Consolidation in cattle and beef markets is getting renewed attention in the wake of a massive fire on Aug. 9 that disabled a Western Kansas packing plant, where around 5 percent of the nation's cattle are processed every week.
After the fire at the Tyson plant in Holcomb, markets plunged.
"It's a tragic thing, just the sheer amount of money lost in the futures market and cash cattle trade," said Shad Sullivan, who grew up near Ordway and now lives near Wichita Falls, Texas, where he runs a stocker operation.
Sullivan serves as a regional director for R-CALF USA, a cattle industry group that met for its annual convention just days after word of the fire sent markets into a tailspin.
"It was a bad week," observed Gerald Schreiber, another R-CALF director from Last Chance, Colorado, who currently serves as the organization's president. "You could see everybody from the stocker operators to the feeders to the cow-calf producers checking their phones to see what the market was doing. Just scared to death. And the crash we saw? That was supposed to be based on one packing plant?"
"It is a big plant," he continued. "But still, for one plant to have that kind of ramification — if we've become so concentrated that one plant can cause that kind of disruption — that should be a major concern."
Opposing market concentration has been an R-CALF priority since the group was founded in 1999. The convention included an update on a class action lawsuit, filed in April, that alleges the nation's largest meatpackers operate like a "fed cattle cartel" to depress cattle prices.
But the lawsuit could take several years to work through the legal process, regardless of the outcome, and the group's leaders are concerned time is running out as circumstances grow increasingly dire for independent producers.
"It feels like it's just been one hit after another," Sullivan said. "We're an established business, but I'm going through generational equity like crazy just trying to stay afloat."
"After the catastrophic drought we had a few years back, we finally got out of that and made a little money," he said. Then came the fall of 2015, when markets cratered and futures volatility became so pronounced that many in the industry started to seriously question whether lack of cash negotiation, lightning-fast trading technology and other changes were ruining the market's ability to function effectively.
The fallout from the recent plant fire felt like another blow, Sullivan said.
"I read somewhere that farm bankruptcies will be up almost 19 percent this year," he said. "So this could be a big deal, because a lot of people are already on the edge."
Schreiber said the market was a little softer than he wanted when he sold his spring calves on the video auction a few weeks ago, but now he's glad he did.
Still, he estimated that only about 30 percent of cow-calf producers contract their calves through video sales, so the bulk of them are facing heightened market uncertainty heading into the critical fall season.
Kyle Hemmert, owner of Oakley Livestock Commission in Oakley, Kan., said once a cattle producer makes a sale on the video auction, the buyer is forced to honor the contract, no matter what the market does between the time of sale and delivery of the cattle.
As for those with cattle to sell, many chose to hold off coming to his sale this week to wait and see if prices recover.
Hemmert, who is also an R-CALF USA director and currently the association's vice president, said the market reaction to the fire reinforced his view that packers exert too much control over the market.
"We had the fire, markets go down hard for four days, and yet when it all settles up the following week the total cattle slaughter was up by 9,000 head, the prices paid for the cattle were down 5 percent, and choice beef went up 9 percent at the grocery store. You tell me how that equation works," he said. "The numbers speak for themselves."
Hemmert was further upset that packers and retailers fought to get country-of-origin labeling dropped from beef and pork, even though it was included in the 2008 farm bill.
He and Schreiber both said they were energized by convention speakers representing other industries, ranging from tool-making to tableware, who talked about their success with Made in the USA promotional campaigns and with persuading President Trump to renegotiate more equitable trading relationships around the world.
"What they did for the steel industry is what we need in the cattle industry," Hemmert said. "Steel is being made here again now, not brought in and manipulated and then passed off as U.S. made. That's what we are after. And we think if President Trump ever gets the true story, he'll give us the tools to fight this."
Mandatory country-of-origin labeling is an issue that has deeply divided the cattle industry for years. Without it, Hemmert said meatpackers can bring in imported cattle or boxed beef and drive down prices paid to U.S. producers while limiting consumer choice.
"Definitely we are in the right on this, but I'm concerned about the time factor. People are under a lot of financial stress," he said. "At our sale barn, we used to have three or four feed yards come to buy cattle and three or four independent feeders come to get cattle to fatten up, but now the big huge feed yards are the only ones left. We have fewer than half the buyers we used to have."
Sullivan said lower cattle prices going into the fall could have serious consequences for independent operators like him.
"It affects your borrowing power, and your bankers get nervous, and now you're getting ready for next year and you don't know where you're going to be," in terms of how much equity you have to borrow against, he said.
Schreiber said he hoped the latest market gyrations would be a wake-up call for all cattle producers, regardless of membership affiliation, to push for industry changes.
"It's time people stood up and rallied," he said. "I think we're at a seminal point. We talk about price protection, but the board of trade has become so volatile that's easier said than done. As cattle producers, we don't need to be on different sides of the aisle right now."