Omaha World Herald: The State of Beef: Cattle producers, Nebraska politicians seek solutions to low profits
The State of Beef: Cattle producers, Nebraska politicians seek solutions to low profits
Omaha World Herald
Oct 17, 2021
NORTH PLATTE, Neb. — Trey Wasserburger figures he’s got half a decade invested in his cattle before he sells them to a meatpacker.
It starts with getting his Angus cows bred, then helping pull their calves, and weaning the young steers and heifers. Ultimately, they’re fattened with corn and other rations to a market weight of about 1,400 pounds, then sold and processed.
But lately, he’s walked away from the sales barn with scant profits.
“We’ll have five years invested in those animals and we’ll give away all the profits in 48 hours,” Wasserburger said of the hours that cattle are held at a meatpacking facility.
“We’re just tired of pissing away our profits,” he said.
The 33-year-old former state wrestling champ is part of a group of Nebraska cattle producers and feeders planning to do something about that, by establishing their own meat processing facility in North Platte.
The goal is to capture some of the record profits now being reaped by the four large meatpackers, which process 85% of the fat cattle in the United States. While packers and grocers capture a bigger share than ever of record consumer beef prices, ranchers’ portion of the retail dollar has slipped.
There’s another goal, too — preserve a way of life that he hopes to pass on to his four children, a life that includes rising at dawn to chop sileage, fixing fence under a hot sun, and monitoring cattle markets, minute-by-minute, for the best bargains.
“We’ve got to do something different,” Wasserburger said. “It’s just not sustainable what we’re doing now at all.”
Starting their own meatpacking plant — a risky and expensive venture costing $325 million — is just one of the many solutions being pursued by those in Nebraska’s beef industry to restore profits for those who raise and fatten cattle, a sector reporting scant profits in recent years while beef prices at the grocery store have soared.
In Washington, D.C., politicians are proposing to require more transparency in cattle sales — so ranchers know if they’re getting a fair price or not — and to increase enforcement of the federal laws that prevent price fixing among the big packers.
Some farmers are marketing steaks and hamburger directly to consumers from their farms or from main street stores, the pasture-to-plate approach.
Still others are working to set up a state meat inspection program in Nebraska to give producers more options to process cattle, and to reach consumers.
Others, like Wasserburger, are looking at ways to bypass the large packers, by establishing their own, smaller-scale packing plants.
Whatever happens will be critical for Nebraska, which leads the nation in beef production. The state’s beef industry, generating more than $10 billion a year, is the most valuable piece of Nebraska agriculture, the No. 1 sector of the state’s economy.
New locally owned plants
The proposed $325 million slaughterhouse in North Platte, called Sustainable Beef, is the most ambitious alternative being tried and, some say, the most risky.
With a capacity of 1,500 head per day, it won’t rival the packinghouses run by the Big Four packers — Cargill, JBS, National Beef and Tyson. But Wasserburger and his partners figure it will give area producers a better chance at turning a profit, by giving them shares of the profits reaped by a packing plant, along with what they make on sales of their own beef cattle.
“Our model is a co-op model — members will supply the cattle and share in the profits,” said David Briggs, CEO of the Alliance-based cooperative, WESTCO, and the chief executive of Sustainable Beef.
Right now, those who raise cattle — particularly those who don’t have row crops to fall back on — are barely scratching by. Some are selling off part of their cattle herds to reduce expenses and hang on until prices for cattle rebound.
“We’re selling to a cartel. We don’t like the prices we’re getting paid, and the risk we take is ridiculous,” said Justin Raikes, whose family is direct-marketing American Wagyu beef raised on their farms near Ashland.
The Raikeses have worked with three packing plants since launching Raikes Beef.
ANNA REED, THE WORLD-HERALD
“Vertical integration” — in which a packer not only controls slaughtering but also own the cattle that come to the packinghouse — is a dirty term in cattle country. It conjures fears that ranchers and farmers who raise cattle will lose their independence and become like most U.S. producers of chickens — contract growers for huge meat companies that provide the animals to grow, the rations to feed them and dictate what a grower will be paid.
