990533 U.S. Meat Packers Didn't Depress Prices

Washington - There is no evidence that the four largest U.S. meat packing plants used their market power to bid ranchers' cattle prices lower in the 1990s, but the potential does exist, the U.S. Agriculture Department said.

A new report, prepared by five USDA economists, analyzed U.S. cattle prices and market concentration and concluded the downturn of the 1970s was worse for ranchers than the slump of the 1990s.

Four packers -- IBP Inc, ConAgra Inc, privately-held Cargill Inc unit Excel, and Farmland National Beef -- control 80% of the U.S. beef market.

"Despite these results that suggest that packers do not appear to be exercising market power, it is also clear that with concentration measures of 80% or higher, the potential for exercising market power in the industry does exist," the report said.

"Continued monitoring of market concentration and additional research into better measures of the existence and use of market power would be helpful," it said.

The 44-page report used economic models to analyze weather, feed grain prices, peak cattle inventory numbers and other factors in the market. U.S. cattle prices typically move in ten-year cycles that reflect consumer demand and breeding patterns.

The economists found the cycle of the 1970s, when ownership of packing plants was less concentrated, was "much worse" for ranchers than the cycle of the 1990s.

"We find that the most recent cycle's turning point is within the bounds associated with previous cycle turning points, especially with respect to cow/calf profitability measures," the report said.

The National Cattlemen's Beef Association and other livestock groups have negotiated with the major U.S. packing plants in recent weeks to hammer out proposed legislation for mandatory price reporting of cattle and pig prices.

The NCBA contends that the big companies must report prices, volumes and terms of cattle purchases twice daily to the USDA so producers can have more information to negotiate better deals for their animals.

The new USDA report echoes previous studies prepared by the department over the years, all of which concluded that the U.S. packing industry is not overly concentrated.

The wholesale-to-retail portion of the cattle price spread has grown because of costs for additional packing services and new products, the report said. From the 1970s to 1996, the farm-to-retail price spread widened from less than 40 cents per pound to more than $1.40 per pound.

This Article Compliments of...