“You would be much amused with the animals ‘round the ranch.”― Theodore Roosevelt, Letters to His Children
Ranching in North Dakota
North Dakota has a rich history of ranching. It was on a ranch that Teddy Roosevelt found himself. It’s a lifestyle that encourages innovation, individualism, and a sense of pride. There are 1.83 million beef cattle currently in the state, roughly two cows for every North Dakotan. Despite these numbers, ranchers are often overlooked when issues like the trade war with China and Covid dominate the headlines. In previous installments we talked about droughts, Covid-19, and trade wars which are issues that have affected farmers and ranchers. In this article we’ll cover the issues specifically that ranchers face. Meat packing companies have been playing with market prices; beef producers and consumers are being taken advantage of with no Country of Origin Labeling, and a beef checkoff system forces producers to pay money for practices that don’t serve their interests. Ranchers and consumers are being taken advantage of by an industry that has grown too large to control.
“Every time I think about big meatpackers, I think that they’re gonna find a new way to screw us. I don’t know what creative way they’ll think of next, but I don’t trust big companies that put a lot of money in big politicians pockets. Our top priority should be finding ways to break up these big packers and facilities because they rule so much of the meat market.”
–Jenna Vanhorne
Packer Problems
There has always been tension between meatpackers and ranchers. For years packers would take advantage of ranchers by manipulating beef prices at the market. In the early 1900s a wave of public sentiment swept the country to bust up companies that had gotten big enough to stifle competition. The cattle industry’s major reform was the Packers and Stockyards Act of 1921. It was meant to make sure that vertical integration ( a tactic where a company owns the entire process and makes more money) was not allowed in the beef industry. Vertical integration gives meatpackers total control of the product, from the birth of a cow to the steak bought at a supermarket. Prior to the Packers and Stockyards Act, 5 companies dominated the market and instead of trying to compete, they colluded to keep beef prices down to maximize profits.
“The Cattlemen have been more on their own for quite a few years, but now Congress is starting to pay attention with relief programs and new legislation. You can get some payments to help, but monopolistic practices in the packing industry are hurting producers. The packers are manipulating cattle prices, so it’s not really a free market system in most respects.”
-Donnie Nelson
The Packers and Stockyards Act prohibited meatpackers and processors from engaging in unfair and deceptive practices, manipulating prices, creating monopolies and engaging in other anti-competitive market behavior, and it worked. By 1976 the 4 largest meat companies only controlled about 25% of the market. This changed in the 1980s, when the Reagan administration changed the definition of the law from anti-competition factors to factors to determine “efficiency” in the market. This led to a series of court cases that challenged the law and one by one stripped it’s ability to enforce. In 2004 (Pickett v. Tyson Fresh Meats Inc.) a federal court ruled the packer Tyson, the world’s second largest processor of chicken, beef, and pork, had a legitimate business interest to limit competition because public access to food was more important than paying ranchers a fair price. This ruling effectively shut down any attempts to break up the meat packers that dominate markets. As of now 4 meatpackers make up 80% of the industry and instead of competition between the 4 of them there is cooperation to keep prices down and profits up. 100 years later we’re back where we started, a few companies controlling an entire industry at the expense of producers and consumers.
“Ranchers like myself have always suspected something going on with the industry manipulating prices. But it’s always difficult to prove. Maybe some of our industry is like R-CALF can or has but getting anyone to listen is our real challenge. We’ll get packer reform when the people actually care.”
-Travis Anderson
The Futures Market vs Spot Market
Cows can be sold two ways: futures contracts sell cattle at a set price, (regardless of the market price at the time of sale) or on the spot market where a rancher can sell a cow immediately at whatever the market price is. The spot market is the last true market where a rancher can sell cattle for whatever price they are truly worth at the time.
“Trading in the futures market has so many players who are not farmers. They’re not even meatpackers, they’re just commodity traders in Chicago and Kansas City. (Do you agree with this?) I think there needs to be reform where at least 50% of sales are made on the spot market. In my opinion that would be a pretty good starting point for negotiation. I think that we still need some sales on the futures markets to be able to anticipate markets for things like holidays when meat demand is higher. But overall meatpackers need to stop using the futures market to manipulate their profit margins.”