But Briggs said that Sustainable Beef is vertical integration in reverse, from the bottom up, in which the producers own the packinghouse.
They say that studies indicate the nation needs an increase in its “shackle space” — the industry’s term for slaughtering capacity — by about 5,000 cattle a day. That could mean one giant packing plant or three to four the size of the one proposed in North Platte.
A similarly sized packinghouse is proposed near Glenwood, Iowa, about 15 miles south of Council Bluffs, and construction of a 500-head-a-day slaughterhouse is already underway at Jerome, Idaho. Sustainable Beef hopes to break ground in North Platte yet this fall.
This foray into meatpacking is not for the faint of heart. Several small- to midsized packing plants have closed or been gobbled up by the Big Four in recent years. And big packinghouses have economies of scale, such as specialized meat cutters, and increase profits by selling valued byproducts, such as hides and bones.
Dustin Aherin, a beef industry analyst with Rabobank, said margins are low, startup costs are high and labor is short in the meatpacking industry, plus operators need plenty of capital to survive the industry’s ups and downs.
“That’s not a recipe for thin capital or weak hearts,” he said.
In 2003, a group of 900 farmers leased a previously shuttered plant in Tama, Iowa. But despite millions in grants and loans from both the federal government and State of Iowa, the plant closed after just 13 months.
“It’s a very challenging business. There are lots of costs and little return,” said Galen Erickson, an agriculture economist with the University of Nebraska-Lincoln.
In addition, some worry that Sustainable Beef’s timing is bad. By the time the North Platte facility starts processing beef two years from now, the market probably will have flipped, with fewer cattle causing higher prices after herd reductions now underway due to droughts in Montana and the Dakotas. That usually translates into higher expenses — and lower profits — for packinghouses.
Some government help is available.
The U.S. Department of Agriculture has launched a project to invest $500 million in new, smaller packing plants. Sustainable Beef hopes to tap into that fund, and also expects to gain tax credits from the Nebraska Advantage Act, which provide such breaks to companies that create jobs or invest in facilities.
At a White House press briefing in September, U.S. Secretary of Agriculture Tom Vilsack alluded to the new plant announcements in North Platte and Council Bluffs, saying the beef industry can no longer rely on just the big four processors to do the job.
“That’s going to send a strong message to the industry that there’s going to be competition, and they’re going to have to respond and react to it,” Vilsack said.
Chad Tentinger, one of the the producers and investors behind the Cattlemen’s Heritage packing plant in Glenwood, sees both a producer need and consumer demand for plants like his that provide higher quality beef that’s both raised and processed locally.
Out in North Platte, Wasserburger and Briggs say they’re not out to compete with the Big Four packers, but to create their own niche of higher-quality beef. Consultants, Wasserburger said, tell them up to 70% of their beef could be exported for overseas markets.
“Nebraska beef is like the Napa Valley is to wine, internationally, and we need to benefit from that,” Wasserburger said.
Briggs and others said that the COVID-19 pandemic, along with some “black swan” events, such as the August 2019 fire that closed a giant packing plant in Holcomb, Kansas, and the cyberattack this May that temporarily shuttered JBS facilities, exposed the fragile nature of the nation’s food supply.
Meat hoarding, exploding prices and empty meat cases greeted consumers after slowdowns and closings of the packinghouses.
“As a society, if we really want to fix the food security issue, we need three to four plants like ours,” Briggs said.
But others, including the president of Tyson Fresh Meats, Shane Miller, told a congressional panel in August that opening such plants won’t have much of an impact because they are so small.
The North American Meat Institute, which represents the packers, says that large packers are already expanding capacity to meet increased demand without such government intervention. They argue that creating more, smaller regional packinghouses won’t shelter cattle producers from cyclical and volatile markets.
Wasserburger, who was recently named “Young Cattleman of the Year” by the High Plains Journal, is undaunted.
He said that Sustainable Beef will be a state-of-the-art plant that will be more efficient than those run by the big packers, and will pay better, to avoid labor shortages. People are already attracted to the “story” of the company — local cattle producers, growing a premium product and processing it themselves.
