Record Beef Prices, but Ranchers Aren’t Cashing In
By Peter S. Goodman December 29, 2021
Photographs by Erin Schaff
“You’re feeding America and going broke doing it”: After years of consolidation, four companies dominate the meatpacking industry, while many ranchers are barely hanging on.
Steve Charter on his 8,000-acre ranch on the high plains of Montana. Credit…Erin Schaff/The New York Times
SHEPHERD, Montana — Judging from the prices at supermarkets and restaurants, this would appear to be a lucrative moment for cattle ranchers like Steve Charter.
America is consuming more beef than ever, while prices have climbed by one-fifth over the past year — a primary driver for the growing alarm over inflation.
But somewhere between American dinner plates and his 8,000-acre ranch on the high plains of Montana, Mr. Charter’s share of the $66 billion beef cattle industry has gone missing.
A third-generation cattle rancher, Mr. Charter, 69, is accustomed to working seven days a week, 365 days a year — in winter temperatures descending to minus 40, and in summer swelter reaching 110 degrees.
On a recent morning, he rumbled up a snow-crusted dirt road in his feed truck, delivering a mixture of grains to his herd of mother cows and calves. They roam a landscape that seems unbounded — grassland dotted by sagebrush, the horizons stretching beyond distant buttes.
Mr. Charter has long imagined his six grandchildren continuing his way of life. But with no profits in five years, he is pondering the fate that has befallen more than half a million other American ranchers in recent decades: selling off his herd.
“We are contemplating getting out,” Mr. Charter said, his voice catching as he choked back tears. “We are not getting our share of the consumer dollars.”
The distress of American cattle ranchers represents the underside of the staggering winnings harvested by the conglomerates that dominate the meatpacking industry — Tyson Foods and Cargill, plus a pair of companies controlled by Brazilian corporate owners, National Beef Packing Company and JBS.
Since the 1980s, the four largest meatpackers have used a wave of mergers to increase their share of the market from 36 percent to 85 percent, according to the U.S. Department of Agriculture.
Their dominance has allowed them to extinguish competition and dictate prices, exploiting how federal authorities have weakened the enforcement of laws enacted a century ago to tame the excesses of the Robber Barons, say antitrust experts and advocates for the ranchers.
One landmark piece of legislation, the Packers & Stockyards Act of 1921, was adopted by Congress to “safeguard farmers and ranchers” — among other market participants — from “unjustly discriminatory and monopolistic practices.”
Understand the Supply Chain Crisis
- The Origins of the Crisis: The pandemic created worldwide economic turmoil. We broke down how it happened.
- Explaining the Shortages: Why is this happening? When will it end? Here are some answers to your questions.
- Gifts Arrive on Time: Fears that a disrupted supply chain could wreak havoc on the holidays turned out to be wrong. Here’s why.
- Car Shortages: The limited supply of vehicles is forcing some to go to great lengths to find them, including traveling hundreds of miles.
- A Key Factor in Inflation: In the U.S., inflation is hitting its highest level in decades. Supply chain issues play a big role.
Today’s record high beef prices are most directly reflective of scarce stocks, another manifestation of the Great Supply Chain Disruption accompanying the pandemic. The initial spread of the coronavirus swept through slaughterhouses, killing scores of workers, sickening thousands and halting production. That caused shortages of beef.
But the shock landed atop decades of takeovers that closed slaughterhouses. The basic laws of economics suggest what happens when the packers cut their capacity to process beef: The supply is reduced, increasing consumer prices. At the same time, fewer slaughterhouses limits the demand for live cattle, lowering prices paid to ranchers for their animals — an advantage for the packers.
“Their goal is to control the market so that they can control the price,” said Marion Nestle, a professor of food studies and public health at New York University. “The pandemic exposed the consequences of the consolidation of the meat industry.”
The packers — now confronting a push from the Biden administration to revive antitrust enforcement — maintain that the attention on consolidation is misguided.
JBS, the largest meatpacker in the United States, declined to discuss the impact of consolidation on the market, instead referring questions to a Washington lobbying organization, the North American Meat Institute.
“Concentration has nothing to do with price,” said a spokeswoman for the organization, Sarah Little. “The cattle and beef markets are dynamic.”
As slaughterhouses work through a glut of live cattle, ranchers have in recent weeks received rising prices for their animals, she added.
