Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe. Why isn't thal Joe?
Speaker 2: What do you eat more of eggs or beef?
Speaker 4: You know?
Speaker 3: I was just thinking I want to eat more beef
Speaker 3: in my life. I probably you eat more eggs ultimately,
Speaker 3: but like, beef is just so good. Beef is the
Speaker 3: best food there is in the entire world. I truly
Speaker 3: believe that. And every time I eat beef, I think about,
Speaker 3: why don't I eat this all the time. It's so good,
Speaker 3: It's so satisfying and all these nutrients. I don't have
Speaker 3: this impulse to snack and eat garbage afterwards. I want
Speaker 3: to eat more beef.
Speaker 2: I'm pretty sure I eat more beef than eggs at
Speaker 2: this point. I will have the occasional omelet and I
Speaker 2: mix a lot of eggs into like Asian noodle dishes
Speaker 2: and things like that, but not.
Speaker 3: That I aspire to live. They to have the Tracy
Speaker 3: Alloy diet.
Speaker 2: Okay, Well, speaking of beef except expensive these Yes, this
Speaker 2: is exactly it. So I'm sure everyone listening to this
Speaker 2: podcast at this point has heard about rising beef prices
Speaker 2: in the US. There are a lot of headlines flying
Speaker 2: around constantly in recent days about this. So, for instance,
Speaker 2: we're recording this on October thirtieth, and earlier this week,
Speaker 2: President Trump was tweeting about how he wants beef prices
Speaker 2: to be lower. He's also been talking about buying beef
Speaker 2: from Argentina. It is very much in the news. There's
Speaker 2: also the whole soybean drama with China.
Speaker 3: Yeah, there is a I think it's funny because in
Speaker 3: that Trump post he said cattle rancher should appreciate how
Speaker 3: good things are going because high beef prices, but bring
Speaker 3: them down. There's just a lot, and I've said this
Speaker 3: before on the show, which is that I think the
Speaker 3: ultimate marker of civilization is the amount of beef or
Speaker 3: protein that you can buy with an hour's work, that
Speaker 3: the median person or the average person can buy with
Speaker 3: an hour's work. And I think when it's going backwards,
Speaker 3: we should be very disturbed. So setting aside, I'm very fortunate.
Speaker 3: I could probably afford to these as much beef as
Speaker 3: I want. But the price of ground beef, I'm looking
Speaker 3: it up on the terminal now it's like tripled since
Speaker 3: ten that there's like four dollars around the pandemic. Now
Speaker 3: it's of over six dollars. I think these are extremely
Speaker 3: serious issues.
Speaker 2: I will say I don't think we need to be
Speaker 2: quite as obsessed with protein Americans especially, we already eat
Speaker 2: a lot of protein. Say eat more fiber.
Speaker 3: I'm not saying we need to be obsessed. Actually, I
Speaker 3: do think the protein craze may be a little out
Speaker 3: of hand. I just think this is like a very
Speaker 3: good measure of the advance of sort of a wealthy
Speaker 3: society that protein gets more affordable.
Speaker 2: I'm going to get you a cow share for Christmas.
Speaker 4: Thank you?
Speaker 2: All right, Well, I am happy to say we do,
Speaker 2: in fact have the perfect guest. We're going to be
Speaker 2: speaking with Bill Bullard. He is the CEO of our
Speaker 2: calf USA. So Bill, thank you so much, Thanks for
Speaker 2: coming on.
Speaker 4: All thoughts, glad to be here. Thank you.
Speaker 2: Thank you also for actually looking the part of a
Speaker 2: cattle rancher. We really appreciate it.
Speaker 3: No one can deny that we're talking to the perfect guest.
Speaker 2: All right, So why don't we start really simple? What
Speaker 2: have you observed about beef prices just in the past
Speaker 2: few months or so.
Speaker 4: Well, we've seen beef prices increasing as you've indicated, and
Speaker 4: we see cattle pricing also increasing as you indicated. So
Speaker 4: we now have a positive relationship between the price of
Speaker 4: beef and the price of cattle, and we are a
Speaker 4: competitive industry. We do not rely on government price supports.
Speaker 4: Were the single largest segment of American agriculture. That cattle
Speaker 4: industy generates about one hundred billion dollars a year in
Speaker 4: cash receipts, so it's it's larger than any other commodity corn, wheat, cotton, dairy,
Speaker 4: and we rely on competitive market forces. But we have
Speaker 4: not had competitive market forces until very recently. And that's
Speaker 4: where we need to get into the history of why
Speaker 4: beef prices are high.