His TD Angus Ranch already enjoys some diversification. It specializes in raising and selling premium breeding stock. In March, one of his purebred bulls, Doc Ryan, sold for $525,000 — the highest price ever paid for a Nebraska bull by a Nebraska buyer — to Falls City cattle breeder Charles W. Herbster, who is also a Republican candidate for governor.
That, Wasserburger said, was a “one in a million” sale, while Sustainable Beef is about ensuring a future for cattle producers, as well as his four kids.
“I am lucky. But you create your own luck,” he said. “Ag is continuing to become more consolidated. But there’s a lot of room for someone willing to step in and work hard.”
Pasture to plate
Mike Callicrate, who launched his own beef retailing operation, Ranch Foods Direct, in 2000, said the answer isn’t to create a “mini” version of the current beef processing system with new, midsized packing plants, but to go local with small locker plants. He wants to create a totally new food distribution system that sells beef and other products at public markets, instead of massive box stores and chain supermarkets.
His farm-based slaughterhouse in northwest Kansas has a capacity for 30 head per day, which are later shipped for processing and sale at two retail stores he operates in Colorado Springs.
“We have to build an alternative path to the consumer, alongside this industrial side,” Callicrate said. The monopoly held by the big packinghouses and
He has spent most of his career fighting the big meatpackers — he was one of the plaintiffs in the price-fixing lawsuit brought against IBP in 1996. Cattle producers won the lawsuit and were awarded $1.28 billion, but the award was later rescinded on appeal.
Callicrate said he created Ranch Foods Direct after the lone packing plant that would slaughter his cattle quit on him, in what he thinks was retribution. Sales at his company now total more than $5 million a year.
He estimates that he delivered about $2,200 more per head in proceeds to ranchers this spring by having a more efficient slaughtering operation, processing locally instead of after a long, costly truck transport to a big meatpacker, and avoiding expenses incurred by the big packers, including highly paid executives.
“We can build a better, more efficient, lower-cost food product that’s safer, and ends up a better deal for consumers,” he said, as well as more profitable for ranchers and farmers.
Others are also directly marketing their product to consumers in hopes of keeping family operations alive.
In a tiny storefront on Ashland’s main street, Justin Raikes and his wife, Lindsey, sell high-quality steaks and ground beef produced by hormone-free, American Wagyu cattle raised on the Raikes farm. The breed is sometimes called the Cadillac of cattle because the meat they produce is more marbled and tender than most.
Their beef sells at prices slightly higher than that of supermarket chains, but the couple believe that plenty of customers are looking for something different, something better.
“Once you taste it, it sells itself,” said Lindsey.
“This isn’t your everyday beef,” Justin said. “We aren’t the grocery store.”
Casey and Nicole Tjaden are doing something similar out at their ranch near Madrid, in southwest Nebraska. They sell sides and quarters of beef, as well as specific steaks, ground beef and jerky, via their website and at farmers markets in the state. He also peddles freezers to customers — freezers that allow his customers the space to store a side or quarter of beef.
“There’s too danged much work to give our cattle away at the sale barn,” Casey said.
But both the Raikeses and the Tjadens admit that selling directly is more work and requires quite a learning curve.
Marketing and processing beef, the Raikeses said, are much different tasks than raising a premium calf and feeding it to market weight.
Marketers must deal with labeling requirements and learn details such as which shipping containers work best in keeping product fresh. Also, half of a beef carcass consists of less profitable roasts and ground beef, so there’s a lot to learn about marketing the meat that isn’t the prime- and choice-grade sirloins and ribeye steaks. The Tjadens had to buy a refrigerated trailer to haul produce to farmers markets and equipment to store beef at their farm.
Tjaden Ranch Beef sells to two area steakhouses, but would like to sell to others. The Raikeses have expanded into school lunch programs and at cafeterias at the University of Nebraska-Lincoln, but are looking for more wholesale customers.
Perhaps the biggest challenges for pasture-to-plate operations is finding a packer who will process their cattle. The competition, they said, is fierce for space in federally inspected slaughterhouses, where meat must be processed for retail sale, both within the state and across state lines.
