Pandemic and alleged price fixing leave ranchers on hold

FAR WEST TEXAS — The cattle industry runs on supply and demand, as Bobby McKnight, president of the Texas and Southwestern Cattle Raisers Association, likes to point out. And right now is no different, even as the coronavirus pandemic and a controversy in the cattle world plunges some ranchers into uncertainty.

Ranchers are still waiting to see how the coronavirus pandemic and subsequent lockdowns will affect demand — especially in exports to places like China, which, before the pandemic, many ranchers expected to become a big new consumer base.

McKnight says exports to the world’s second-biggest economy are still slowly increasing but said that ranchers are taking things day-by-day as coronavirus upends global economies and business-as-usual politics. “What happens tomorrow, I wouldn’t even begin to guess,” he said.

Meanwhile, a price-fixing scandal is blooming in the ranching world. Texas Agriculture Commissioner Sid Miller, along with the attorneys general of at least 10 states, are investigating what they say is possible price fixing at packing plants. The USDA is also probing the matter.

It remains to be seen how the investigation will end, but Commissioner Miller is adamant that packing houses are ripping off ranchers.

“It’s got to stop,” he told The Big Bend Sentinel in an interview this week. “[Packing houses] have been doing it forever, and we’ve got to do something about it.”

Beef exports have always been a major part of the cattle industry. American consumers, after all, account for just around 4 percent of the global population — another fact that TSCRA President McKnight often mentions.

China had banned American beef exports for almost two decades, ostensibly over concerns about “mad cow” disease. But earlier this year, American ranchers were excited after the United States and China approved a deal to allow beef exports, as The Big Bend Sentinel previously reported.

 

In his interview this week, McKnight seemed confident that those markets will remain steady — noting that exports were “very good” before the coronavirus crisis and that the U.S. ranchers still have “a good supply of beef cattle.” So far, the data supports that conclusion.

Even during the crisis, global demand for U.S. beef has stayed “very resilient,” said Joe Schuele, vice president of the U.S. Meat Export Federation. Still, he stressed that first-quarter data didn’t show the effects of temporary plant closures and that there will likely be “a bit of a slowdown” in exports. That is “because of supply challenges,” he said, and “not lack of demand.”

It isn’t just exports, though. Around 85 percent of U.S. beef is consumed domestically, Schuele said — and that market has taken more of a beating.

Around half of domestic beef sales go to restaurants, McKnight said — and “the demand is gone.” He said some of the losses are “absorbed through consumers cooking at home” but added that coronavirus has left a “big hit on the restaurant business” that “we’re feeling all the way back out here in the country.”

Another concern is weather. Much of Far West Texas is under “abnormally dry” weather, according to the United States Drought Monitor at the University of Nebraska-Lincoln, with patches of the state even facing “extreme drought.”

“It’s dry,” McKnight concurred. But as with the other challenges facing the cattle industry, he is taking a wait-and-see perspective.

“July, August and September are critical,” he said. “If we can get wet in those months, it’ll carry us a long time.”

Arguably the biggest challenge facing ranchers right now is a traffic jam at packing houses. With too many cows and not enough processing power, packing plants have lowered their payments to ranchers.

McKnight described the problem as “a lot of product trying to fit through an hourglass.” There has been a “price shock” for ranchers, he said, as cattle hit a “bottleneck” in processing.

That bottleneck is what Texas Agriculture Commissioner Sid Miller, authorities and multiple states are now investigating. Earlier this month, Miller sent letters to both Texas AG Ken Paxton and U.S. AG William Barr, asking them to investigate.

In his letter to Barr, Miller noted that while “feed and fuel prices are down” and farmers and ranchers “are facing financial devastation,” beef prices at stores “remain high and our nation’s cattle producers are not sharing in the profits.”

“Something just doesn’t add up,” Miller wrote, “and I am not just referring to the present difficulties caused by the COVID-19 virus.”

In an interview this week, Miller said that just four packing houses dominate the U.S. beef market and thus have outsized control over ranchers. Last summer, packing plants also lowered their price offers to ranchers after a Tyson factory was damaged by a fire — a move that prompted the USDA’s initial investigation.

Miller, who is himself a rancher, said the lower prices have been devastating for the cattle industry. “When a packer buys [cattle] from me, I’m losing $300 to $400 a head,” he said. “They make $2000 a head. Basically, the consumer’s getting ripped off and agriculture’s getting ripped off.”

When asked whether a backup at plants (and not outright price fixing) could be causing the lower payouts, Miller said it is “probably both.” But he said there should be regulations preventing packing houses from owning their own cattle, which he said contributed to the supply glut and gave packing houses too much leverage.

Otherwise, he said, there would be no way to keep packing houses from undercutting cattle producers.

Packing houses “don’t have much incentive to get the production back up,” he added. “They’ll stretch this thing out as long as they can.”

When asked about the legal controversies, McKnight demurred, saying he preferred to let the investigations run their course before passing judgement.

“Personally, I can’t speak to it,” he said. “We’ll wait and see what’s going on, and we’ll make our judgement then.” Still, he stressed that audits and investigations of the situation are “a healthy thing.”

For McKnight, though, it all comes back to supply and demand. “It’s the nature of our business,” he said. “We see shocks all the time, whether weather-related or market issues. We don’t enjoy them — but we will get through them.”

“I’m always trying to look for a silver lining,” McKnight added. And if there is one, it is that empty shelves and other disruptions have given American consumers a sense of the importance of food-supply chains.

“If there’s one positive from this whole pandemic, it’s the awareness that it’s raised across the country — and really across the globe — of how important agriculture is,” he said. “I think for the first time, consumers are looking up and saying, ‘Ag is important.’”


 
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