Speaker 2: Can I ask very quickly, you said there's now a
Speaker 2: positive relationship between cattle prices and beef prices. Is that
Speaker 2: not always the case?
Speaker 4: That certainly has not been the case, especially since twenty fifteen.
Speaker 4: We saw an inverse relationship. We saw beef prices heading
Speaker 4: skyward beginning in twenty and seventeen, and while beef prices
Speaker 4: were increasing, cattle prices were falling. And this is really
Speaker 4: odd in an industry where the only ingredient in beef
Speaker 4: is cattle, so you would expect there to be a harmonious,
Speaker 4: synchronous relationship, a positive relationship between beef prices and cattle prices.
Speaker 3: One of the things I discovered on the terminal back
Speaker 3: during the pandemic, I learned all these things. We actually
Speaker 3: have an index on the terminal, the Hedger's edge beef
Speaker 3: packer margin, which I imagine to some extent reflects that spread,
Speaker 3: and we do see it rise generally up really through
Speaker 3: twenty twenty one, actually started to compress quite a bit.
Speaker 3: But just actually why is that? Like, what explains why
Speaker 3: these things can move in different directions? What is the
Speaker 3: added factor in the price of beef that is not
Speaker 3: the price of cattle.
Speaker 4: So let's go back to just over a generation. We'll
Speaker 4: go back to nineteen eighty. Great at the time, we
Speaker 4: had one point three million beef cattle farmers and ranchers
Speaker 4: in the United States. We got about thirty seven million
Speaker 4: cows in our mother cow herd. Beef Prices that consumers
Speaker 4: paid were about two dollars and forty cents per pound.
Speaker 4: At that time, we had the four largest packers in
Speaker 4: the industry, controlling thirty six percent of the industry. So
Speaker 4: if we think about how the beef industry works, it's
Speaker 4: the consumer beef dollar that has to be allocated along
Speaker 4: the entire supply chain. So back in nineteen eighty, every
Speaker 4: time a consumer spent a dollar on beef, that dollar
Speaker 4: was allocated by competitive market forces, and over sixty cents
Speaker 4: of that dollar went back to the live cattle producer,
Speaker 4: the farmer and rancher and the cattle feeder, and less
Speaker 4: than forty cents went back to the processing part of
Speaker 4: the beef industry, and that's to the retailer and the packer.
Speaker 4: So the producer was receiving the majority shared which made
Speaker 4: sense because they kept that animal for fifteen to eighteen
Speaker 4: months before it was slaughtered and converted to beef, and
Speaker 4: the beef packer only kept the animal for about seven
Speaker 4: days and the retailer kept it for the shortest amount
Speaker 4: of period possible. So but the point was is that
Speaker 4: when consumers were paying two dollars and forty cents per
Speaker 4: pound for beef, sixty cents of that dollar was going
Speaker 4: back to the producer and only less than forty cents
Speaker 4: was going back to the processor and the retailer. Now
Speaker 4: jump ahead. Today, we've wiped out over half of all
Speaker 4: the beef cattle operations in business. Just over a generation ago,
Speaker 4: we've lost fifty two percent of them. We've wiped out
Speaker 4: twenty five percent of our Mother Kyle beef herd, and
Speaker 4: the four largest packers controlled today about eighty percent of
Speaker 4: the marketplace. And consumers in twenty twenty four paid about
Speaker 4: eight dollars in twenty three cents per pound for beef,
Speaker 4: and now in twenty twenty one, just a couple of
Speaker 4: years ago, the allocation that the competitive market was making
Speaker 4: in the marketplace was completely tipped on its head. In
Speaker 4: twenty twenty one, the packer and the retailer received over
Speaker 4: sixty cents of every consumer beef dollar, and the producer
Speaker 4: received less than forty cents. So here's the question, how
Speaker 4: would a competitive market could that have happened? How could
Speaker 4: a competitive forces in the marketplace completely reversed the competitive
Speaker 4: allocation of the consumer beef dollar within the entire beef
Speaker 4: supply chain. The answer to that question is it can't.
Speaker 4: If our market was competitive, that could never have happened.
