This particular post is coming out of Angry Bear’s comment section. Farmer and Agricultural Economist Michael Smith is the author. Mike grows various food items on his farm and has a hands-on knowledge of what is occurring in the beef industry today.
What Mike is touching upon today is the small farmer industry and how the farmers are being squeezed out in bringing beef to market. The wholesalers and larger food chains such as Walmart can manipulate pricing to benefit themselves at the expense of small farmers who do not have the herd sizes or grazing capability to support the former and to push back. I will let Mike explain further.
As we look at the data coming in for inflationary pressures from around the economy, I wanted to pick one that I have seen some anecdotal evidence to support price gauging by processors particularly in the beef industry that is not due to inflationary pressures, at all. The beef industry is one market seeing very little light over the course of the pandemic.
The beef packing industry has been quick to point out that COVID-19 related response has meant that the processing plants needed to space out, and therefore become less efficient in their processing, in Texas, the trend has been since the beginning of the year to be “let’s go back to the way it was” in pretty much all aspects, and packaging plants are no exception.
Let me get some jargon out of the way:
Stocker – beef cow (any bovine graded for human consumption, gender irrelevant)Ground Portion – Each beeve (beef cow) is roughly 800 pounds and is 200 pounds of ground beef and 220 pounds on average of specialty cuts. The rest is organs, excess and skeleton that is sold off for secondary production such as dog food. Pelts sold for leather. We are focusing on ground since this is almost half the edible weight of the beeves, and arguable the most widely consumed.
Level 1 – Ranch,
Level 2 – Wholesale Processor,
Level 3 – Retail Grocer.
We are only concerned with Levels 1 & 2 which is where the disparity lies. Grocers have been rather consistent.
In the beginning of the pandemic, the price per pound of ground beef rocketed to $4.63 per pound, on average (BLS) for consumer prices on average for all lower 48 states. We expect statistical outliers in the Northwest and Mid-west between highs and lows, respectively. With limited supply and huge demand, we should see trickle down to producers, or in the case Cattlemen or Ranchers.
Indeed in 2020, we see the trend for beef cattle for ground beef is higher per pound at $2.44 for a wholesale stocker. This makes sense when you look at the data comparing Ranch and Wholesale:
One thing you will notice in the 2021 trending data is there is a concentrated push to lower the rancher margins to $2.20 a pound. Packers can continue to get $4.60 wholesale prices if ranchers concede an additional $0.20 per pound to benefit the packers. For an average ranch, that can be tens of thousands of dollars per year and ranches are already on thin margins.
Packers pushed ranch meat auctions pricing lower by buying fewer beeves. As a response to the pandemic, it creates a decreasing supply which creates more demand. The rolling blackouts from shutdowns of plants came as workers tested positive.
After adequate safety measures were put into place toward the end of 2020, prices for beef at auction somewhat stabilized around $108 per 100 pound. This is the same average price per weight as in December of 2019. Ranchers thought this was good news. The recovery in 2021 has been someone one sided.
As packers increase prices, the recovery for the ranchers is at a disproportionate rate with backers taking an almost 10% margin swing away from the ranchers. Why are we letting this happen?
Packers are notorious for this behavior.
This isn’t the first time the industry has had to deal with the conglomerate oligopoly of The Big Four. Tactics have been floated by the limited processing facilities that have USDA approval to drive down supply and buy less beef. This action causes prices to jump. But, packers already established a public willing to keep paying a higher price. And packer will blame inflation, rather than their predatory practices.
How the free market is countering
One thing you might have noticed is Facebook groups, farmers markets, and even local meat markets are re-opening! This is us trying to cut out the middle man. We now have local mobile butchers that will come and field dress our cattle on our land, and we will gladly bring you your favorite cuts of meat to the local farmers market in a city nearest you. You can also find our products popping up in local meat markets and butcher shops. We are fighting to get rid of the Perdue’s, Sanderson’s, Glazier’s and all of the middle men who merely process the food we eat and take the lion’s share of the profit, leaving farming communities answering to the banks for that years’ operating loans.
Hopefully this gives a little insight into the current state of affairs out in the ranch, and something to think about when you fire up that grill this weekend.
Happy Memorial Day from the middle of nowhere.