Cattle Price Collapse Questioned — When competition in any market disappears …

Cattle Price Collapse Questioned

Tuesday, January 12, 2016

by Todd Neeley DTN Staff Reporter

OMAHA (DTN) — The recent collapse in cattle prices has the attention of the U.S. Senate Judiciary Committee’s chairman.

In a teleconference with agriculture reporters Tuesday, Sen. Charles Grassley, R-Iowa, said cattlemen in Iowa have told him there are few market reasons for a price drop of around $50 in the final months of 2015. R-CALF USA formally asked Grassley’s committee last week to consider opening an investigation into the cattle market.

Though the senator stopped short of saying price collusion is a possible explanation, he said it may be time for the committee to consider holding hearings.

"If the accusations are credible, I think I would have a responsibility to look into this," Grassley said. "Any violation of antitrust laws I’m very willing to look into. It has been a long time since the judiciary committee was involved in such issues."

Iowa cattlemen, he said, pointed to the end of country-of-origin labeling, or COOL, as a possible explanation for price drops. "It is still low," Grassley said about prices. "COOL is out of the way, and the cattlemen I talked to didn’t seem to have a reason for the price coming down.

"It ought to lead DOJ (U.S. Department of Justice) to do its job of enforcing antitrust laws and watching over it. I’ve always felt most people working in the antitrust division at DOJ didn’t have a lot of understanding of agriculture."

In the formal request letter to Grassley’s committee, R-CALF USA said the latest price drop should be investigated.

R-CALF USA President Bill Bullard told DTN Tuesday he has been invited to brief Grassley’s committee staff. The U.S. Department of Justice and USDA have been "unresponsive" to the group’s concerns, he said.

"I will soon be making a presentation to them in hopes that a hearing will be scheduled," Bullard said. "We have known for a long time that our markets are broken, and if you look at the history of U.S. cattle prices, never before have we witnessed such a collapse… What we know with certainty is that this was not a natural phenomenon."

Chase Adams, communications director for the National Cattlemen’s Beef Association, said R-CALF’s accusations are without merit.

"We continually look at the market and work with our stakeholders to ensure the markets are working to meet their needs, including reauthorization of mandatory price reporting, and we don’t see any merit in this request," he said. "It is only another misguided attempt to gain relevance."

In its letter to the committee, R-CALF pointed to market fundamentals in 2014 and in the first half of 2015 that supported "historically high" cattle and beef prices. The fundamentals included "tight" cattle supplies and growing beef demand. "Government and private economists alike predicted higher prices well beyond 2015, and there were no observable disruptions to the favorable market-sustaining fundamentals at any time during 2015," the letter said. "Yet, cattle prices collapsed."

During the third and fourth quarters "cattle prices collapsed farther and faster than during any time in history and the unprecedented volatility in the cattle futures market rendered it useless for price discovery purposes," R-CALF said. Independent cattle feeders suffered losses exceeding $500 per head.

"Industry analysts cannot explain the wholesale collapse of the cash market or the intense volatility and collapse in the cattle futures market," the letter said. "Describing the collapse and volatility with vague terms such as market meltdown or psychological upheaval, analysts appear unwilling to state the obvious: that something caused a severe anomaly in U.S. cattle markets that caused significant harm to U.S. cattle producers and U.S. consumers."


DTN Livestock Analyst John Harrington said there are a number of factors that led to first the rise in cattle prices in 2013-14 and the recent collapse.

The short answer: It’s complicated.

The many possible factors include poor exports, a strong dollar, large beef imports, rising supplies of competitive meat, record carcass weights, declining packer capacity, and delayed consumer resistance to record-high beef prices, Harrington said.

"Does any one factor explain the imploding market? Of course not," Harrington said. "Indeed, I’m not sure all of them taken together can. But they all probably played some role in fueling a bearish psychology that at times seems bigger than the market itself.

"I think you have to look at more than three to four months — look at the bigger picture. For example, cattle profits soared in a crazy way from late 2013 through 2014. You could have made the case then that bullish fundamentals and speculation didn’t quite add up, that bullish enthusiasm really exceeded sound marketing reasoning. My guess is that the seeds of 2015 destruction were planted to some extent by the crazy bullishness of the two preceding years."

R-CALF said as cattle prices tanked, "meatpackers were making what one analyst called gangbuster profits and consumer beef prices remained at or near record highs. Not surprisingly, meatpacker-aligned commentators pointed fingers at cattle feeders, accusing them of causing the price collapse by feeding their cattle too long.

"But this is nonsense as only a small percentage of cattle are not directly controlled by meatpackers and some of the remaining independent cattle feeders reported that meatpackers were purposely delaying cattle delivery dates."


R-CALF said a $41.35-per-hundredweight price decline equals a loss of $516.88 per head for each animal sold — based on a 1,250-pound steer.

"This alarming price decline is confirmed by Kansas State University, which projected losses of $547.24 per head on steers sold in November," R-CALF said in the letter.

"This level of loss represents an unprecedented extraction of equity from the U.S. live cattle industry. While KSU data show chronic and persistent losses to U.S. cattle feeders during the past 15 years, the losses in 2015 are irrefutably extraordinary."

Some 1.53 million head of fed cattle were sold to meatpackers in November 2015, the group said. As a result of the price drop, cattle feeders lost about $837 million in November alone.

"Evidence shows that other participants within the beef supply chain are capturing a significant share of the consumers’ beef dollar that a competitive market should be allocating, and previously did allocate, to the producer," R-CALF said in the letter.

"This, R-CALF USA believes, is strong evidence of antitrust and anticompetitive conduct by the nation’s four largest meatpackers, which are the supply chain participants that are purchasing the vast majority of live cattle directly from U.S. cattle producers at prices well below what a competitive market would prescribe."

Read the full R-CALF USA letter here:…