Cassandra Fish, a former senior executive at Tyson who now runs a beef industry consultancy, said the shuttering of slaughterhouses by meatpackers in recent decades was prompted by the simple fact that many were losing money.
“The packers are not masterminds,” she said. “The packing industry was unprofitable for several years, so they closed plants.”
But ranchers complain that the game is rigged.
They generally raise calves, allowing them to roam across grassland until they are big enough to be sold to so-called feed lots that administer grains to bring them to slaughtering weight. The feed lots — the largest concentrated in Texas, Nebraska, Kansas and Colorado — then sell their animals to the packers.
Because the feed lots face relentless pressure from the packers for lower prices, they in turn demand cut-rate terms from the ranchers.
“A lot of people don’t understand how trapped ranchers are in this really broken system,” said Jeanie Alderson, whose family has run cattle in southeastern Montana for more than a century. “We don’t have a market.”
Billions for Meatpackers
Many of the cattle raised in Montana are eventually hauled to slaughterhouses run by JBS, the world’s largest meat processor.
The two brothers who control the enterprise, Wesley and Joesley Batista, possess a fortune estimated by Bloomberg News at $5.8 billion. Four years ago, they went to prison after pleading guilty to participation in a Brazilian bribery ring that secured loans from government-owned banks. (They have since been released.) A $20 billion international acquisition spree put JBS in control of one-fourth of the American capacity for slaughtering beef.
While ranchers have been tallying losses, JBS has been celebrating gains — revenues of $18 billion between July and September, which represented an increase of 32 percent compared with the same quarter in 2020.
In past decades, when beef prices rose, so would payments to cattle ranchers, who claimed over half of what consumers paid for meat. But that relationship began to break down in 2015. Last year, cattle ranchers received only 37 cents on every dollar spent on beef, according to federal data.
“You’re having consumers exploited on one end of the supply chain, cattle producers exploited on the other,” said Bill Bullard, a former rancher who now heads an advocacy group, the Ranchers-Cattlemen Action Legal Fund. “The meatpackers are making all-time record profits.”
His organization is a plaintiff in a class-action lawsuit that accuses meatpackers of manipulating prices by sharply reducing their purchases of cattle at so-called sale barns — open marketplaces where animals are inspected and purchased on the spot, with the prices disclosed publicly.
Instead, the packers now overwhelmingly rely on private contracts with feed lots. Those contracts provide the feed lots with certainty that the packers will buy their animals. In exchange, the feed lots must lock into a price structure that tracks those in public auctions, where buyers are scarce.
According to industry experts, this system allows packers to lock up the overwhelming supply of cattle at prices they impose, under terms hidden from public view. Given the market dominance of the four largest packers in their regions, feed lots lack alternative places to sell their animals once they reach slaughtering weight.
“There’s no competition,” said Ty Thompson, an auctioneer at the public auction yards in Billings, Mont., who also operates his own feed lots. “We have so much supply and so little capacity, that there’s no negotiation whatsoever.”
Losing the Family Legacy
In the rolling hill country of northern Missouri — a tableau of grain farms dotted by compact towns — Coy Young, a fifth-generation rancher, has concluded that raising cattle is pointless.
“You’re feeding America and going broke doing it,” he said. “It doesn’t pencil out to raise cattle in this country anymore.”
How the Supply Chain Crisis Unfolded
Card 1 of 9
The pandemic sparked the problem. The highly intricate and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the outbreak of Covid-19, which triggered an economic slowdown, mass layoffs and a halt to production. Here’s what happened next:
A reduction in shipping. With fewer goods being made and fewer people with paychecks to spend at the start of the pandemic, manufacturers and shipping companies assumed that demand would drop sharply. But that proved to be a mistake, as demand for some items would surge.
Demand for protective gear spiked. In early 2020, the entire planet suddenly needed surgical masks and gowns. Most of these goods were made in China. As Chinese factories ramped up production, cargo vessels began delivering gear around the globe.
Then, a shipping container shortage. Shipping containers piled up in many parts of the world after they were emptied. The result was a shortage of containers in the one country that needed them the most: China, where factories would begin pumping out goods in record volumes
Demand for durable goods increased. The pandemic shifted Americans’ spending from eating out and attending events to office furniture, electronics and kitchen appliances – mostly purchased online. The spending was also encouraged by government stimulus programs.
