By Evelyn Pyburn

The US Department of Justice is taking the concerns about distorted cattle prices seriously, and an investigation is underway, according to the President of Montana Stockgrowers  Association, Fred Wacker. Wacker in discussing Montana’s beef market with the Yellowstone County News, said he has had recent contact with the Department of Justice, and while he is confident that the matter is being pursued he is not authorized to discuss details.

In an interview, Wacker not only commented on the status of the investigation, but explained the status of the cattle market in Montana and how it has been impacted by the COVID-19 crisis – a very important issue to Montana since the cattle industry is the state’s largest industry, according to Wacker. When the cattle market struggles, the state struggles.

Hopefully, the worst of the impact of the COVID-19 virus on the industry is over, according to local cattle buyer, Brian Okragly, Billings, who reported that the number of cattle being slaughtered weekly, is once again on the rise, after plummeting with the closure of the packing plants. Beef prices, too, are coming back into alignment, he said, in an interview with Yellowstone County News.

Okragly is a licensed and bonded cattle dealer, who has spent the past 27 years buying and selling feeder calves, yearlings and finished cattle.

Besides his leadership role in the Montana Stockgrowers Assoc., Wacker raises black and red Angus cattle in the Miles City area on the Cross Four Ranch. His cattle are non-hormone and non-antibiotic grown to serve outlets such as Whole Foods. Much of what he raises is sold to Europe, Japan and China.

“We raise cows and calves!” he stated. And, Montana raises the best cattle. “They are sought after,” said Wacker, “Buyers drive through four and five states to get them”

Montana’s Attorney General Tim Fox, along with AGs from 21 other states sent a letter in early May to US Attorney General William Barr, to request an antitrust investigation of the beef processing industry to determine if the packing companies have entered into agreements that thwart competitive bidding. The beef packing business in the US is dominated by four major companies.

Puzzling everyone was why cattle prices were so low for ranchers but are at record high levels at the grocery counters. In simple terms, as explained by Wacker, “We are getting $1.90 pound, but the packer is getting $4.65 per pound. ..We feel it is Ok for packers making $300, but when it is double and three times that; it is very excessive.”

The rancher typically hopes to make about $50 to $100 profit per head.

“We don’t think there is enough cattle being bartered,” Wacker said, “That’s what makes it a market.”

Another aspect of what’s happening in the cattle market is the impacts of the COVID-19 crisis, which have created shortages in the retail beef supply, which are alarming consumers. Besides meat prices in the grocery stores being at all -time highs, the shelves are often empty, and signs are commonly posted limiting the amount of meat the customer can buy.

To some extent the shortages reflect deeper problems within the industry. Beef packing plant closures have squeezed narrow supply lines and unveiled weaknesses of the highly regulated and concentrated beef industry.

It’s not just beef that has been impacted by plant closures. The coronavirus caused the closure of chicken and pork meatpackers and other food processing plants, as an estimated 12,000 plant workers tested positive for the disease and 48 workers died. Other workers went on strike, concerned about working conditions.

As of April 28, according to Bloomberg, processing plant shutdowns wiped out a quarter of the nation’s pork-processing capability and 10% of that for beef.

As the plants closed so did the processing of fat cattle – animals ready for slaughter and distribution to grocery stores and restaurants.

Before the COVID-19 virus hit, the industry was experiencing record kills nationwide of about 650,000 a week, according to Okragly. “We were looking really good,” he said, “The futures market looked good.” As COVID-19 hit workers and forced plant closures, the slaughter number dropped 200,000 animals a week – down to 450,000, and the futures market dropped 25 to 30 percent.

The reduction in the number of animals being processed, began a backlog of fat cattle and then of feeder calves, and on down the supply chain to the ranchers’ rangeland.

Not liking the prices they were being offered ranchers began deferring sales. There were reports that some producers – of cattle, pigs and chickens —  were having to euthanize animals because of no ability to place them, or feed to feed them.

With most packing plants now open and kill numbers coming back to 600,000—“almost at full capacity,” things seem to be improving, but “We are going to have backlog down the road. What that will do to feeder cattle this fall is uncertain,” said Okragly.

In addition, the carcass weight of the back-logged cattle will be heavier, by about 48 pounds per head – “that’s a lot of tonnage on the market.”

The heavier carcasses and backlog will play together and cause a build-up of numbers,” he continued. How that will work itself out with the resumption of normal supplies, “is hard to tell.” The industry has never experienced anything like this. “There is no play book for what lies ahead.”

One positive of the situation is the grain and corn prices are low, which Okragly hopes remain low. “We need to market the beef and hope and pray for a big beef demand, domestically,” said Okragly. Even at that, Okragly said he expects a market lower than it was last year at the same time – but he added predicting the cattle market is like predicting the weather.

Wacker explained that ninety percent of the calves raised in Montana are shipped to “mid-west feedlot states.” Weighing 500-600 pounds the calves are fattened to about 1400 pounds and then sold to one of the four major packing companies.

About 15 percent – around 300,000 head — of Montana calves are retained by growers who “winter” them and then sell them in the spring as “yearlings” that weigh about 950 to 1500 pounds to be “finished” in Montana feed lots.

There are no major packing plants in the state. Wacker said that he wished there were.  “I would love to see more [cattle] stay in Montana. , I would love to see more competition.  I’d like to see feed lots and a nice processing plant,” he said, “It would be a great growth thing for the state.”