Speaker 4: That raises the concerns that we've been struggling with for
Speaker 4: the past several decades. Our industry is in a state
Speaker 4: of crisis and it has been and what has happened
Speaker 4: is is because of industry concentration and consolidation, the ability
Speaker 4: of the multinational meat packers and retailers to exert buying
Speaker 4: power upstream in the supply chain, and the fact that
Speaker 4: we've entered free trade agreements that have allowed the meat
Speaker 4: packers and retailers to access beef from around the world
Speaker 4: and displace domestic production. Because the beef that we import
Speaker 4: from Argentina, Brazil, Uruguay, Nicaragua, Costa Rica, Australia, New Zealand,
Speaker 4: Canada and Mexico, it's a perfect substitute for domestic product.
Speaker 4: So the more we import, the less we have the
Speaker 4: ability and capacity to maintain domestic production of this very
Speaker 4: important protein source, which is beef. And so what we
Speaker 4: see today is a dysfunctional marketplace. As I described before,
Speaker 4: since twenty seventeen, we saw beef prices going up that
Speaker 4: consumers were paying in the retail store. We saw cattle
Speaker 4: prices going down. SENSU shows that just in the five
Speaker 4: year period from twenty seventeen to twenty twenty two, we
Speaker 4: lost one hundred and six thousand beef cattle operations, farmers
Speaker 4: and ranchers exited the industry during that period. And the
Speaker 4: reason that that's happened is because they've suffered long term
Speaker 4: lack of profitability. It's because their market is dysfunctional. It's
Speaker 4: because imports have displaced our domestic production and our opportunity
Speaker 4: to expand. And now we've hit a huge market shock,
Speaker 4: an economic shock to the market, and that was the
Speaker 4: latest drought that occurred in the latter part of twenty twenty.
Speaker 2: This is what I was going to ask, so just
Speaker 2: to we're going to talk more about industry consolidation, for sure,
Speaker 2: and you know, I'm looking, for instance, at a headline
Speaker 2: right now about Walmart tightening its grip on the beef
Speaker 2: market by setting up a new plant. But just to
Speaker 2: play devil's advocate for a second, how much of this
Speaker 2: is just down to pure input costs like grain going up,
Speaker 2: or you know, the drought that you just mentioned, or labor.
Speaker 3: Costs at least, especially the move that we've seen over
Speaker 3: the last year, which I'm sure which cannot obviously be
Speaker 3: explained by multi decade trends.
Speaker 4: So what we've seen is our cattle supplies that tightened
Speaker 4: to the lowest levels than seventy five years. So we
Speaker 4: have extremely tight supply situation, but we have incredibly strong
Speaker 4: beef demand. Consumers willingness to pay for beef appears unbounded
Speaker 4: as prices of increase, consumers that still cleared the grocery
Speaker 4: store shelves with the product. And so the latest drought
Speaker 4: that occurred had accelerated the ongoing liquidation of our US
Speaker 4: beef cattle inventory. And that's why our supplies are so tight.
Speaker 4: And yet you've got incredible consumer demand for beef, and
Speaker 4: so we have seen a spike in prices because of
Speaker 4: that strong demand. Consumers continue to be willing to pay
Speaker 4: more for beef. But that is not how our market
Speaker 4: has been functioning for the past decade.
Speaker 3: Let's say the rain code, there's no drought, et cetera.
Speaker 3: What are we talking about for a timeline again, setting
Speaker 3: aside the structural things, what do we talk about for
Speaker 3: a realistic timeline for getting back to where we think like, oh,
Speaker 3: we are comfortable with the level of cattle stock that
Speaker 3: we are happy with the level of cattle stock that
Speaker 3: we have in this country.
Speaker 4: Right, so we currently produce about three billion pounds less
Speaker 4: beef than what is consumed in America. So large segment
Speaker 4: of American agriculture actually underproduces for the domestic market. And
Speaker 4: because of the long biological cycle of cattle, it takes
Speaker 4: about three years to decide to hold back cattle to
Speaker 4: breed and then to have a calf, and then to
Speaker 4: raise that calf to slaughter weight over a period of
Speaker 4: fifteen to eighteen months. And so in order for our
Speaker 4: industry to begin an expansion phase, we would need a
Speaker 4: price point that incentivizes producers to make the investment to
Speaker 4: build a herd, and unfortunately that price point occurred back
Speaker 4: around twenty twenty three. We should be in an aggressive
Speaker 4: expansion phase now, except that instead of domestic consumers relying
Speaker 4: on US producers, we've increased the volume of beef imports
Speaker 4: to record volumes in twenty twenty four. That's displacing our
Speaker 4: domestic production. And that increase of imports is not distinguished
Speaker 4: in the marketplace. Consumers can't tell if the beef they're
Speaker 4: buying is four and beef for domestic beef, and so
Speaker 4: that puts the power and control in the hands of
Speaker 4: the packers and the importers the retailers and not in
Speaker 4: the hands of producers. So your question was how much
Speaker 4: of this had to do with increase in input costs. Well,
Speaker 4: the increase in input costs reduces the margin that US
Speaker 4: cattle producers receive at any given price point, and we've
Speaker 4: seen increased production costs certainly. But the point is is
Speaker 4: that cattle producers do not set the price of beef.