–Glen Philbrick
Futures contracts lock a rancher into selling their cattle at a predetermined price that’s supposedly based on supply and demand. If the markets go lower than the predetermined price, the rancher is insulated from future losses, but if the market price goes up, the rancher sells beef at a price below the current market value and loses money. Companies that use futures contracts usually provide the producer with everything that they need to raise the animals but in turn control how they are raised and when the animals are sold. The pork and poultry industries typically use this model because the meatpackers can maximize profits and exert total control over the producers but they’ve never figured out how to make the process work for the beef industry. The spot market may be the reason why this is true. Cows are too expensive to handle from calf to steak to make a futures market system completely work in the beef industry. Spot markets still give independent ranchers some freedom to sell on a competitive market but currently they account for less than 20% of all cattle sold. Packers also buy from spot markers in a pinch if their feedlots run when demand for beef is high.
“I know that we also have to consider food security and being able to process large amounts of beef to feed a hungry nation, but we can do this and pay our producers a fair price. If we can’t trust them not to exploit us, then we need to break them up and take their power away.”
-Jenna Vanhorne
Spot Market Reform
Because of the ruling of the Tyson case, legislation will be needed to change or enforce any laws regarding the spot markets. Legislation is being pushed by Senators Chuck Grassely (R-Iowa) and Jon Tester (D-Montana) to require 50% percent of all beef be purchased on the spot market to reduce price manipulation. Futures contracts manipulate the price because they depend on how many cattle are ordered for slaughter and are living on feeder lots near the slaughter houses. For example, if a packer buys a high number of futures contracts they can claim they have an abnormally high number of cattle that they need to slaughter, even though they don’t physically have the cattle there. That means they can force the prices lower because any cattle sold would have to wait for those futures cattle to be slaughtered. This has the added benefit that packers can buy all of their product without having to pay for feed or housing for the imaginary cattle they own. Futures contracts pass that cost to the rancher. The law change proposed by Tester and Grassley would force packers to actually buy more physical cattle. In the beef industry cattle are expensive to care for, but when you slaughter them, you can sell them for a premium price.
“Beef prices are constantly affected by packing companies trading beef that doesn’t exist. Meat packers use the futures market to sell products at high prices, and then they buy cattle at low prices. Supply and demand isn’t being taken into account due to the use of futures and that ultimately hurts the producer. It’s all just speculation at this point.”
–Travis Anderson
“I feel like spot market reform would help us. It’s a small fix, but a step in the right direction. Any positive step is good, even if it’s a baby step.”
-Glen Philbrick
“The toughest challenge that I face as a rancher is that the market’s stacked against us because we have three packers Tyson, Cargill, and JBS controlling the majority of the markets. That concentration of power is not good for the industry and even our ag commissioner has acknowledged it along with many other states. I’m glad that AG Barr has subpoenaed the records to investigate price fixing. It’s a good first step, I just hope he follows through. The wheels of justice turn slowly in this country.”
-Glen Philbrick
Boxed Beef vs Cattle Prices
When a customer looks at a steak on the supermarket shelf, they might notice that the price goes up and down. As the price rises many people might incorrectly assume that if a steak costs more the ranchers are making more money. Unfortunately, this isn’t true. There are two prices in the beef market, boxed beef and cattle. Boxed beef is the price that rolls in the costs a meat packer puts into processing the meat and can also be affected by demand for beef. Box beef prices have nothing to do with cattle prices. There has always been some disparity between boxed beef and cattle prices. In 2019 a feedlot fire and then Covid-19 laid bare the market manipulation practices in boxed beef. Boxed beef prices more than doubled in April and May of 2020, while live cattle prices dropped by 20 percent or more in that same period. It’s alleged that the packers were colluding to artificially drive the boxed beef price up. Attorney General William Barr, after pressure from attorneys generals from North Dakota and 9 other beef producing states subpoenaed the top 4 packing companies financial records. Currently the USDA is working on reviewing the case and no results have been made publicly available.
