Meatpacking Monopolism: Cyberattacks and America’s Concentrated Beef Industry

Packers have been attacked by ransomware, but the larger feedlot-to-plate problem is a lack of competitiveness.

A cyberattack over Memorial Day weekend temporarily shuttered the world’s largest meatpacking corporation, JBS, wiping out some 20 percent of U.S. beef and pork processing. Cattle futures prices fell, and wholesale meat prices spiked. JBS quickly resumed production without affecting shoppers, but the attack flamed ongoing critiques of the beef industry from ranchers and lawmakers, who argue that too few packers hold too much sway over cattle markets.

Ranchers’ core concern is the growing gap between the price shoppers pay for beef and the price they receive for cattle. This gap existed before the pandemic and continues to grow even as business returns to normal: Since March 12, 2021, the wholesale price of beef has risen 43 percent while cattle prices have only increased by 5 percent. While consumers and cattle producers suffer, packers in the middle reap record profits. Packers blame the price spread on insufficient capacity and labor shortages, but ranchers and lawmakers fear market manipulation. Lawmakers have asked for an update on antitrust enforcers’ investigation into beef packers and introduced two bills requiring more transparency in cattle bids and contracts.

Just four corporations control more than 80 percent of all U.S. beef processing. Pandemic and cyber disruptions revealed how concentrated production can send shock waves when just a handful of closed plants take out a large chunk of meat processing capacity. And even before the pandemic, farmers and ranchers raised concerns about meatpacker meddling in cattle markets. The cattle industry is the single largest segment of American agriculture by cash sales and number of farmers—about a third of all U.S. farms are in the cattle business.

For years, the prices ranchers receive for their cattle have not kept up with the price shoppers pay for beef. This disparity ballooned in August 2019 after a fire closed a Tyson plant in Holcomb, Kansas, for four months; the plant processed 5% of all U.S. beef. Supply disruptions during the pandemic also drove down cattle prices while wholesale beef costs spiked and packers saw historic profit margins. Yet even as production resumed after these shocks, markets never truly “corrected.” Excluding one slump around the 2019 holiday season, the average beef packer operating margin has remained well above the 2014-2021 average since mid-2019, and margins have spiked as high as $1,000 per head of cattle—by comparison, the average margin between August 2018 and early August 2019 was just $137 per head.

Packers and some economists argue that cattle prices are down while grocery prices are up because slaughter demand currently exceeds capacity. Packers and industry groups blame diminished capacity on labor shortages during a cyclical peak in the slaughter-ready cattle population. JBS just announced plans to invest $130 million to increase workers’ wages and processing capacity at two Nebraska plants.

Other analysts argue that processing capacity remains low because packers do not face enough competitive pressure. “Packers are content to deliver beef slowly and protect their margins, knowing there’s no one else to take their place,” DTN analyst Todd Hultman told fellow DTN analyst ShayLe Steward in a recent column.

One 1990 economic study of cattle markets in the 1970s and 1980s supports this idea: It found that 55 percent of farm-retail price spreads could be attributed to monopolistic distortion. But other economic studies of the ‘80s and ‘90s beef markets found no significant association between greater packer concentration, increased packer marketing margins, low farmer prices, and widening price spreads.

Today, some ranchers take these consolidation concerns one step further and allege that packers are conspiring to manipulate markets. “The packers ganged up together because they want to sell high and buy cheap,” says fifth-generation Kansas cattle rancher Nicole Pfrang. “They don’t want more competition … if things keep going as is, I see us as extinct.”

To evaluate ranchers’ market manipulation claims, you need to understand how most cattle are sold. Most ranchers do not sell their cattle in the open bid auctions of yore. Only a quarter of all cattle are sold at open cash auctions, yet these spot-market transactions help determine the going price for cattle across the industry. An ongoing ranchers’ lawsuit alleges that packers worked together to rig these auctions, by coordinating bids and creating artificial cattle surpluses to push down prices. For example, packers allegedly imported more expensive foreign cattle to increase cattle supply and drive down the prices they had to pay to American ranchers. Packers also allegedly avoided bidding for cattle in certain areas to create regional gluts of slaughter-ready cattle.

Cattle producers also argue that multinational meatpackers use their global supply chains and deceptive U.S. marketing laws to replace U.S. beef products with imports and suppress domestic cattle prices. Beef imports are up since 2010, and current loopholes allow foreign-raised beef repackaged in the U.S. to carry a “Product of the USA” label.

The U.S. Department of Agriculture (USDA) opened an investigation into cattle market manipulation and put out a report on the Tyson Holcomb plant fire last year. However, its final report did not examine whether potential violations of the livestock anti-monopoly law, the Packers & Stockyards Act (PSA), contributed to the price spreads. USDA said its staff “have discussed allegations of anticompetitive practices in the meat packing industry” with the U.S. Department of Justice (DOJ). The DOJ is still investigating beef packers and subpoenaed the top four packers a year ago for potential antitrust violations.

Ranching groups and lawmakers have demanded an update on the DOJ’s investigation, as well as greater PSA enforcement and packer oversight. Leading packer JBS suspended its membership in the National Cattlemen’s Beef Association after the group joined other cattle producer groups in this request.

Meanwhile, drawing on recommendations from the USDA’s report, lawmakers introduced legislation that would require packers to share more information about their cattle purchases and contracts with USDA. Another bill would require packers to buy at least half of all cattle in open cash auctions to create a more robust spot market for determining the price of cattle.

Yet these bills provide tweaks around the edges to a fundamentally structural problem, something lawmakers recognize. “Arguably, every piece of beef legislation introduced before Congress is the direct result of our attempts to put a band-aid on the real issue: packer concentration,” a June 1 letter from 28 members of Congress to the DOJ states. “The anticompetitive practices occurring in the industry today are unambiguous and either our antitrust laws are not being enforced or they are not capable of addressing the apparent oligopoly that so plainly exists.”

This piece originally appeared in Food & Power.

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Claire Kelloway

Claire Kelloway is a senior researcher-reporter for the Open Markets Institute and the lead writer for Food & Power.