, 41 percent of U.S. cattle producers have gone out of business, according to the Organization for Competitive Markets (OCM).
By August, beef processors nationwide were back up to speed, declaring they were sending beef out the door at normal capacity.
Grocery store beef prices have yet to drop back to pre-Covid-19 prices.
The unwritten Code of the West demands fair play.
When ranchers felt the sting of a concentrated market gouging them, that sense of justice motivated many to create their own market.
Ads on Craigslist, Facebook, Instagram, and other social media teemed with offers of beef marketed directly to Montana families.
The Beckers teamed with two friends to turn their cull cows into ground beef.
The friends priced their beef reasonably so each ranch would break even and their customers would enjoy local beef at a competitive price.
With a little added investment in processing, a $600 cull cow became worth $800 while the cost of hamburger dropped from $8 per pound to $4.50 for local families.
Jenny Becker advertised on Facebook, and the friends were soon sold out.
The limiting factor for this enterprise was meat
Across the state, small, independent processors worked as long and hard as they could, just to keep up.
Typically, a processor plans a couple weeks to a month ahead, but by June some processors were scheduling kill dates for six or eight months into the future.
Not long after that, the Montana Department of Agriculture stepped in to protect consumers from food shortages and help producers stay in business.
The department announced grants for producers and processors who wanted to increase processing capacity and demand for Montana meat products.
Processors across Montana were awarded $1.2 million to improve equipment, storage facilities, and other infrastructure.
The Ag Department also awarded more than $530,000 to Montana farmers and ranchers to access new markets and expand opportunities to sell food locally.
Then the federal government came to the table with the Coronavirus Food Assistance Program (CFAP) for farmers and ranchers across the nation. Cattle, sheep, wool, and other commodities that suffered at least a 5 percent decline in commodity prices because of the pandemic qualified for grant payments.
The U.S. Department of Agriculture budgeted $16 billion in direct support through the CFAP.
Montana cattle producers stood up again, throwing their own punches, ready for another round.
And Henry, Paul, and Joanna Becker just might have a chance to run their ranch in a few years.
Lisa Schmidt raises grass-fed beef and lamb at the Graham Ranch near Conrad. She can be reached at L.Schmidt@a-land-of-grass-ranch.com.