The Western Organization of Resource Councils (WORC) dug deep into this issue and came up with a way to make markets more fair by calling for spot market reform. They call this the WORC rule and you can read about it here)
“It’s great Attorney General Barr subpoenaed the meatpackers. I, for one, would love to see their records. I want to see something come of this though. We can make a big media circus to call this bid packers out on their misdeeds, but the truth of the matter is the meat packers are owned by too many foriegn and domestic special interests that are extremely powerful, and until someone holds them accountable for anything found, and i mean really accountable, nothing is going to change. As a farmer and rancher I feel like I can’t trust anybody with deep pockets to have my back anymore and I think a lot of ranchers feel the same way. I don’t think me wanting a fair and consistent price for my product is too much to ask.”
-Jenna Vanhorne
COOL gets repealed.
Another problem that is affecting beef market prices is Country of Origin Labeling (COOL). In the 2002 Farm Bill, a law was passed requiring retailers to notify their customers of the country of origin of muscle cuts, ground lamb, chicken, goat, wild and farm-raised fish and shellfish, perishable agricultural commodities, peanuts, pecans, ginseng, and macadamia nuts. The law was popular and successful among consumers and in 2008 and after much pressure from producers, pork and beef products also required country of origin labeling on their products. A Product of the USA label is shown to make beef products more valuable and desirable to the consumers in the US. As seen in the graph below, beef from the USA’s value rose substantially between 2008 and 2016 but after the repeal supermarket prices stayed up but cattle prices dropped.
Packers and the WTO Push Back
After Mandatory COOL was implemented, the price of beef started to rise as predicted. Packers complained about having to pay more for beef and the added costs of keeping track of the animals and carcasses. On the international level, Mexican and Canadian beef producers felt that labeling to distinguish domestic from imported beef violated the agreements of NAFTA on the grounds that it was specifically designed to discourage consumers from buying Mexican and Canadian beef. They filed a complaint with The World Trade Organization (WTO) in 2009. The WTO heard the case and ruled in favor of Mexico and Canada. After several appeals, the WTO ruled in 2015 that the US violated international agreements and authorized a retaliation payment of 3 billion US Dollars from the USA to compensate for damages along with further payments to Canada and Mexico if they continued the practice. In late 2015 COOL was quietly repealed in a massive omnibus spending bill approved by Congress.
“Repealing COOL was all about making excuses for the meat packers. People still tell me that the cost of labeling is what’s killing COOL, but the real cost that packers had was keeping cattle in separate feedlots and keeping the meat separated. Politicians complained that we would’ve owed 2-3 billion dollars in tariffs to Canada and Mexico, but after throwing out all of this money for COVID relief, that’s pocket change at this point. Canada complained that USA beef was hurting their market before COOL was repealed. They now have their own marketing brand “Berta Beef” and competition is just fine as far as I’m concerned, but how is that any different from our branding? You can’t even look these people in the eye and take their excuses seriously anymore. But let’s face it, they’ve been pretty successful at it until now.”
-Travis Anderson
“If we don’t take care of our domestic market we’re really in trouble. Developing countries are buying more beef, so on paper the exports should be helping us. The reality is that it’s not trickling down to the producer. We raise the highest quality beef in the world, but with that quality comes cost. You have to have disposable income and America is the best market to sell beef. We’re starting to grow markets in other countries but because of the pandemic of those new markets are now uncertain.”
-Donnie Nelson
Product of the USA?
As soon as COOL was repealed the USDA went back to a voluntary labeling system that said any beef inspected in the USA would be labeled “Product of the USA. Meaning a piece of meat did not have to be slaughtered or raised in the USA to get that label. The laws currently state that any beef slaughtered out of the country can be “processed” in the US and then be labeled “Product of the USA”. Processing can mean anything from adding salt or soy sauce to a cut of meat or, some watchdog groups allege, that companies move meat from one crate to another and call it processing. Another tactic used to get beef that was slaughtered outside to be labeled “Product of the USA” is to mix it with US ground beef. All of these practices have contributed to the decline of beef prices since 2016.
