Concentration
Industry Concentration and the Supply of Beef
It is often repeated that virtually all the U.S. beef supply is uniquely in the hands of just a few companies; this claim is greatly exaggerated.
The top four beef packers in the U.S. account for the purchase and slaughter of about 84 percent of all fed cattle in the U.S., according to the most recent report from the USDA’s Packer and Stockyards Division. But those fed cattle make up about 79 percent of the Federally Inspected cattle slaughter in the U.S. The other 21 percent is made up of cows, both dairy and beef, and some bulls.
Thus, the “Big 4” beef packers, even factoring in the cow slaughter plants they own comprise closer to 65 to 67 percent of U.S. beef production.
What’s the difference? Fed cattle are steers and heifers that packers purchase from feedlots after being brought to market weight on a diet of grain to produce boxed beef, i.e. primarily the muscle cuts that consumers demand as steaks, ribs, and roasts. Cows and other non-fed cattle, on the other hand, are primarily slaughtered to be made into hamburger. The lean meat from these animals is a necessary ingredient to be made into America’s supply of hamburger produced in combination with the less demanded muscle cuts from the fed cattle.
Why is that important? About 50 percent of all beef in the U.S. is consumed as hamburger.
Indeed, the beef packing industry is like many other mature, capital intensive industries that operate on a large scale – from airlines to cellular phones and internet providers, to automotive and home appliance manufacturers – whereby the production of several bigger companies is complemented by a much larger number of medium and small enterprises. The hundreds of companies that make up the North American Meat Institute reflect the breadth of the meat industry’s make-up and include companies of all sizes and structures including single plant companies, producer-owned, family-owned, and corporate operations.
Market Power in the Industry is Not Consolidating
Much of the rhetoric about industry concentration implies that consolidation in the beef packing sector is ongoing and that market power is becoming more and more concentrated. That certainly is not the case.
The 1980s and early 1990s were a period of industry mergers and acquisitions. As USDA’s Economic Research Service noted then:
Many economic forces underlie decisions to shut down plants and purchase others, most importantly, changes in demand and technology. For example, technological change has led to larger beef packing plants. At the same time, declining beef consumption has lowered production across the industry.
In short, industry consolidation was a factor – not a cause – of broader market forces.
Importantly, this restructuring activity was carefully reviewed contemporanesouly by the Antitrust Division of the Department of Justice (DOJ), in coordination with the Federal Trade Commission (FTC) and USDA’s Packers and Stockyards Division (PSD), during Administrations of both parties. Further, none of these enforcement and oversight agencies, who monitor the sector regularly under Administrations of both parties, have found cause to pursue any actions or remedies.
In the fed cattle industry, the four-firm concentration ratio has not changed appreciably over the past 25 years. According to USDA, in 1994, for example, that ratio was 82 percent, compared to about 84 percent today.
The four-firm concentration ratio is monitored closely by PSD, an agency uniquely charged, by statute, to provide on-going oversight for fair business practices and to ensure competitive markets in the livestock, meat and poultry industries.
While there have been several ownership and asset transactions in the industry over the past two decades, as the chart shows, those transactions have not resulted in greater packer concentration. Newly structured firms within the industry should not be confused with consolidation of existing industry players.
And as stated above, proposed mergers and acquisitions that have the potential to increase industry consolidation – and reduce competitive market forces – must pass strict scrutiny by the DOJ and FTC. For example in 2008, after a thorough review, DOJ blocked the last proposed major acquisition based, not on the size of the post-merger company, but rather on concerns about the location of certain plants involved in the deal and the potential adverse impacts that might have on competition in the regional fed cattle market. In short, there are oversight checks on the industry to protect the market.
Plant Size and Capacity Reflect Market Factors, Not Concentration
Often industry critics mistake individual packing plant size and slaughter capacity with overall industry concentration. This has especially been the case during the COVID related disruptions. However, the size, location, and number of plants reflect basic economic factors like the cattle supply and the economies of scale in the beef business. Those economic forces exist whether the ownership of various plants is broken up.
First, the cattle supply itself is concentrated. The farms and ranches that produce about half of all beef cattle in the U.S. are in just 7 states. Further, more than 70 percent of all fed cattle are in just 5 states - and 55 percent of the U.S. corn crop that supplies those feedlots is grown in just 4 Corn Belt states. That supply dictates where fed cattle slaughter plants are located. Likewise, cow slaughter plants rely on a supply of cull cows from pasture-based smaller cow-calf farms or dairy farms and are structured based on those factors.
Second, each plant has its own cost structure. Packers bid on cattle based on the supply and demand factors in their own region. Owning a plant in Texas does not change the bottom-line to a company’s operation in Iowa or Colorado.
Third, the economies of scale drive the capacity and production of a given packing plant. That is especially true in areas with large numbers of fed cattle. Like all industries, beef packers work toward optimal efficiency – which reduces operational variable costs and fixed overhead costs – while striving to improve quality and meet consumer demands. Minimizing the costs in the middle of the value chain has proven benefits to both ends, including better returns to cattle producers and feeders and lower costs to beef consumers.
Market Transparency
There is already robust price discovery in the cattle and beef markets. Congress established and USDA administers the Livestock Mandatory Reporting Act (LMR) program to facilitate open, transparent price discovery and provide all market participants, both large and small, with comparable levels of market information for slaughter cattle and beef, as well as other species.
Under LMR, packers must report to AMS daily the prices they pay to procure cattle, and other information, including slaughter data for cattle harvested during a specified time period and with net prices, actual weights, dressing percentages, percent of beef grading Choice, and price ranges, and then AMS publishes the anonymized data.
AMS publishes 24 daily and 20 weekly cattle reports each week. Weekly reports start Monday afternoon and end the next Monday morning. These reports cover time periods, regions, and activities and the data include actual cattle prices.
Further, packers report all original sale beef transactions in both volume and price through the Daily Boxed Beef Report. This data is reported twice daily, at 11:00 a.m. and at 3:00 p.m. Central Time. The morning report covers market activity since 1:30 p.m. of the prior business day until 9:30 a.m. of the business day. The afternoon report is cumulative, including all market activity in the morning plus all additional transactions between 9:30 a.m. and 1:30 p.m., and is on the USDA DataMart website. The boxed beef report covers both individual beef item sales and beef cutout values and volumes, both of which are derived from the individual beef item sales data.
In addition to LMR, Congress directed USDA to establish the Cattle Contracts Library (CCL) Pilot Program, which became publicly available on January 31, 2023. Under the CCL, covered packers report active fed cattle contract terms and volumes to USDA, including information on premium and discount schedules, pricing mechanisms, and delivery terms. AMS publishes aggregated weekly summaries that provide producers with greater visibility into the structure of the contract marketplace.