This article has been revised to reflect the following correction: Ethan Lane is not a former rancher.
SIOUX FALLS, S.D. (KELO) — South Dakota cattle producers, Gov. Kristi Noem and President Joe Biden all agree there are major problems within the United States’ beef industry.
The complex, nearly more than $50 billion beef industry was the center of discussion during a White House event hosted by President Biden on Monday. During the meeting, Biden announced $1 billion of American Rescue Plan money will be used for new and expanded meat processing capacity.
“Capitalism without competition isn’t capitalism; it’s exploitation,” Biden said on Monday. Biden noted during the meeting that a friend of his wife told him a pound of hamburger meat cost more than $5.
In November, the Consumer Price Index saw a 6.8% increase over 12 months. It was the largest 12-month increase since June 1982 and it showed the index for meats, poultry, fish and eggs increased 12.8%, with the index for beef rising 20.9%.
Those price points for consumers of beef have led to record profits for America’s largest meatpackers, but the record profits haven’t translated in higher cattle prices for producers. The producers share of the consumer’s dollar spent on beef has dropped below 40%, when it was over 60% in 1980.
KELOLAND News spoke with two South Dakota cattle ranchers and Washington D.C.-based member of the National Cattlemen’s Beef Association about the current state of the industry.
High demand for beef
Eric Jennings, who owns a cattle ranch near Spearfish and serves as president of South Dakota Cattlemen’s Association, said the beef industry has seen tremendous demand for beef from consumers.
“They were getting stimulus checks and so they had some extra cash. By golly, if they were going to have to sit at home, they were going to eat a good piece of meat,” Jennings told KELOLAND News. “And beef is by-far the choice by consumers when they want a good meal.”
Ethan Lane runs Government Affairs for the National Cattlemen’s Beef Association, the largest and oldest trade association representing the beef industry. He said one positive from COVID-19 pandemic was how people chose to spend money on true beef, noting there was $10 billion in exported U.S. beef around the world.
“That quality that’s coming from the ranch is what consumers are responding to,” Lane said. “Demand is high, not just in the U.S. but internationally as well.”
Jennings said basic economics has raised meat prices as there’s been increased demand and decreasing supply because of labor issues at meat-processing plants because of the COVID-19 pandemic.
“We need more capacity, period,” Jennings said. “The main thing is that at our peak this summer, we were short about 4,500 to 6,000 head a day of capacity. That hurt the live cattle market for producers. Packers didn’t have to be very competitive with their bids.”
Lane, an Arizona native who now works in Washington D.C., said the capacity issue is one that’s plagued the cattle industry for years.
“Yes, we need more capacity, but it’s that regional, independent expansion that’s critically important,” Lane said. “We need to be building new capacity outside of the Big Four that offer new options for producers to market their cattle into their different local systems.”
In the U.S., 26 major plants process 80-85% of the beef in the USA. Those plants are owned by four main companies — JBS, Tyson, Cargill and National Beef.
Putting pressure on the Big Four beef processing companies
Those four companies have become targets for both Biden and Noem.
Last month, a White House economic analysis showed the major meatpackers saw profit margins jump 300% during the pandemic. Consumer prices for beef skyrocketed, but at the same time, cattle prices dropped sharply.
“Our farmers and ranchers have to pay whatever these four big companies say they have to pay, by and large. But that’s only half of it,” Biden said on Monday. “These companies can use their position as middlemen to overcharge grocery stores and, ultimately, families.”
In a news release criticizing Biden for trying to “score political points,” Noem blamed the four beef packers for driving down prices for consumers. She highlighted she gave $5 million in grants to 99 small meat packers in South Dakota in 2021, allowing producers more options when selling cattle.
She called for Biden to push for a Department of Justice investigation into anticompetitive practices in the beef packing industry.
Bret Kenzy, a cattle producer near Gregory, believes it’s on everyday people working together to solve the issues in the United States’ meatpacking industry. He told KELOLAND News there’s plenty of blame to go around on both sides of the aisle.
“By having 85 percent of the harvest of 26 million head of cattle a year wrapped up in just four companies, we have such a brittle system,” Kenzy said. “Part of monopolistic practices is you can’t lose any more. It feels like they can’t lose.”
Kenzy, who also serves as the Region III Director for R-CALF USA, said the power from the four major beef meatpacking companies comes not just from the cattle coming in, but the amount of beef coming out and where it is going.
“You can harvest all the cattle you want, but you have to have a place to sell it,” Kenzy said. “Since 2015, we’ve had a complete disconnect between the price of cattle and the price of beef. That’s what COVID has done, it’s now exposed the consumer to the market power of the big four packers.”
Expanding beef processing capacity, tackling labor challenges
Secretary of Agriculture Tom Vilsack, a former governor of Iowa, also spoke during Monday’s White House event. He said $800 million will be used in grants and loans to address “capacity, workforce, and innovation challenges” and $375 million will be used for expanding existing facilities and new construction for new facilities.
Jennings said he’s happy the Biden administration is looking to help, but added cattle producers’ frustration has been growing before the pandemic impacted the industry.
“There’s no doubt that we need to have the ability to process more cattle in the nation,” Jennings said. “Once you get those packing plants built, you’re still addressing a labor situation. That’s part of our problem with the capacity is getting enough workers in those plants where they can operate at 95-percent utilization.”
Lane focused on labor shortages as well and said the country’s massive labor problem is contributing to processing plants not operating at an optimal level.
“They’re very good at what they do and they’re very efficient at moving a lot of cattle through the system,” Lane said about the big four beef packers. “It also leaves a lot of our producers, who have quality cattle to sell, at a point they don’t feel like they’re getting market access.”
Kenzy said he believes labor may be a valid problem the meatpackers are facing, but he also faces real problems on his ranch every day. He cited the meatpackers’ record profits as a reason they should be able to handle their own labor shortages.
Short-term outlook for the cattle market
Jennings said there’s progress being made with market transparency and cited Rep. Dusty Johnson’s Cattle contract library bill, which passed in the U.S. House in December.
Jennings said it’s important for cattle producers to have access to information regarding current cattle market prices as possible.
“They need to know what the current market is for their cattle so they can make the judgement that the bids that they’re getting offered is a competitive price and within the market,” Jennings said.
Both Jennings and Lane said because of the 2021 drought, there’s a herd contraction which should push up short-term prices for cattle.
“It’s going to mean more money for producers for their cattle,” Lane said. “That’s a little short-term relief. We don’t want to shrink to get more money for our producers. We want to grow and allow them to capitalize on that. It’ll be an interesting 18 to 24 months.”
Jennings and Kenzy each said they’d like to see results from investigations on the four major meatpackers from the Department of Justice.
Kenzy worries there’ll be too much deflection from the real problem, which he believes is the four beef processing companies.
“The American cattlemen isn’t asking for a lot, but a competitive market is going to allow these smaller plants to get in there and compete,” Kenzy said. “Anti-trust is bigger than the legislative, executive or judicial branch when it gets so big and that’s what we’re fighting now.”