Speaker 4: The price of beef is set by the packers and
Speaker 4: the retailers who sell to the consumer. The producer is
Speaker 4: a price taker in this market and has been for decades.
Speaker 4: They have cattle, they offer them for sale, they accept
Speaker 4: or reject a bid by the packer, and they're producing
Speaker 4: a perishable product. So when an animal is ready for slaughter,
Speaker 4: ready to be fabricated into a beef product, the producer
Speaker 4: who fed that cattle has a two to three week
Speaker 4: window in which to market the animal. Otherwise it degrades
Speaker 4: in quality, it adds fat instead of muscle, and as
Speaker 4: a result, the producer has very limited bargaining power and
Speaker 4: a highly concentrated market as we have now, And when
Speaker 4: they're selling into a market that's controlled where four packers
Speaker 4: control eighty percent of the market, they are victims of
Speaker 4: the abuse of market power that emanates inherently from such
Speaker 4: a highly concentrated marketing structure. So the increase production costs
Speaker 4: reduce the profitability of producers, but it doesn't affect the
Speaker 4: producer's ability to market cattle. That would be the demand
Speaker 4: for life cattle, and the demand from my live cattle
Speaker 4: is offset and undercut by increased volumes of import.
Speaker 2: What's the relationship between beef availability and the dairy industry?
Speaker 2: Dairy cows? So the reason I bring it up, Joe's
Speaker 2: going to get sick of me mentioning this, But I've
Speaker 2: been reading this like seventy year old book on small
Speaker 2: scale farming.
Speaker 3: I hate when people are always bringing up books that
Speaker 3: they I know it.
Speaker 2: Bringing up and you know, there's a chapter in it
Speaker 2: about whether or not you want to go into cattle
Speaker 2: ranching for beef or if you want to raise dairy cows.
Speaker 2: And one of the things that you learn from this
Speaker 2: is that every dairy cow usually becomes a beef cow
Speaker 2: at some point once it's milk production starts to dry up,
Speaker 2: it usually gets sold for slaughter. So what's the relationship
Speaker 2: or the interaction like there.
Speaker 4: Well, historically, what you described is true. As the dairy
Speaker 4: animals have exceeded their production lifespan, they are marketed as
Speaker 4: call animals into the beef supply chain. And it's a
Speaker 4: very lean meat product that is mixed with the higher
Speaker 4: quality trim that we obtain over our grain fed animals
Speaker 4: that are fed in feed lots or is exclusively for beef.
Speaker 4: So there wasn't much competition between the beef industry and
Speaker 4: the dairy industry. But here recently, as we've increased our
Speaker 4: technology and genetic abilities, we have begun to raise more
Speaker 4: male dairy animals and are bringing them into feed lots
Speaker 4: and feeding those animals, and they are now beginning to
Speaker 4: compete with the beef cattle farmer and rancher in the marketplace.
Speaker 4: And this is a relatively recent phenomena that's been occurring
Speaker 4: in our industry.
Speaker 2: Wait, why is that happening?
Speaker 4: Yes, well, it's happening because there's the profit opportunity to
Speaker 4: sell dairy cattles into the beef supply chain, and of
Speaker 4: course that will compete directly with our America's farmers and
Speaker 4: ranchers who not only will have to now compete with
Speaker 4: this increase in the dairy beef sector. But they're already
Speaker 4: dealing with this undifferentiated, cheaper, important flood that has been
Speaker 4: negatively affecting their profitability in this industry.
Speaker 3: Say a little bit more about Okay, kettle prices have
Speaker 3: gone up, and so in theory that, as you said,
Speaker 3: in theory, that should incent more investment, et cetera. By this,
Speaker 3: talk a little bit more about some of the input
Speaker 3: costs that a cattle rancher faces. I've been making these
Speaker 3: decisions to expand their stock.
