Regulating packer profits gains traction as boxed-beef prices soar

Since the fall of 2019, beef packer profits have received major attention by ranchers and feedyards. Much of the discussion started after the packing plant fire in Kansas, but has exploded recently due to the results of the COVID-19 pandemic. Packers have struggled to stay online due to COVID-19 cases related to the plant, and the industry has lost food service which as struck supply chains hard, complicated by consumers hoarded product from the grocery store.

Give us your opinion: should packer profits be regulated by government?

This week President Donald Trump announced, “I’ve asked the Justice Department to look into it. … I’ve asked them to take a very serious look into it, because it shouldn’t be happening that way and we want to protect our farmers.” There are questions regarding the teeth of this investigation, however.

Prior to 2016, beef packer margins floated between -$20 and $20 consistently, but that has changed. During this current period of packer capacity restriction due to COVID-19 that +/- $20 has ballooned to over $700.

Historically speaking (see left), from 2015 through 2019 the choice cutout was in a range of $180 to $265.  The high during that period was reached in the spring of 2015.

In 2020 (see right), the choice cutout has spiked to levels never seen before, all because of packers facing slaughter capacity issues and consumer hoarding.

While the beef cutout has risen, live cattle prices have fallen 14% year to date.

This market dynamic has frustrated beef producers tremendously, as packers have seen lofty spreads between the choice cutout and farm gate prices.

Although there is lots of push for packer margin regulation, a deeper conversation on the “how” is not as widely discussed. If the the conversation on packer margin regulation becomes more tangible what would it actually look like?

Some producers believe that the cash price should be tied to the boxed beef price or there should be a bust up of the consolidation at the packer level. Others think a cap on gross profit per unit would work. All of these have their downside risks for the producer, though too.

In Canada, railways are regulated on revenue, banks face rules, and airlines were recently handed a passenger bill of rights.  Are packers next?

Please take two minutes and answer our quick survey on whether meat packers should be regulated. 

2 thoughts on “Regulating packer profits gains traction as boxed-beef prices soar

  1. Its to simple to say that packer margins should be regulated. A cap like railways means they will concentrate on reducing costs. Biggest cost is the animal, therefore feeders ranchers, pork producers etc will again be hit. We need to find a way that opportunities translate to margin for feedlots and primary producers of beef pork and chicken. I think that means reducing the % of market each packer has, diversifying and increasing the number of packers and making it easier for farmers to sell direct to consumers. Anything to increase competition. It will require regulation, it will cost consumers more as it will decrease efficiency.

  2. With regard to the packer price control question. I was on the BIC years ago and was a delegate with ABP during that time. There was a lot of discussion about the beef value chain and how to move profit from the consumer’s spending to the rancher through the middle businesses. The value of BIC to create demand was only realized by the rancher because of “greed” in the competition between sectors. I wonder if the sustainable initiatives, with additional dollars flowing directly to the producer/feeder because of profit at sale(to consumer) could be made to work.

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