Fighting Back for COOL
As soon as COOL was repealed groups lobbied to bring it back and after years of pressure, some senators have stepped up to support them. In October of 2019 a resolution was introduced by Jon Tester (D-Montana) supporting reinstatement of Mandatory COOL for beef and pork, the only two major food products in the USA that don’t require country of origin labeling. A few days later, Mike Rounds, (R-South Dakota) and John Thune (R-South Dakota) introduced the US Beef Integrity Act, a law that would change USDA requirements for what can be considered “Product of the USA” beef. After reviewing the bills in committee, Rounds and Tester worked together to create a compromise resolution that would support Mandatory COOL, but only in beef. Multiple senators have signed on and the USDA started to accept public comments regarding changing the “Product of the USA” regulations. COOL has a long way to go before it can be reinstated, but recent events have shown promise that this issue can be won.
No Checks on the Checkoff
All commodities have a checkoff (a mandatory payment that all producers pay that supports the industry) and beef is no exception. The 1985 beef checkoff was created to help drive beef prices back up after they were suffering in the 1980s. It was designed to be an education and marketing campaign to promote American beef. It was to be funded by mandating that ranchers pay $1 for every head of cattle that they sold. It was decided The National Cattlemen’s Beef Association (NCBA) would oversee how the money was used with a board of elected members. The famous commercial starring Sam Elliot saying “Beef, it’s what’s for dinner” was funded by checkoff dollars. The fundamental idea of a checkoff is good in theory but the program has slowly been corrupted by corporate influence and has turned against the interests of the ranchers.
Checkoff spending is primarily criticised because ranchers have little say in where their dollars go and the meat packing industry has disproportionate influence on how checkoff dollars are spent. 73% of checkoff money is spent on lobbying and board members’ salaries and the NCBA’s membership is only 4% producers. The checkoff system is mandatory at the point of sale, but the rancher can ask for their money back through a checkoff refund program. The process is complicated, often requiring multiple forms to fill out if more than one seller owned the cattle, the rancher often has to wait a long time to receive their check back. The process is so time consuming and cumbersome with such a small refund many ranchers never bother to ask for it. Over the years there have been many attempts to reform the 1985 checkoff and multiple ranching groups have organized to fight back against the abuse.
R-CALF fights the Checkoff
The Rancher-Cattleman Action Legal Fund (R-CALF) started a petition drive calling on the USDA to hold a vote on the beef checkoff. They need 90,000 signatures from cattle producers by July 1st, 2021 for that to happen. After nearly 30 years of seeking reform, a vote is the only way to see how producers truly feel about the program. Threatening to remove the system might be the best way to bring about reform. Producers deserve a seat at the table to make decisions about how checkoff dollars are spent.
“Beef checkoff seems like a good investment. As long as it benefits beef producers, and that’s the important part. I take it for granted that I live in an ag state. It’s important that education is given to those who are not accustomed to raising cattle. Some people have no idea beef comes from cows, they think it comes from a grocery store. Education on where and how beef is raised is important to our marketing structure. But on the other hand sometimes we don’t get a say where our dollars go. I’m glad producers in North Dakota have the choice whether or not to get a state refund. I think we need to have a vote and settle this issue once and for all.”
-Jenna Vanhorne
A Difficult Road Ahead
Ranchers in North Dakota are still a long way from selling their cattle at a fair price. Currently subsidies continue to ease the pain of low prices but there is no guarantee prices will return to pre-Covid levels anytime soon. Mandatory COOL, Spot Market Reform, and the Checkoff Reform need to be addressed for long-term relief. Although progress is being made, ranchers will need allies to help them in their efforts to get these reforms.
Click These Links below to find out how you can help:
Cattle ranchers need your help for spot market reform!
Farm And Ranch Relief Resources
Our Next article will be titled “The Future of North Dakota.“