Speaker 4: So one of the first factors is the availability of
Speaker 4: sufficient land to raise the animal, because in the beef
Speaker 4: cattle industry, the animal is primarily raised on grass. After
Speaker 4: a calf is born and it suckles the mother for
Speaker 4: about four to six months on grass and before it
Speaker 4: is moved downstream in the supply chain to become a
Speaker 4: yearly in animal and ultimately delivered to a feed lot
Speaker 4: where it's fed until it's slaughter weight. And so the
Speaker 4: input costs include the fuel with which to run an operation.
Speaker 4: It includes the veterinary expenses for keeping your animals healthy.
Speaker 4: It includes the land costs of maintaining sufficient forage supplies
Speaker 4: with the animal. It includes the cost of equipment to
Speaker 4: put up hay and grain with which to feed those cattle,
Speaker 4: and in many instances it includes labor. However, most of
Speaker 4: the family farm and ranches here in the United States
Speaker 4: are just that their family farms and ranches attempting to
Speaker 4: raise cattle, and there's experiencing increase input costs. You know,
Speaker 4: we could talk about fertilizer costs too as well, but
Speaker 4: ultimately the costs have increased due to inflation, and that
Speaker 4: squeezes the margin that they receive at whatever price point
Speaker 4: that they're experiencing in the marketplace.
Speaker 2: In terms of industry consolidation, the fact that there are basically,
Speaker 2: you know, four gatekeepers to beef processing in the US.
Speaker 2: How did we actually get here?
Speaker 4: Well, we got here because we were lax in enforcing
Speaker 4: our US anti trust laws, the Sherman Act of eighteen ninety,
Speaker 4: the Clayton Act, I think of about nineteen fourteen.
Speaker 2: Sherman Act, Clayton Act, those acts. Sorry, the last time
Speaker 2: we spoke about eggs in a big series about chicken,
Speaker 2: we talked a lot about antitrust, right.
Speaker 4: Well, and that's a huge problem. In fact, it's no
Speaker 4: coincidence that as beef prices are increasing, we just saw
Speaker 4: a settlement in a national class action suit in which
Speaker 4: two of the largest packers, Tyson and Cargill, have purportedly
Speaker 4: agreed to settle the consumer's complaints about beef price fixed
Speaker 4: to the tune of about eighty seven and a half
Speaker 4: million dollars. So what we have in our industry is
Speaker 4: a decades long lack of enforcement of antitrust laws that
Speaker 4: allowed the meat packers back in the nineteen eighties to
Speaker 4: engage in what was called merger Mania. We saw an
Speaker 4: unprecedented amount of mergers and acquisitions in the beef cattle industry,
Speaker 4: and it was through that process and no enforcement of
Speaker 4: anti trust laws, that the meat packers were able to
Speaker 4: achieve this extremely high level of concentration. And in addition
Speaker 4: to that, Congress realized over one hundred years ago that
Speaker 4: independent livestock producers were really vulnerable to the monopsony power,
Speaker 4: the buying power of the concentrated meat packers. So they
Speaker 4: passed what was called the Packers and Stockyards Act in
Speaker 4: nineteen twenty one, and this was to ensure that the
Speaker 4: meat packers not only could they not engage in antitrust
Speaker 4: activities such as monopolization and price fixing. But this Act
Speaker 4: also said they couldn't engage in practices of procuring livestock
Speaker 4: from producers that was pactly unfair. And so this important
Speaker 4: act actually helped to bolster the United States' ability to
Speaker 4: ensure antitrust violations were not incurring in the marketplace, and
Speaker 4: it gave the independent producer recourse in the event that
Speaker 4: they were treated unfairly or deceptively by the concentrated market.
Speaker 4: The problem is just like our anti trust laws that
Speaker 4: collected dust on the shelf, so to to the Packers
Speaker 4: and Stockyards Act, and yet today the US Department of
Speaker 4: Agriculture has not propagated the rules necessary in order to
Speaker 4: implement and enforce this over one hundred year old Packers
Speaker 4: and Stockyards Act that was intended to protect independent livestock
Speaker 4: producers from the abuse of market power of the dominant
Speaker 4: beef packers.
