Text and Photos by Lisa Schmidt

In Montana, cattle outnumber humans 2.5 to 1. So when beef prices skyrocketed in April, beef eaters were stunned.

Cow-calf producers were not.

By New Year’s Day, they already had been battered by national policy and international trade. When COVID-19 shut down processors and restaurants, it was just another day on the range for many.

Except, that one additional sucker punch could wipe generations from the land.

The economics of ranching have never provided big profit margins, but three within eight months knocked a wobbly industry right between the eyes.

Worst of all, while consumers ranted about high beef prices, ranchers watched the live cattle market plummet far below the
plummet far below the break-even line.

Most Montana ranchers did not profit from record beef prices.

Beef’s trail from pasture to plate is longer than the Chisholm Trail from Texas to Abilene, Kansas.

Weather creates switchbacks, but policy, politics, packer concentration, and international trade add steep inclines for cow-calf producers, feedlot owners, and consumers.

Most Montana-native calves only spend their first nine months of life in the Big Sky State.

Then, often, they are sold and travel by semi-truck to a feedlot in Nebraska or Kansas. For the next year or so, they eat an increasingly high-carbohydrate diet until they reach optimal weight and are sold to a processing company.

Yet, a cow is usually two years old when she has her first calf; so the rancher has already invested heavily by the time her calf walks onto a semi.

The common ranching business model is not conducive to rapidly changing societal circumstances.

Ranchers in Montana typically plan their inventory at least three years out, guessing at potential conditions and hoping for improving trends.

Fixed business expenses such as land rental or mortgage, labor, equipment, and loan interest do not fluctuate.

Skimpy profit margins mean many ranchers carry large debt.

Many have a backup plan to reduce livestock numbers in case of drought, but most are less than nimble reactors to sudden black-swan events.

Fire, sudden international policy shifts, and a contagious virus all qualify as black swan events.

Strike One

Steaks, ground beef, roasts, and every other beef cut on the local grocery shelf probably came from one of four processing companies.

Cargill Meat Solutions, Tyson Foods, National Beef, and JBS USA control more than 85 percent of the meat processing market in the United States. Those same companies operate throughout the world.

On the Friday evening of August 9, 2019, a fire at Tyson’s Holcomb, Kansas beef packing plant erupted.

The fire burned the plant to the ground, eliminating processing capacity for 6,000 beef a day, almost 6 percent of the total U.S. capacity.

By the end of the week, beef prices soared. The difference between what cattle producers were being paid for live cattle ready to be slaughtered and the boxed beef that processors sold to grocery stores and restaurants hit then-record highs.

Other processing plants quickly picked up the slack by working on Saturdays, yet prices remained close to record highs.

After all, grocery stores had orders in for Labor Day promotions and beef demand for the holiday was rising.

By December, the Holcomb plant was up and running again. Grocery prices never dropped to pre-fire values.

No one knew why prices for boxed beef remained high while live cattle prices plummeted. So many livestock producers called their congressional delegation to complain that the Feds agreed to investigate.

“The purpose of the investigation is to examine whether any regulated entities violated the Packers and Stockyards Act by taking advantage of the situation through price manipulation, collusion, restrictions of competition, or other unfair practices,” wrote the author of a preliminary report released by the U.S. Department of Agriculture Agricultural Marketing Service (USDA AMS) on July 22, 2020.

The Packers and Stockyards Act was passed in 1921, after President Woodrow Wilson ordered an investigation of packer concentration.

The act worked.

In 1976, the four biggest processors controlled only 25 percent of the market.

Then several court decisions limited the reach of the Packers and Stockyards Act, allowing private contracts and further packer concentration.

Although the USDA AMS collects data for negotiated prices each week in an effort to maintain a transparent market, at least 40 percent of U.S. beef is sold under contract. Buyers and sellers are not required to publish those contracted prices.

According to the Organization for Competitive Markets: “Meatpackers supply their slaughterhouses with a combination of cattle they buy at auctions, cattle they already own, and cattle secured with contracts with feedlots or producers, known as captive supply arrangements. In captive supply arrangements, beef producers or feedlots enter marketing agreements to deliver cattle to meatpackers in the future. Often, the agreement terms allow meatpackers to lower the agreed-upon price when the cattle are delivered.”.

Without a transparent market, collusion and price manipulation could be simple.

“Findings thus far do not preclude the possibility that individual entities or groups of entities violated the Packers and Stockyards Act during the aftermath of the Tyson Holcomb fire and the COVID-19 pandemic. The investigation into potential violations under the Packers and Stockyards Act is continuing,” reads the USDA AMS preliminary report.

The fire at the Holcomb plant did not create weakness within the beef industry; it only highlighted weaknesses that come with concentration and murky markets.

International fresh beef import regulations and COVID-19 were about to highlight those same weaknesses again.

For Part 2 of this series, pick up the next issue of Treasure State Lifestyles.

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