The impact of the disruption of our economy with the business shutdowns across the nation, due to the COVID-19 crisis, is yet to be understood and will be full of surprises. But one thing is certain, impacting as it is two of Montana’s basic industries – travel/tourism and agriculture – Montanans are in for a lot of changes and probably a bumpy ride.

One aspect of those changes is already making the headlines – the production and processing of beef. Although a long-standing problem that has frequently elicited complaints and controversy among livestock growers and the ag community, for the first time in his tenure, Governor Steve Bullock has addressed the issue with a letter to the USDA.

Attorney General Tim Fox, and gubernatorial candidate, has joined forces with other states demanding an investigation of price fixing charges. Other politicians, too, are now proclaiming that something must be done.

What’s prompted the sudden interest? Consumer awareness of the issue, says one local economics expert, Ed Ulledalen, Billings.

The whole issue comes down to what the consumer wants, says Ulledalen, and for the most part US consumers wanted low-priced products. They are usually not aware of how the market works and what risks might exist. The COVID-19 crisis has revealed the nation’s vulnerability in several regards, most especially in our food and medicine supplies.

As an independent financial consultant, Ulledalen deals “with all kinds of farmers and ranchers,” in Montana, and he has long understood that “this is an on- the- ground concern of a lot of farmers and ranchers.” Now, “with the meat shortage it has become a kitchen table concern.”

Shortages on grocery store shelves have captured consumer awareness. “The bell rang when you walked into Costco and the meat counter was empty,” said Ulledalen.

That awareness is going to bring about changes – changes that could mean the unraveling of the way the economy has been functioning. What all that will entail is uncertain, but it will most definitely mean changes for Montana.

The question becomes, why don’t we have meat? said Ulledalen. Answering that question requires going down “all the rabbit trails.”

“It is not something to reverse quickly. It will take years.” Ulledalen suggested that low-costs will go away and “our meat industry will be more like it is in Europe. They don’t have the same kind of structure.”

Consumers will direct the changes.

Consumer demand for cheaper products has driven the industrialization of all kinds of markets, and it has resulted in the “industrialization of the food chain,” explained Ulledalen.

What we are going to see is a reversal of “50 years of globalization,” he added.

Little realized is how much concentration there is of beef processing plants. And, that foreign countries operate two of the four companies that dominate the US market, including China that owns Smithfield Foods, based in Virginia and with a plant in South Dakota. To underscore the cultural as well as the economic status of the industry, Ulledalen pointed out that within the Smithfield plant, 40 different languages are spoken.

About the economy in general, Ulledalen says there is lots of uncertainty — “the bad economic news hasn’t even come out yet.”

“The Federal Reserve and the federal government have weighed in so hard that they have stopped us from going into a second recession,” said Ulledalen. It is still unclear, however, what the consequences are going to be over the next five or ten years, “because you screwed up the world economy, not just the US.”

“We are going to get some kind of surge as the restrictions are lifted. Some business will come back but …maybe 20 percent of the economy won’t come back.” Especially vulnerable, and of most important to Montana, are the travel industry and agriculture. And, “it’s not to be resolved in a matter of weeks.”

Said Ulledalen, “We have a biological contagion that has potential to morph into a financial contagion and an economic hard –stop. An “economic hard stop” is very unlike most descents into a recession, which usually happen in gradual and incremental weakening in various market segments.

Most beef processing in the US is done through four companies, Tyson Foods, JBS, Cargill, and National Beef. While there was a time when there were many meat processors scattered throughout most states, the industry has been concentrated for many decades, a situation that is sure to create problems – such as the ability to control prices.

Attorneys General from 11 states, including Montana’s Tim Fox, sent a letter to U.S. Attorney General William Barr, asking him to investigate possible price fixing among the country’s four largest beef processors, who control 80 percent of the industry.

President Trump threw his weight behind the request, sending his own request that the federal agency proceed with an investigation. He pointed out that supply and demand forces, within a competitive market environment, should prevent price gaps from playing out to the extent that they have in the U.S. meat-packing industry.

According to an Associated Press report,  a  disparity in the price of live cattle and the retail cost of boxed beef that is sold to consumers, “shows the market lacks fair competition.” According to the report, “Live cattle futures recently hit 18-year lows, while both the price of boxed beef and consumer demand remain healthy as consumers stockpile meat in response to the COVID-19 pandemic.”

The state attorneys general suggested that if, after an investigation, there is no appropriate enforcement action that can be pursued, regulatory strategies should be explored to promote competition. A suggestion that even Montana’s Governor seems to believe is worth considering.

Nuances of regulations in the industry has left tons of beef sitting in lockers during the COVID-19 crisis with no place to go. The distribution system for grocery stores is different than that which serves institutions like schools and hospitals. School closures have left them with unused supplies but because it has a different “stamp” on it, and has gone through a different inspection process than those that serve retail markets, regulations prohibit the product from being sold elsewhere or even given away.

Requests to the USDA to allow the Montana Department of Livestock to consider modified protocols have been denied.

Governor Bullock’s letter to U.S. Department of Agriculture Secretary Sonny Perdue asked that regulations be temporarily set aside to prevent the food from going to waste, at a time when it is needed in other areas. He also asked that the regulatory agency set aside some rules to allow some local processing in order to avoid food waste.

Perhaps even more significantly, Bullock suggested that the USDA encourage new ideas to reduce barriers for Montana meat processing capacity and improve markets for rural producers in Montana over the long term.

His suggestion is nothing new. For decades everyone from beef producers, to would-be local butchers, to restaurants and other consumers, have had a wide range of complaints about an industry that cannot adjust to demands. Could this be the impetus for long awaited change?