Speaker 3: Do the children of ranchers want to become ranchers? There
Speaker 3: was a popular country song that came out in twenty
Speaker 3: two three by Cody Johnson called Dirt Cheap, and the
Speaker 3: entire premise of the song is about this dad. There's
Speaker 3: real estate developer offers them all this land and he's
Speaker 3: about to take the money and then he gets sad
Speaker 3: thinking about his kids will never be running around on
Speaker 3: this And when I hear the song, I got a
Speaker 3: little cynical. I was like, yeah, but that daughter is
Speaker 3: going to sell the land when she gets older, so
Speaker 3: it's this like she's going to move to a big city.
Speaker 3: But are there issues in your industry of like the
Speaker 3: next generation of ranchers, Like, no, I want to sell
Speaker 3: this land to a data center. I want to sell
Speaker 3: this land to a housing subdivision so that I can
Speaker 3: like go work in finance in New York City.
Speaker 4: When you have an industry like ours that has lost
Speaker 4: over half its participants in the course of just over
Speaker 4: a generation. Yeah, it's not unsurprising that the average age
Speaker 4: of the US farm and rancher is now somewheres north
Speaker 4: of fifty eight years of age. And we hear anecdotal
Speaker 4: information all the time about ranch families who have struggled
Speaker 4: under an economic cost price squeeze for decades their children
Speaker 4: have watched, They've encouraged their children to do something else
Speaker 4: other than to ranch. And that's a huge problem that
Speaker 4: we have because part of this expansion phase will require
Speaker 4: us to attract new interests to attract aspiring cattle farmers
Speaker 4: and ranchers into the industry. That's not happening. And even
Speaker 4: though I said that the price point was sufficient to
Speaker 4: incentivize the expansion over a year ago, we're not expanding
Speaker 4: and we're not expanding because our cattle producers has recently
Speaker 4: witnessed a complete collapse in cattle prices. When we were
Speaker 4: about where we're at today, and that was just as
Speaker 4: recently as twenty fourteen and fifteen. At that time, we
Speaker 4: had the highest nominal cattle prices in the history of
Speaker 4: our industry, and beef consumers were then paying the highest
Speaker 4: nominal beef prices in history. And every analyst, government and
Speaker 4: private alike, said, the cattle producer is going to receive
Speaker 4: another three years of very strong prices because of that
Speaker 4: long biological cycle of cattle.
Speaker 3: This is this strange me as a very important data point,
Speaker 3: the fact that the rancher has been trained essentially to
Speaker 3: expect that high prices won't necessarily sustain themselves.
Speaker 4: Right.
Speaker 3: You could see the boom bust, Ye yah, the boom bust.
Speaker 3: And we talked about this across industries. It's like, great
Speaker 3: that the price is there, but is the price going
Speaker 3: to be there in three years when that cow is
Speaker 3: ready to be sold for meat. It's not enough to
Speaker 3: just have temporarily high prices.
Speaker 4: Well, that's right, and that's exactly what happened at the
Speaker 4: end of twenty fourteen. In twenty fifteen, when everyone believed
Speaker 4: that our cattle prices would stay strong, they inexplicably collapsed,
Speaker 4: and they collapsed further and faster than any time in history.
Speaker 4: And they collapsed until we hit that point in twenty
Speaker 4: seventeen when suddenly consumer demand was driving beat prices higher
Speaker 4: and the meat packers were paying less and less for
Speaker 4: cattle prices, and so we had this in verse, completely
Speaker 4: dysfunctional situation in the marketplace, and producers were hurting. That's
Speaker 4: the period we lost a hundred six thousand producers from
Speaker 4: twenty seventeen to twenty twenty two. And only now, after
Speaker 4: this latest drought that we shrunk the herd size to
Speaker 4: such an ultra low level, have we seen the cattle
Speaker 4: prices begin to once again respond favorably to the latent
Speaker 4: forces of competition in the industry. They began to chase
Speaker 4: beef prices upward, and we've seen that more acutely here
Speaker 4: in the last couple few months as beef prices of increase.
Speaker 4: But the fact is is that we have not enforced
Speaker 4: antitrust laws and what we need to do now is
Speaker 4: determined to what extent are today's beef prices caused by
Speaker 4: antitrust behavior in the marketplace, not from the cattle producer,
Speaker 4: who's the price taker in the marketplace, but by the
Speaker 4: multinational beef packers and retailers that are actually controlling the
Speaker 4: beef market here in the United States.
Speaker 2: Well, speaking of that end expansion, one thing we have
Speaker 2: seen is new entrants, new corporate entrants moving into the
Speaker 2: beef and history and I mentioned Walmart earlier, what's the
Speaker 2: thinking behind that? Is it just a vertical integration play
Speaker 2: or what's the additive for a company like Walmart to
Speaker 2: get into beef.
