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Investigation into Market Collapse

The Packers and Stockyards Administration will extend their cattle pricing investigation to now include beef and cattle pricing activity during the COVID-19 pandemic. Finished cattle are worth about $300 per head less than the market indicated they should be this spring.
Photo by Kristen Schurr

In an April 8 tweet, U.S. Secretary of Agriculture Sonny Perdue announced that the Packers and Stockyards Administration would be investigating beef and cattle pricing activity during the COVID-19 pandemic.

“@USDA’s Packers and Stockyards Division will be extending our oversight to determine the causes of divergence between box and live beef prices, beginning with the Holcomb Fire in KS last summer and now with COVID-19,” was the secretary’s tweet.

North Dakota Stockmen’s Association Executive Julie Ellingson said her organization has been diligently seeking results from the Holcomb, Kan., fire investigation and will now be looking forward with anticipation to the results of the additional inquiry.

“We’ve been calling (PSA) consistently to see what they’re coming up with,” she said.


The industry has supported a closer look into the “incredible market situations” and the “terrible situation” that livestock producers are in, not only last summer and fall, but more recently, too, she said.

R-CALF USA Region VII director and cattle feeder from Moville, Iowa, Eric Nelson, is also cautiously optimistic that the investigation will turn up something useful.

“It’s great that they are doing that but here we are eight months after the Holcomb fire, and… nothing,” he said, regarding the investigation that PSA is conducting to determine if illegal anticompetitive buying and selling took place immediately following the beef plant fire in Kansas in August of 2019.

“So they are going to start another investigation now, hopefully they don’t kick the can down the road eight more months.”

Nelson said the cattle feeding economic situation has been dire for months if not years. While he normally feeds around 2,500 head of cattle, he only bought about half that many through the summer and fall of 2019 because he couldn’t pencil a profit on most feeder cattle offered for sale. Even while cow-calf producers were selling calves in a troubled market, the low calf prices weren’t low enough to create a profit situation.

Most of the cattle he buys come from Montana — he made the difficult decision not to purchase a set of calves from one ranch who he’s bought from for 35 years straight.

“There are a lot of cattle that at best will be break even, if they are hedged,” he said of cattle currently in finishing lots. Nelson said feeders marketing finished cattle right now — the market as of April 9 was about $104 per hundredweight — that aren’t hedged will likely not be able to pay any of the feed bill, and will be fortunate to pay off the cattle loan with the money they receive for their fat cattle.”

The value of a finished steer in early January was about $124 per hundredweight, and was expected to climb to around $130 by April or May.

The current market environment equates to $300 less per critter that feeders will get, than they were expecting three months ago.

TRUE VALUE

Nelson’s Montana salebarn contact told him mostly corporate feeders are buying cattle now, and it’s Nelson’s belief that certain of those feeders are able to keep their heads above water because of bonus payments they receive from the packers.

Nelson understands that the bonus payments are often made to certain of the bigger feeders to secure a steady supply of cattle and prevent the packers from having to deal in the cash market. These payments may not be reflected in USDA pricing reports. Nelson pointed out that with only one or two corporate feeders bidding on calves, the true value of the calves may not be realized.

Ellingson hopes a PSA investigation will shed some light on items that need to be worked on, she said, realizing that the investigation is just one tool for the industry to use as it seeks answers.

“We hope that this can shine a bright light on whether or not there was any illegal activity and whether there are gaps in the system. We know the whole marketing issue and price discovery is an incredible topic we’ve all been grappling with,” she said, adding that she hopes a PSA report could help identify areas of improvement to help fortify the cattle business in the state and country.

Some groups, including the Nebraska Cattlemen’s Association are calling for a Department of Justice investigation into “fraudulent business practices within the beef meatpacking industry” in addition to the PSA investigation.

Groups are also discussing how best to utilize the $9.5 billion allocated to agriculture through the Coronavirus Aid, Relief and Economic Security Act.

President Trump tweeted April 9, “@realDonaldTrump; I have directed @SecretarySonny to expedite help to our farmers, especially to the smaller farmers who are hurting right now. I expect Secretary Purdue to use all of the funds and authorities at his disposal to make sure that our food supply is stable, strong, and safe….We will always be there for our Great Farmers, Cattlemen, Ranchers, and Producers!”

The NDSA published a news release with several bulleted ideas for USDA to consider when determining how to distribute the $9.5 billion directed to farmers and ranchers in the CARES Act.

They asked that the packing segment of the industry not receive any relief funds, but that all other segments be considered, as long as they are within the United States. No foreign entities should receive payments. Ellingson said they particularly wanted to be sure that cow-calf producers weren’t lost in the shuffle, as many of them won’t be marketing significant numbers of cattle until this fall or later.

“Those losses are still ahead,” she said of cattle producers.

The subsidy program should not encourage inefficiencies or overproduction, NDSA said. ❖




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