The Raikeses have worked with three packing plants since launching Raikes Beef. But now they are looking to find a new one, probably out of state. Casey Tjaden said he’s stayed up all night to load and transport cattle so he can arrive at his scheduled slot at the locker plant he works with in Elwood, which is about a 105-mile drive from Madrid.
“Sometimes I don’t get a lot of sleep,” he said.
One partial solution would be to set up a state meat inspection program, as is done in 27 states including Kansas, South Dakota and Wyoming. But proposals in Nebraska to institute state meat inspection have failed in the past, and again stalled in 2021.
Launching a state inspection program is billed as a way to give direct marketers like the Raikeses and Tjadens more options to get their beef processed and to consumers. Justin Raikes said the lack of such a state program is the “dumbest” barrier they face.
“The idea that the federal government is uniquely qualified to inspect meat plants is not logical, or true,” he said.
But the 2021 state inspection bill, introduced by State Sen. Tom Brewer of Gordon, was opposed by Steve Wellman, the director of the Nebraska Department of Agriculture. Wellman maintained that there were better ways to expand shackle space, and that the high cost of setting up such a program, projected to be $3 million a year, wasn’t worth it. There were also concerns that locker plants wouldn’t opt for state inspection because it would only open up retail sales within the state’s borders.
Brewer, who maintained that the fiscal impact was inaccurately inflated, is not giving up. He has proposed to amend his bill into a pilot project, involving no more than 10 local locker plants, costing no more than $1 million a year.
Meanwhile, the Nebraska Legislature did pass a law this year to allow the sale of “herd shares.” It allows consumers to buy a portion of the meat — from a half or quarter to just steaks or roasts — produced by a ranch or farm before the beef is processed.
“It’s a win-win for everyone involved — I’m not retailing, but I am,” is how State Sen. Tom Brandt of Plymouth, the sponsor of the law, described it. He compared it to the “Community Supported Agriculture” or CSA programs in which consumer/members regularly receive a box of assorted vegetables grown by a local farmer.
Brandt said he could probably make 20% more per head if he sold all of the 140 cattle he feeds and fattens each year directly to consumers via herd shares.
His Legislative Bill 324 also established the Independent Processor Assistance Program to help small locker plants make the transition to a federally inspected facility. No money was allocated to the program in 2021, but Brandt has hope that federal pandemic recovery money can be found in 2022 to provide $1 million in grants or more.
An attempt to bring back country-of-origin labelling, or COOL, is also underway.
U.S. cattle producers argue that prices for American cattle get depressed when lower-grade, cheaper beef raised in Brazil or other foreign countries is mixed into hamburger processed in the United States. But COOL, which had been the law of the land, was rescinded in 2015 after the World Trade Organization ruled that it discriminated against products from Mexico and Canada.
In September, a bipartisan group of senators introduced a bill to require the USDA and trade representatives to come up with a new COOL, one that is WTO-compliant, to label beef that is raised, fattened and slaughtered entirely in the United States as a product of the USA.
Obtaining a bigger slice of the profits in the beef business will take a multifaceted approach, according to Ashley Kohls, a vice president with the Nebraska Cattlemen.
Laws need to be changed to provide more transparency in the prices paid for cattle, Kohls said. The cattlemen’s group backs a proposal by U.S. Sen. Deb Fischer, R-Neb., that would set up a “library” of contracts between packers and feeders that could be accessed by the public. A similar public library of contracts exists in the pork industry.
Kohls said that shackle space must be increased so that the big packers don’t have as much leverage as they do now to dictate prices. Plus, she said, the beef chain would be more resilient against black swan events if there were more regional packers, like the ones planned in North Platte and in southwest Iowa.
The pricing of beef is complicated and few in Congress really understood the issue, but Kohls said she’s seen a shift recently that gives her hope that there will be action to restore profitability in raising and feeding cattle.
“They’re asking questions they never asked before,” she said. “It’s finally to a level that people are asking about it: ‘Why are these cattlemen so angry?’ "