Speaker 4: Well, you think about all of our livestock sectors. So
Speaker 4: we'll start with the poultry sector. That sector was vertically
Speaker 4: integrated in the sixties and seventies from egg to play.
Speaker 4: It's the corporations, what we call the integrators, were controlling
Speaker 4: the production. The farmers owned their farms and ranchers they
Speaker 4: invested in the capitol, but the integrators dictated how the
Speaker 4: farmers would raise those chickens. In fact, the integrator owned
Speaker 4: the chickens and essentially hired the farmer to raise them
Speaker 4: for the integrator. That model was then applied in the
Speaker 4: eighties and nineties to our hog sector. Back in nineteen eighty,
Speaker 4: when we had one point three million cattle producers, we
Speaker 4: also had six hundred and sixty seven thousand hog producers
Speaker 4: scattered all across the United States raising hogs. But today
Speaker 4: we're down to sixty five thousand, ninety percent of our
Speaker 4: hog producers because that industry, the corporations involved in that
Speaker 4: industry began to follow the chicken model, and so we
Speaker 4: reduced the number of participants and they began to raise
Speaker 4: hogs under a highly concentrated situation, and it's completely vertically
Speaker 4: integrated from birth to play. The cattle industry is the
Speaker 4: last frontier for these major global need packers, and it's
Speaker 4: because of the forage requirements and the long biological cycle
Speaker 4: of cattle that has prevented them from engaging in the
Speaker 4: vertical integration model, which we call chickenization. And we're trying
Speaker 4: to prevent the chickenization of our cattle industry. But the
Speaker 4: reason Walmart's getting into it is because it's profitable. So
Speaker 4: Walmart has decided it's going to vertically integrate the beef
Speaker 4: cattle industry. It's going to direct what genetics of farmer
Speaker 4: rancher has to use in order to raise the animal.
Speaker 4: Walmart will dictate the production practices and feeding, and then
Speaker 4: Walmart will provide the marketing outlet for the ucers, and
Speaker 4: then Walmart will sell that resulted beef product to the consumer.
Speaker 2: Hey, it really is chickenization. It's the tournament system basically.
Speaker 4: And it will lead to that. So the tournament system
Speaker 4: is a pricing mechanism that greatly benefits the integrator and
Speaker 4: allows them to buy the chickens from the farmer and
Speaker 4: pay less for their managerial skills and raising the chicken
Speaker 4: for them. And that's a concern we have with the
Speaker 4: Walmart model. Walmart wants to lock up this segment of
Speaker 4: the beef industry and they want to eliminate all these
Speaker 4: cattle producers just have been eliminated. Hog producers were eliminated
Speaker 4: in the hog industry, and poultry producers were eliminated. And
Speaker 4: the first step in the process is you do away
Speaker 4: with you eliminate the competitive cash market that's what allows
Speaker 4: them to vertically integrate an industry, and we're seeing in
Speaker 4: that in the cattle industry, our cash market has been
Speaker 4: shrinking at an alarming rate, and as we allow this
Speaker 4: to continue, we will soon see even more vertical integration.
Speaker 4: What this means is we're going to hollow out rural
Speaker 4: communities all across America, just as we have been doing
Speaker 4: for the past four decades. And that's because we will
Speaker 4: eliminate profitable opportunities for our independent, family scale farmers and
Speaker 4: ranchers by eliminating the cash market, by dismantling the competitive infrastructure,
Speaker 4: and simply handing the industry over to a highly centralized,
Speaker 4: highly concentrated be packing and retailing industry.
Speaker 3: I'm going to veer into some sensitive territory here. I
Speaker 3: don't know, I think about how you lean politically. I
Speaker 3: also don't particularly care is fine. All that being said,
Speaker 3: I think that I have stereotypes, and I think I
Speaker 3: imagine what the typical cattle rancher, how they are politically,
Speaker 3: guy wearing a cowboy hat, speaking with a country accent.
Speaker 3: I would we have a presumption about how they might vote. Again,
Speaker 3: not you specifically, Well, you know, I have my stereotypes,
Speaker 3: et cetera, and they're probably true. Has the current administration,
Speaker 3: you know, talking, he's been talking to you guys via
Speaker 3: history social account. You want to to lower prices, but
Speaker 3: also appreciate him for the high prices. A little unclear
Speaker 3: he has this current administration been a friend to the
Speaker 3: independent cattle rancher.
