U.S. Beef-Pricing Probe Falls Short of Confirming Manipulation

(Bloomberg) -- A report by the U.S. Department of Agriculture on surging beef costs during the coronavirus pandemic avoided any conclusion on whether big meatpacking companies manipulated prices.

The agency documented wild beef gyrations in the first months of the pandemic and a dramatic increase in the share of the price captured by the highly concentrated meatpacking industry. The spread between what packers pay ranchers for cattle and receive for wholesale beef surged more than fourfold from early April to mid-May, reaching the highest in data back to 2001, the report found.

The price movements “do not preclude the possibility” that beef processors broke the law, the report said. The inquiry deferred any further conclusion, citing ongoing federal probes.

Small- and medium-sized ranchers and cattle producers “could also benefit” from revisions to laws designed to protect farmers from market manipulation, the USDA said. The report cited only modest tweaks to existing laws and government programs.

Soaring meat prices, shortages at grocery stories and reports of thousands of workers sickened in meatpacking plants focused public attention on packing industry. Taking center stage were long-standing complaints from farmers that a few big companies have a stranglehold on beef and poultry processing.

The controversy unfolded as President Donald Trump issued an executive order directing meat processing plants to remain open during the pandemic. Farmers are a crucial constituency in the November election.

The Justice Department has started a separate antitrust investigation, issuing subpoenas to the four biggest producers: Tyson Foods Inc., JBS SA, Cargill Inc. and National Beef Inc. They control more than two-thirds of all U.S. beef processing.

Agriculture Secretary Sonny Perdue ordered the USDA inquiry in April, expanding an existing probe into beef prices following a 2019 fire that temporarily shut down a Tyson plant in Kansas. In the aftermath, the spread between prices packers paid for cattle and wholesale beef surged to a then-record level for the week ended Aug. 24, more than doubling above the average margin for the same week during the prior three years, the report said.

The pandemic “clearly disrupted the markets and processing systems responsible for the production and sale of U.S. beef,” Perdue said in a statement. “We assure producers that our work continues in order to determine if there are any violations of the Packers and Stockyards Act. If any unfair practices are detected, we will take quick enforcement action.”

Senator Deb Fischer, a Nebraska Republican, said the USDA report “confirms our serious misgivings about the many factors that are working to destabilize the marketplace.” She plans to introduce legislation soon “aimed at providing equity and transparency for all market participants.”

The USDA “found no wrong-doing,” and “it is difficult to see how” new laws would have prevented the price surges following the pandemic and fire, Julie Anna Potts, chief executive officer of the North American Meat Institute, an industry trade group, said in a statement.

‘Widespread Collapse’

Republican and Democratic lawmakers have urged action. In May, 19 senators, many from agriculture states, asked the Justice Department to look into whether the companies are suppressing prices paid for cattle. They warned that market conditions may lead to the “widespread collapse” of the ranching industry and open the door to meatpackers to acquire cattle operations.

Meat-plant shutdowns in April and May sparked shortages at grocery stores, and Wendy’s Co. dropped burgers from some menus.

In total U.S. commercial cattle slaughter, the top four companies in 2018 had a market share of 71%, up from 57% in 1987, according to Steve Kay, editor of the trade publication Cattle Buyers Weekly

Senator Chuck Grassley, an Iowa Republican and longtime farmer, said the cattle market “is broken.”

“Years of rampant consolidation by meatpackers has led to unfair access for producers and easily-disrupted meat supply for consumers,” he said in a statement. “The ongoing pandemic has only intensified this reality.”

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