OUTSIDE OF CODY, NEB. — Wade Andrews’ 21-year-old pickup bucked wildly as he navigated the rutted Cherry County Sandhills where his family has raised cattle since 1888.
Down below, standing in the bend of a shallow river, a herd of 200 Black Angus cows with their 4-month-old calves watched warily for who or what was invading their normally peaceful pasture.
This is the middle of a county known as “God’s Own Cow Country,” an oasis of grass-covered hills and clear, shallow lakes ideal for raising cattle, which outnumber people here 50 to 1.
The seasons here aren’t measured in spring, summer and fall, but calving, branding, weaning and then, come November, sale day at the auction barn in Valentine.
But ranchers like Andrews worry that their way of life is slipping away amid low cattle prices and ever-rising expenses.
Andrews said he hasn’t made a profit in five years, despite record-high prices for steaks and hamburger at the grocery store.
Prices for his calves are nearly half of what they were six to seven years ago. With cattle prices like that, he’s had to dip into rainy day funds to cover his rising expenses for hay, feed supplements, equipment, health insurance and those burdensome Nebraska property tax bills.
Yet the way the system is working now, the meatpacking firms are taking those same cattle and earning record profits.
“They’re taking advantage of people,” Andrews, 56, said of the packers. “That’s just wrong.”
Without question, something has changed dramatically within the economics of the nation’s beef industry, which is the sturdy backbone of Nebraska's agriculture economy. At a time of record consumer prices for beef, producers have endured years of declining prices for their cattle.
Never in the last half century has the gap been greater between what producers like Andrews are paid for their cattle and the price of beef in grocery stores, a World-Herald analysis shows.
And never have the nation's beef packers snared a bigger share of that consumer beef dollar. In fact, in the past seven years, the packers’ share has increased more than 300%.
Many ranchers blame current market conditions on the extreme consolidation in the nation’s meatpacking industry. Today, some 85% of the fattened cattle that are turned into steaks and other choice cuts of meat in the United States are slaughtered by just four giant international processors.
Producers say industry consolidation has given packers the market power to manipulate the flow of cattle into the system, drive down cattle prices, fatten their profits and push up prices for consumers.
“The packing industry and its packers are no different than oil and OPEC,” said Van Neidig of Battle Creek, who sells livestock equipment and buys and sells premium bulls. “What surprised me is that the consumer isn't freaking out at the prices they're paying.”
Packing industry officials, many beef industry economists and even some producers counter that there's nothing fundamentally wrong with the economics of the beef industry.
They trace the current shake-up in cattle and beef markets to normal economic cycles, including higher inventories of cattle, combined with several hugely disruptive “black swan” events, including the COVID-19 pandemic.
“The present spread between live cattle and beef prices has everything to do with the law of supply and demand,” Shane Miller, a western Iowa native who is group president of fresh meats for Tyson Foods, testified recently before a congressional committee.
That hearing at which Miller testified is one of three Congress has recently held on beef markets. Some producers and policymakers are calling for major changes to the system, from overhauling the way cattle are sold to breaking up the “Big Four” packers.
U.S. Agriculture Secretary Tom Vilsack said it’s been frustrating for producers in recent years to frequently sell their cattle at a loss, only to then see the packers process those same animals for sizable profits.
“The profit ought to go both ways,” the former Iowa governor said.
It’s also no secret the Justice Department’s antitrust division has been scrutinizing the big meatpackers over the past year.
Considering two of the Big Four beef packers have recently paid hundreds of millions in fines and civil penalties after allegedly conspiring to fix prices in the chicken industry, many producers suspect such collusive behavior is happening in beef, too, which packers deny.
"These are widespread practices," charged John Hansen of the Nebraska Farmers Union, whose parent organization is part of a federal civil suit alleging price-fixing in beef. "They do it because they make money doing it, and because they can."
Amid the debate, arguably nowhere are the stakes greater than in Nebraska. Nebraska has three times as many cattle as people, with nearly half the state’s land area dedicated to raising and feeding livestock. Only Texas, with three times the total land area, has more cattle than Nebraska.
Nebraska’s packing plants process more beef than any other state. And almost half of all Nebraska corn is fed to livestock, making beef the foundation of agriculture in the Cornhusker State. The economic impacts of the industry ripple into cities like Omaha, too.
