Are meatpackers unfairly raising prices?

See Cattle Ranchers Take Aim at Meatpackers’ Dominance: Nebraska cattlemen plan to build their own butchering plant to bypass America’s meat-processing giants, which they say underpay for livestock by Patrick Thomas of The WSJ. Excerpts: 

"The average price for live cattle was up 5% in 2021 from 2019, according to figures from the Livestock Marketing Information Center and Agriculture Department, while the average price of boxed beef—cuts that packaging plants box to ship to retailers—was up 26%."

"Some cattlemen have pushed Washington to tighten antitrust rules for the four biggest meatpackers, JBS USA Holdings Inc., Tyson Foods Inc., Cargill Inc. and National Beef Packing Co. The four together process around 85% of the country’s cattle"

"Some officials at the big meatpackers said that because many processing plants remain short-staffed, they can’t buy and process as many cattle, reducing demand for livestock and pushing prices lower for ranchers and feedlot owners. Those factors are constraining production of ground beef, steaks and brisket, they said, while demand from grocery stores and reopening restaurants hasn’t let up, driving wholesale beef prices higher."

"The North American Meat Institute, a trade group representing meat companies big and small, said that the four major beef processors’ share of the cattle market has held steady for 25 years and that any effects from added processing plants will likely take years to materialize."

"Cattlemen have tried to create their own plants before, but few have been successful, said Bill Rupp, a Sustainable Beef board member and former consultant at a firm that helped set up such ventures. New plants often struggle to keep costs low, he said, because they don’t have the economies of scale to price their meat competitively with the big four."

"Some economists say cattlemen have shared responsibility for sliding livestock prices by expanding their herds. From 2015 through 2016, prices ranchers received for beef cattle dropped about 32%, USDA data show, generally remaining around those levels since. That period coincided with low grain prices and rising U.S. beef exports, which led many U.S. ranchers to raise more cattle than before—putting more beef on the market and helping lower prices, these economists say.

U.S. cattle production grew by about 6 million head to about 95 million from 2014 through 2019 and the number and size of slaughtering plants didn’t change much, said Don Close, an analyst at agriculture lender Rabobank. That shifted market power toward meatpackers that weren’t able to process the oversupply of cattle, and the recent plant disruptions and labor shortages exacerbated the issue, he said.

Demand surge

Those constraints, combined with resurgent demand from restaurants over the past year, also explain why wholesale beef prices have surged, meat-industry officials have said. Beef operating income at Tyson, the largest U.S. meat company by sales, more than doubled in 2021 from the prior year, while profit margins from the business expanded to 18% from 10%. Revenue from JBS’s U.S. beef business rose 28% through the first nine months of 2021 compared with first nine months of 2020. Privately held Cargill’s 2021 sales grew 17% to $134.4 billion from 2020.

Tyson said on its recent quarterly earnings call that raising wages and expanding benefits to recruit and retain staff, and higher transportation and feed costs are what is driving meat prices higher. A Tyson spokesman said its margins were affected by idled plants in 2020 because of the pandemic. In 2021, he said, margins were affected by ample market-ready cattle supplies, strong customer and export demand for beef, and constrained product supplies due to the labor shortage."