Meat prices are at record highs in the United States, but ranchers aren’t making money

Judging by prices in supermarkets and restaurants, this appears to be a lucrative time for ranchers like Steve Charter.

The United States is consuming more meat than ever, as prices have risen 20% in the last year — a key factor in the growing alarm over inflation.

But somewhere between American dinner plates and his 3,200-acre farm in the Montana highlands, Charter’s share of the $66 billion ($373 billion) beef industry has disappeared.

A third-generation rancher, Charter, 69, is used to working seven days a week, 365 days a year – in winter temperatures drop to minus 40ºC and in summer they reach 43ºC.

On a recent morning, he rode the snow-covered dirt road in the feed truck, offering a mixture of grain to his herd of cows and calves. They traverse a landscape that seems endless, pastures dotted with bushes, horizons stretching beyond distant hills.

Charter had long imagined that his six grandchildren would continue their way of life. Without making a profit for five years, however, he is evaluating the fate that has fallen to more than 500,000 American ranchers in recent decades: to sell the herd.

“We’re thinking about leaving,” said Charter, her voice tight as she held back tears. “We’re not getting our share of consumer dollars.”

The problem facing American cattlemen represents the downside of victories achieved by conglomerates that dominate the meat industry like Tyson Foods and Cargill, plus two companies controlled by Brazilian owners, National Beef Packing Co. and JBS.

Since the 1980s, the four biggest beef processors have used a wave of mergers to boost their market share from 36% to 85%, according to the US Department of Agriculture.

Their dominance has allowed them to extinguish competition and dictate prices, exploring how federal authorities have weakened enforcement of laws passed a century ago to curb the excesses of “robber barons,” according to antitrust experts and farmer advocates.

A landmark legal piece, the 1921 Processing and Corral Law, was passed by Congress to “protect farmers and ranchers” –among other market participants– from “unfairly discriminatory and monopolistic practices”.

The current record high in beef prices is more directly linked to low inventories, another manifestation of the massive supply chain disruption that accompanies the pandemic. The initial spread of the coronavirus swept the slaughterhouses, killing dozens of workers, making thousands sick and disrupting production, causing meat shortages.

But the shock came after decades of acquisitions that closed the slaughterhouses. The basic laws of economics suggest what happens when processors cut their ability to process meat: Supply is reduced, raising consumer prices. The reduction in the number of slaughterhouses limits the demand for live cattle, lowering the prices paid to ranchers for the animals – an advantage for the processors.

“Their goal is to control the market so they can control prices,” said Marion Nestle, professor of food and public health studies at New York University. “The pandemic exposed the consequences of the consolidation of the meat industry.”

Packers — facing support from the Biden government to revive antitrust enforcement — say attention to consolidation is misguided.

JBS, the largest US meat processor, declined to comment on the impact of the consolidation on the market, sending the questions to a Washington-based lobbying organization, the American Meat Institute.

“The concentration has nothing to do with the price,” said a spokeswoman for the organization, Sarah Little. “The cattle and meat markets are dynamic.”

But the creators complain that the game is being manipulated.

They generally raise the steers, allowing them to graze freely until they are big enough to be sold to so-called feedlots, or feedlots, which treat them with grain until they are heavy enough to be slaughtered. The feedlots –the largest are concentrated in Texas, Nebraska, Kansas and Colorado– sell the animals to processors.

As the feedlots face strong pressure from processors to lower prices, they demand better conditions from breeders.

“A lot of people don’t understand how ranchers are trapped in this really broken system,” said Jeanie Alderson, whose family has raised cattle in southeastern Montana for more than a century. “We don’t have a market.”

Billions for processors

Much of the cattle raised in Montana is taken to slaughterhouses run by JBS, the world’s largest meat processor.

The two brothers who control the company, Wesley and Joesley Batista, have a fortune estimated by Bloomberg News at US$5.8 billion (about R$33 billion). Four years ago, they were arrested after confessing to participating in a corruption scheme that secured them loans from government banks, and were released shortly thereafter. A $20 billion ($113 billion) acquisition spree has put JBS in control of a quarter of US cattle slaughtering capacity.

While the ranchers calculate the losses, JBS has accumulated victories – revenues of US$ 18 billion (R$ 101.9 billion) between July and September of this year, which represents an increase of 32% compared to the same quarter in 2020 .

In recent decades, when meat prices rose, so did payments to ranchers, who received about half of what consumers paid for meat. But that relationship began to change in 2015. Last year, farmers received just US$0.37 per dollar spent on meat, according to US data.

“We have exploited consumers at one end of the supply chain, exploited livestock producers at the other,” said Bill Bullard, a former rancher who now heads the US Cattle Raising Legal Action Fund. “Processors are having record earnings records.”

His organization is claiming a collective lawsuit that accuses processors of manipulating prices by sharply reducing their purchases of cattle at so-called barnyard auctions — open markets where animals are inspected and bought on site, with prices publicly disclosed.

Instead, processors today mostly rely on private contracts with feedlots. These contracts give the feedlots the certainty that the processors will buy their animals. In return, the feedlots must maintain a fixed price structure that follows those of public auctions, where there are few buyers.

According to industry experts, this system allows processors to secure the majority supply of cattle at prices they impose, under conditions hidden from public view. Given the predominance of the market of the four largest processors in their regions, the feedlots do not have alternative places to sell their animals when they reach slaughter weight.

“There is no competition,” said Ty Thompson, an auctioneer at public auction yards in Billings, Montana, who also operates his own feedlots. “We have so much supply and so little capacity that there is no negotiation.”

what is lost

Since the time of President Ronald Reagan (1981-1989), the US government has taken a moderate approach to antitrust enforcement, investing in the popular idea that when large, efficient companies are allowed to acquire scale, consumers gain.

This idea may be in need of an adaptation.

The Biden administration and lawmakers are pushing to ease the dominance of processors as concerns about inflation intensify.

The US Federal Trade Commission last month opened an inquiry into how anti-competitive practices by large companies have contributed to supply chain problems.

“The beef price increases we’re seeing are not just the natural consequences of supply and demand,” White House economists recently declared in a blog. “They are also the result of corporate decisions to take advantage of their power in an anti-competitive market, to the detriment of consumers, farmers and ranchers, and our economy.”

In 2020, when the pandemic began, the Charter family recognized a total market failure.
“You saw a cow across the street, but you couldn’t find ground beef in Billings, Montana,” said Charter’s daughter Annika Charter-Williams, 34.

When they decided to sell about 120 head of cattle in March 2020, they turned to a friend who has a feedlot that sells animals to a JBS plant in Utah.

Charter was disappointed with the conditions of the first load: the slaughterhouse demanded that he commit to delivering the cattle, at the price dictated by JBS.

“I wanted to send him to hell,” said Charter. “But I had no other option.”
His point of agreement was $1.30 per pound (R$7.45, or about R$15 a kilo). “Without any consultation or negotiation, they just decided they would pay me $1 a pound,” he said.

His daughter used the disaster as a creative inspiration. She got involved with a small local slaughterhouse to process some of the remaining animals. Then he sold the meat directly to consumers across Montana through social media.

That felt like a win — successfully bypassing the processors. But it wasn’t enough either. “It looks like we’re going to have to liquidate most of the cattle,” said Charter.

When family farms like his disappear, he added, so too do the values ​​that have governed their operations for generations — a commitment to taking care of the land and producing quality meat, rather than solely pursuing the end result.

“People shouldn’t worry about us because we’re kind of unusual, and it’s nice to see cowboys out there,” said Charter. “We need a food system that serves everyone, not just a handful of companies.”