“The reality of Omaha would be very different without cattle in the state,” said Glynn Tonsor, a beef industry economist at Kansas State University.
But more than that, raising cattle is a way of life in a place whose license plates once declared it “The Beef State.” Some 20,000 breeding and feeding operations, mostly family-owned, span the landscape from the Missouri River to the Sandhills.
That figure, though, is down by 10,000 — roughly a third — over the last three decades, including thousands of mostly small operators who have gotten out just since 2012.
Along with the current market crunch, Nebraska’s beef industry faces a number of additional long-term threats.
They include the rise of plant-based alternatives made to look, smell and taste like beef. Some believe that even the animal-based meat of the future won’t be raised in Nebraska pastures but instead grown in a lab.
In addition, the threat of global climate change is not only altering a Nebraska ecosystem that’s perfect for grazing cattle but also is bringing cattle and their contribution to rising greenhouse gas levels under environmental scrutiny.
In an occasional series, The World-Herald will examine the current state of Nebraska’s No. 1 agricultural sector and how it can navigate the decades to come. It begins with today’s look at the sizzling controversy over cattle markets and packer consolidation.
The clank of heavy steel gates and the rhythmic chant of an auctioneer rang through the tiny arena as 23 bred heifers shuffled nervously in a show ring.
The Black Angus cows at this cattle auction in Nebraska’s Sandhills came from a ranch in South Dakota, where an epic drought is withering pastures, leaving producers short of feed for their animals.
“They’re a good set of heifers,” said Greg Arendt, manager of the Valentine Livestock Market, grabbing a microphone and interrupting the auctioneer’s patter.
Two dozen men sat in plastic theater seats scattered around the show ring, a couple making the slight hand gestures or head nods that denote a bid.
This is a sale day at the Valentine market, when months of work raising these young cattle, along with years of work on breeding and genetics to improve a herd, finally pays off for a rancher.
It can be an exciting day if they hit a market top. But more often than not in recent years, sale days have been a bitter disappointment around Nebraska, with prices sometimes failing to even cover expenses.
“Sold for fourteen-thirty five,” said auctioneer Dillon Lambley, indicating a bid of $1,435 per head for the heifers, which weighed an average of 940 pounds. A “just OK” price, according to Arendt.
The market in Valentine is one of many moving parts within the nation’s complex, heavily segmented beef industry.
Cow-calf operators, who number roughly 18,000 in Nebraska, breed and raise cattle and ultimately bring their calves and yearlings to such markets to sell them. The bidders are most frequently operators of feedlots, those large, and sometimes fragrant, seas of metal and wooden pens that often hold thousands of cattle.
Feedlot operators, who number about 2,500 in Nebraska, will “finish” the cattle, fattening them up for market.
The feeders will then sell the animals to packinghouses, where they’re turned into the T-bones, filets, roasts and hamburger we buy from the meat case.
While a number of feedlot operators were on hand to competitively bid for the young cattle at the market in Valentine, the price feedlots are ultimately willing to pay is largely determined by the price major meatpackers will pay them later for the fattened cattle once they are ready for slaughter.
And that, many livestock producers say, is where the system appears to be broken: There are simply too few packers to bid and compete for fat cattle.
Feedlot operators say they are sometimes lucky if one or two packers bid for their animals, which they trace to the way the packing industry has heavily consolidated over the past four decades.
USDA figures show that in 1980, the nation’s four largest processors slaughtered only about 36% of all fed cattle, less than half of today's 85% figure.
How did the industry become so concentrated?
Industry experts say many of the biggest packing firms in the 1980s moved to larger plants to control costs and drive economies of scale.
A USDA study shows that in 1977, only 16% of all fattened cattle were processed in what were considered large plants — those with annual capacities of a half million animals or more. By 1997, 80% of beef was processed in plants of that size. And that included 63% processed in megaplants with million-animal annual capacities.
The drive for scale didn't just reduce costs for the big packers; it drove many smaller operators out of business.
Federal antitrust regulators beginning in the 1980s also took a laissez-faire view when it came to reviewing and approving mergers, leading to further consolidation.