Strained supply chains. Factory goods swiftly overwhelmed U.S. ports. Swelling orders further outstripped the availability of shipping containers, and the cost of shipping a container from Shanghai to Los Angeles skyrocketed tenfold.
Labor shortages. Businesses across the economy, meanwhile, struggled to hire workers, including the truck drivers needed to haul cargo to warehouses. Even as employers resorted to lifting wages, labor shortages persisted, worsening the scarcity of goods.
Component shortages. Shortages of one thing turned into shortages of others. A dearth of computer chips, for example, forced major automakers to slash production, while even delaying the manufacture of medical devices.
A lasting problem. Businesses and consumers reacted to shortages by ordering earlier and extra, especially ahead of the holidays, but that has placed more strain on the system. These issues are a key factor in rising inflation and are likely to last for months — if not longer.
Mr. Young, 38, carries credit card debts reaching $55,000. He plowed most of that debt into artificial insemination technology aimed at producing premium breeding cows.
His payoff was supposed to come early last year, with a sale that Mr. Young anticipated would fetch $125,000. But the day that he trucked his herd to a nearby auction, panic over the pandemic assailed markets. Traders in Chicago pushed down the price of live cattle by more than 10 percent. Mr. Young received a bid of only $32,000.
It was a crushing blow, a price that seemed certain to trigger his financial unraveling. Still, he had no choice but to take it. Cattle are perishable goods. Holding on to them after they reach slaughtering weight entails the costs of feeding them. They begin to add more fat than muscle.
A week later, the bank began calling Mr. Young demanding repayment. Sinking into despondency, he waited for his wife to drive to her nursing job — their means of paying the bills. He planned to kill himself, he said. When she pulled back into the driveway, having forgotten something, he reconsidered.
“You put your heart and soul into something, and then you lose your ass,” he said. “You don’t see any other way out.”
He plans to sell off his herd early next year and start a barbecue catering business.
“You’re raised a farmer, and that’s what you’re supposed to do,” he said. “It’s my family legacy. It’s like I’m losing my image as a man.”
What Gets Lost
Ever since the Reagan administration, the federal government has taken a lax approach to antitrust enforcement, investing in the popular notion that when large and efficient companies are permitted to amass greater scale, consumers benefit.
That notion may now be up for readjustment.
The Biden administration and members of Congress are pressing to diminish the dominance of the meatpackers as inflation concerns intensify.
The Federal Trade Commission last month opened an inquiry into how anticompetitive practices by major companies have contributed to supply chain problems.
“The meat price increases we are seeing are not just the natural consequences of supply and demand,” senior White House economists recently declared in a blog post. “They are also the result of corporate decisions to take advantage of their market power in an uncompetitive market, to the detriment of consumers, farmers and ranchers, and our economy.”
Last year, as the pandemic began, the Charter family recognized a full-on market failure.
“You could see a cow across the road, and you couldn’t find ground beef in Billings, Montana,” said Mr. Charter’s daughter, Annika Charter-Williams, 34.
As they made arrangements to sell about 120 head of cattle in March 2020, they reached out to a friend who owns a feed lot that sells animals to a JBS plant in Utah.
Mr. Charter was taken aback by the terms for the first load: The slaughterhouse demanded that he commit to delivering his cattle, with the price to be dictated by JBS.
“I wanted to tell him to go to hell,” Mr. Charter says. “But what choice did I have?”
His break-even point was $1.30 a pound. “Without any consulting or any dealing, they just decided that they were going to pay me $1 a pound,” he said.
His daughter took the disaster as the impetus for creativity. She engaged a small, local slaughterhouse to process some of their remaining animals. Then she sold the beef directly to consumers across Montana, marketing it on social media.
This resonated as a triumph — the successful sidestepping of the packers.
It was also not enough.
“It looks like we’re going to have to liquidate almost all the cattle,” Mr. Charter said.
When family ranches like his disappear, he added, so do the values that have governed their operations for generations — a commitment to caring for land and producing quality beef, rather than catering exclusively to the bottom line.
“People shouldn’t be worried about us because we’re kind of quaint and it’s nice to have the cowboys out there,” Mr. Charter said. “We need a food system that serves everyone, and not just a handful of companies.”
Peter S. Goodman is a global economics correspondent, based in New York. He was previously London-based European economics correspondent and national economics correspondent during the Great Recession. He has also worked at The Washington Post as Shanghai bureau chief.