BUFFALO — This spring, some 42,000 calves will be born on Johnson County ranches. Despite the long hours and late nights, calving season is typically the season most filled with hope and promise for cattle ranchers.
But this year, there is also significant anxiety as COVID-19 has rocked cattle markets, highlighting the disparity between the prices paid to producers and meatpackers.
“For sure, they’re not break-even now,” said Jackie Benton, who ranches with her husband, Tyler, and parents, Wayne and Jan Nelson, of this spring’s calf crop. “Still, you try to save all of them you can. It’s a scary time to be a cattle rancher right now.”
Ranchers are used to uncertainty, said Jim Magagna, Wyoming Stock Growers Association Executive Vice President, but on the heels of what was a break-even year for most ranchers, this year could prove to be their undoing.
“Cattle producers are used to break-even years,” Magagna said. “But if you have a break-even year followed by a big loss year, which this could be, it will be difficult for some of our producers to withstand.”
Since January, live feeder cattle prices have tracked well below the five-year average, dipping to $110 per hundredweight in March – $25 per hundredweight below the five-year average. And while most Wyoming ranchers are not trying to sell feeder cattle this spring, the price of feeder cattle has a direct impact on what feedlot operators will be willing to pay for calves this fall.
“We chatted with the feedlot guy we send our calves to,” Benton said. “He said the market is so volatile right now, he can’t even give us a ballpark of what prices will be this fall. We normally contract our calves in July or August, and we asked him if he’d be calling us in July, and he didn’t really answer. He’s hoping to stay afloat too.”
But for anyone who has shopped for beef in a grocery store lately, it’s clear that someone is making a profit.
That’s because retail demand for beef – especially for less expensive cuts – spiked in March as people bought extra meat to put it in their freezers in anticipation of hunkering down.
Estimates from IRI Worldwide, a consultancy group that specializes in retail sales and consumer behavior, show that retail sales of beef for the week ending March 15 nearly doubled those from the same week last year. Boxed beef prices – the price paid for beef leaving the meatpacking plants – reacted as expected to the increased demand and shot up more than 25% in just one week. And retail prices followed suit.
According to the USDA retail beef report, for the week ending April 2, the average price nationally for 80-89% lean ground beef was $3.79; for the week ending April 9, that same pound of ground beef cost $4.96.
That’s not surprising to Magagna, just simple supply and demand. What defies explanation, according Magagna, Benton and a growing chorus of farm-state legislators is how at the same time that boxed beef prices are surging, live cattle prices are plummeting.
“I wish I understood the reasons more,” Magagna said. “What we saw happen over the last month was beef demand was very strong. Boxed beef prices – the price of the product leaving the processors – went up very significantly because of that demand. At the same time, the prices that producers were getting for going to market showed a real significant decline. It’s very disturbing to us.”
Benton said that the coronavirus pandemic has made clear to nearly every U.S. consumer what cattle ranchers have known for a long time:
“The packers are making record amounts of money right now. Everyone knows they’re making record amounts of money,” she said. “Also record numbers of smaller farmers and ranchers – people with under 2,000 head – are going into bankruptcy in record numbers.”
The coronavirus pandemic has exacerbated what was already a fraught relationship between cattle producers and meat packers.
The “Big Four” meat packers – Cargill Inc., Tyson Foods, JBS USA and National Beef – together control more than 80% of the nation’s beef supply. Meatpackers face growing scrutiny as farm-state lawmakers point to the large price disparity between live cattle and boxed beef.
The Sterling Beef Profit Tracker forecasts average profit margins for each component in the supply chain. For the week ending March 27, cash cattle prices were at $119.25 per hundredweight, resulting in average feedyard profits of $25 per head, according to Sterling. Using an average calculated beef cutout price of $253.61 per hundredweight, Sterling estimated average beef packer margins at $555 per head.
The packer/feeder cash margin spread for the week ending March 28 was $530 per head in favor of packers. A year ago, cattle feeders found cash profits of $150 per head the last week in March, while packers saw profits of $132 for a packer/feeder spread of $18 in favor of feeders.
Last week, Senate Finance Chairman Chuck Grassley told reporters that he wants the Trump administration to crack down on possible price-fixing by the Big Four.
Grassley said that the recent drop in cattle futures “may be understandable under normal situations, but this is happening as Americans bought 77% more meat in the month of March.”
Sen. Mike Rounds (R-S.D.) has also called for a federal investigation into allegations of antitrust violations by meatpackers and for Mandatory Country of Origin Labeling to be reinstated.
Benton isn’t sure what it will take to undo what many producers view as a monopoly that allows the Big Four to price fix, but reimplementing COOL would certainly help.
“Most ranchers are pretty conservative; we don’t want a whole lot of government in our life,” she said. “But it would sure be nice if the government could help out with that monopoly a little bit. I don’t know the solution to that, except that they really have a monopoly and now it’s in the spotlight.”
For more immediate help, Magagna said the Stockgrowers Association is lobbying to ensure that a portion of the $9.5 billion allocated as part of the Coronavirus Aid, Relief and Economic Security Act to provide financial support to farmers and ranchers impacted by coronavirus is directed to livestock producers.
“We’ve been in touch with the secretary of ag about really emphasizing the need for a significant portion of that to go to livestock producers,” Magagna said, adding that unlike crop producers who can enroll in various insurance programs, livestock producers do not have any support programs. “People on this end of the production chain need to be supported if they’re going to stay in business.”
Last week, Wyoming’s Sens. Mike Enzi and John Barrasso along with Rep. Liz Cheney cosigned a letter to U.S. Department of Agriculture Secretary Sonny Perdue requesting the swift assistance of the Coronavirus Aid, Relief and Economic Stabilization (CARES) Act.
That aid won’t bust up the Big Four or their ability to regulate markets by increasing or decreasing slaughtering, but Magagna said it will help the bottom line.
Benton said that maybe the fact that consumers can see with their own eyes that there is no direct connection between retail beef prices and what is paid to cattle producers will be enough to create some momentum for lawmakers to act.
“This isn’t new. This is something that ranchers have been saying forever,” Benton said. “People are noticing it more now because of the situation we’re in – ranchers have known it forever, but the rest of the world is getting to see it now.”