Today the beef industry is dominated by the Big Four packers: Tyson Foods, JBS Foods, Cargill and National Beef Packing. JBS, based in Brazil, is the world's largest meat processing company, and National also is majority owned by a Brazilian company.
That consolidation also has brought significant changes over the last two decades in how cattle go to market.
Historically, packers bid for most of their fat cattle on livestock markets. But today less than a quarter of cattle are bought and sold in such open marketplaces.
Packers now secure the vast majority of the cattle through alternative marketing agreements, or AMAs, in which the packers contract with producers to have cattle delivered on a certain day at a preset price.
Packers prefer such agreements because today’s huge plants require large volumes of cattle, delivered on time, to operate efficiently. The agreements also offer some advantages to feeders, who lock in markets for their cattle and hedge risk. Packers say the agreements actually originated with feeders.
AMAs have also been credited by some with helping to improve the quality of beef, as incentives are often built into the agreements for cattle that grade higher. Some say such standards may be one reason per-capita U.S. beef consumption has actually been on the rise in recent years after decades of decline in the face of Americans’ growing appetite for chicken.
“Make no mistake, (AMAs) improved incentives for cattle producers to invest in beef quality, and we have seen the fruits of that,” Kansas State's Tonsor said.
But some cattlemen’s groups say such agreements provide preferential treatment to some select, large feedlot operators; increase packers’ control of the cattle supply; and stifle competitive bidding.
The agreements also aren’t publicly disclosed, reducing the ability of producers to know what a fair price is. The small number of cattle sold on open markets tend to set the market price for all cattle, including those sold through marketing agreements.
Some producers say the lack of competitive bidders for their cattle can often leave them as “price takers” — forced to accept whatever price the packer is willing to pay.
“There’s nowhere else to go,” said Tom Feller, whose family has been feeding livestock around Wisner for more than a century. "We have no leverage.”
In the old days, he said, it wasn’t hard to find a packing plant ready to bid on your critters once they were ready for market. But now, the message from the packinghouse is often that they’re at capacity, either due to too many cattle or too few workers.
Feller said that his 15,000-capacity, family-run feedlot — a medium-sized operation — hasn’t made money in five years due to low cattle prices and ever-rising costs of feed.
“We have record demand and record prices (for beef), but it’s not coming down the ladder,” he said.
Data on the growing gap between beef prices and what producers are paid for their cattle make it plain to see why producers like Feller are so upset.
The USDA publishes data for livestock industry “spreads,” the gross share of the final consumer beef price that goes to the producer, packing and retail sectors.
The figures show that since 2011, the average price consumers are paying for a pound of beef is up more than $2 to nearly $7 — with packers and retailers capturing nearly all of that increase.
The packers' share of the total beef dollar has rocketed up from 35 cents per pound in 2011 to $1.58 so far this year. That's an increase of more than 350%. The retailers' per-pound share is up, too, from $2.05 to $2.79.
Meanwhile, the producer share of $2.58 per pound is up only slightly from $2.41 a decade ago, despite the much higher beef prices. The producer share has also fallen more than 20% from the peak level of $3.30 a pound seen in 2014.
Looking on a percentage basis, the shares of the beef dollar going to packers in the past three years have been the three highest years on record, while the share going to producers represents three of the four lowest on record.
In figures back to the 1970s, there has never been a bigger, longer-lasting spread in the retail price of beef and what producers are being paid for their cattle.
For producers, recent falling prices have also been accompanied by higher costs, including much steeper prices for feed corn. According to Tonsor, cow-calf operators on net per cow lost money in four of five years from 2016 to 2020.
While many economists don't blame packers for the current market, they say conditions have no doubt benefited packers, who in some cases are seeing record profits. Tyson recently reported robust third-quarter earnings. The publicly traded company's stock price is up 25% in the past year.
“It’s definitely a good time to be running a slaughter facility,” Tonsor said.
Many producers see ample evidence that consolidation and control of cattle flow have given packers too much pricing power. They point to three recent events as particularly shining light on how much packer consolidation is hurting the industry: a 2019 fire that shut down a massive Tyson plant in Holcomb, Kansas; the COVID-19 outbreaks that disrupted numerous plants in 2020; and a ransomware attack in May against JBS.
In each case, the plant disruptions stopped or reduced the incoming flow of cattle. That left many producers with nowhere to sell their animals and drove down prices. At the same time, consumers were charged record amounts for beef, and packer profits soared.
David Wright, who ranches in northeast Nebraska's Holt County, said the incidents showed how packers now have a stranglehold on cattle supply and beef prices.
All they have to do is stop or slow down their production line and they suddenly create an oversupply of cattle, allowing them to pay producers less. At the same time, the reduced supply of beef at retail lets them charge consumers more.
“During the COVID virus, they figured out pretty quickly they could kill less cattle and make $1,000 a head,” said Wright, a past president of the Independent Cattlemen of Nebraska.
Hansen, the Nebraska Farmers Union president, said the lack of market players also leaves producers at the mercy of packer buying representatives, hoping they will come out to bid on their cattle. He said he’s even seen cases where packer reps retaliated against producers who turned down a bid they considered too low or who criticized the system.
“All they have to do is not show up,” Hansen said of packer buyers. “That sort of thing goes on all the time. They have all the leverage and control.”
Wright said something must be done to alleviate the competitive imbalance. If not, he said, thousands more operators could be forced out of business.
“They are going to shove that (cattle) price down and stick the meat price to you higher and higher, and the small towns are going to die,” he said. “We can all move to Omaha.”
Beef industry officials counter it’s simplistic to blame the recent beef margins on consolidation. They note that the industry today is little more concentrated than it was two decades ago, a period which covers years-long stretches where producers enjoyed strong margins and profits.
They also say what happened in cattle beef markets after the recent black swan events was simple supply and demand at work. Cattle prices fall when there's an oversupply, and beef prices will rise when there are shortages.
Packers representatives argue they compete intensely for both cattle and consumers, and say they can’t succeed if producers don’t.
"We rely on these farmers and producers and want them to be successful," Tyson's Miller said.
The North American Meat Institute, which represents the packing industry, said the disruptions brought on by COVID-19 in 2020 have continued into this year in the form of labor shortages, still limiting the ability for plants to operate at full capacity.
Firms have been raising wages to try to attract more workers, NAMI officials said. They also note the meatpacking industry is an important one in Nebraska. It employs more than 26,000 workers, including many immigrants, refugees and others willing to take on the difficult work.
NAMI also said the kink in the cattle supply chain is straightening itself out, as indicated by recent rising cattle prices and higher futures markets.
Historical figures on the size of the U.S. cattle herd and cattle prices indeed do show the two tend to rise and fall in relation to each other. But that doesn’t mean herd size explains the historical magnitude of the recent price changes for both cattlemen and consumers.
Nor does it prove that beef markets are fair, balanced and working properly for all — including the consumers who enjoy a good steak.
The level of concern among beef producers was evidenced earlier this year in an unprecedented meeting of all the major groups representing beef producers, among them the American Farm Bureau Federation, National Cattlemen’s Beef Association, National Farmers Union, R-CALF USA and the U.S. Cattlemen’s Association.
The beef industry has historically been fragmented, with lots of disagreement and fighting among the groups, Tonsor said. “It is telling that they got together to play nice for the first time ever.”
The Nebraska Cattlemen also is believed to be the first beef organization to call for a federal investigation of the packers, which it did in April 2020. Other national organizations joined in, and then-President Donald Trump also urged an investigation, which is believed to be ongoing.
Pete McClymont, executive vice president of the Nebraska Cattlemen, said it’s frustrating to see packers making hundreds of dollars per head while “we’re trying to exist.”
“Packers and cowboys have been fighting ever since there's been packers and cowboys,” McClymont said. “We’ve just had such a long, extended time when people aren't making money. So something has to give.”
Meanwhile, producers like Andrews are trying to hang on.
On his vast Cherry County ranch, he has cut back, delayed buying new equipment and dug into savings. He’s looking at cutting back his herd as much as 20%, citing dry conditions and higher expenses to feed cattle.
His neighbor’s son recently left for a higher paying job in the city, and he worries whether his 16-year-old son will carry on the family tradition of raising a line of calves whose genetics have been developed over a century.
“I'll muddle through it,” Andrews said, “but the next generation?
“Why would you encourage someone to go into this field when you work your butt off for minimum wages? It's not like we're doing nothin’. We're providing food.”