Speaker 4: Well, what independent cattle producers needed is they needed our
Speaker 4: imports to be managed, not to hand to the meat
Speaker 4: packers the ability to source whatever volume of imports they
Speaker 4: want to displace our domestic production, to prevent our domestic
Speaker 4: production from keeping up with growth and population, which is
Speaker 4: what has occurred here. And so what we needed was
Speaker 4: the implementation of tariffs and tariff rate quoters on countries
Speaker 4: that persistently maintain a trade surplus with the United States.
Speaker 4: In other words, countries from which we buy large volumes
Speaker 4: of beef, but we sell to them very little. So
Speaker 4: we have been calling for tariffs and tariff rate quotas,
Speaker 4: and tariff rate quoteras, of course, are limits on the
Speaker 4: volume of beef that any country can export to the
Speaker 4: United States. And so when President Trump took his second term,
Speaker 4: that's the first thing he began doing was imposing tariffs,
Speaker 4: and for an industry that underproduces in the domestic market,
Speaker 4: we need the tariffs to provide our industry the space
Speaker 4: to expand and increased production. So we strongly supported the
Speaker 4: tariffs when we saw Brazilian imports absolutely explode in twenty
Speaker 4: twenty five and even last year, we were thankful that
Speaker 4: the President imposed a fifty percent tariff on Brazilian exports
Speaker 4: of beef because that was going to further keep our
Speaker 4: industry awash in these price depressing imports. But when the
Speaker 4: President announced this idea to lower consumer beef prices by
Speaker 4: increasing Argentina's beef import quota rate, we believe that he
Speaker 4: was misguided. He was misinformed as to how the market
Speaker 4: structure work. I don't think he was aware that our
Speaker 4: industry has just gone through years of depressed prices while
Speaker 4: consumers were experiencing record beef prices. I don't think he
Speaker 4: understood how severe the lack of anti trust enforcement has
Speaker 4: adversely affected our industry and caused our industry to shrink.
Speaker 4: And so producers are very very concerned right now because
Speaker 4: we're at the price point where we should be expanding,
Speaker 4: but we're not expanding as we should be because of
Speaker 4: the concern for the market failure in our industry that
Speaker 4: has not been corrected. It's because we're not certain anymore
Speaker 4: whether the President is in fact going to begin to
Speaker 4: manage these imports or if he was just going to
Speaker 4: let these packers continue to import whatever volume of beef
Speaker 4: and cattle they want to displace our domestic production, and
Speaker 4: they do this without informing consumers where that beef is from.
Speaker 4: There is no country of origin label on the imported
Speaker 4: beef product, so consumers can't choose to support the domestics
Speaker 4: supply chain versus the foreign supply chain. And that's why
Speaker 4: we urge in Congress to pass mandatory country boards and
Speaker 4: labeling immediately. And I think this will help to at
Speaker 4: least mitigate the negative impact that increased imports from Argentina
Speaker 4: will have on our industry, because then we can go
Speaker 4: to the consumer and ask them to choose the higher
Speaker 4: quality USA produce beef and support US cattle farmers and ranchers.
Speaker 3: Look, I totally get where you're coming from, but I
Speaker 3: live in New York City and I have children to feed,
Speaker 3: and one of my children loves beef a lot. And
Speaker 3: the vast majority of Americans are not cattle ranchers by
Speaker 3: any strategy. So again, I understand that you have a
Speaker 3: constituency that you represent. You want to make your case.
Speaker 3: Why should the vast majority of the country, which are
Speaker 3: beef consumers get no benefit from higher cattle prices, get
Speaker 3: no benefit from higher beef prices. Why shouldn't we want
Speaker 3: the either imports channel or the Walmart, which frankly has
Speaker 3: a long history of driving prices down in almost any
Speaker 3: category enter. They're sort of famously a low cost seller.
Speaker 3: Why shouldn't we support these trends?
Speaker 4: Well, look at any other sector in the American economy.
Speaker 4: So we do import large volumes of goods from China,
Speaker 4: for example, and a consumer can go to the grocery
Speaker 4: store and see a China priced product labeled as China
Speaker 4: product or China or they could buy a USA product,
Speaker 4: And typically the USA product is going to cost more,
Speaker 4: But consumers have a choice. They can choose to purchase
Speaker 4: the cheaper product if they want to. Now jump to
Speaker 4: the beef industry, consumers have no choice. The product is undifferentiated.
Speaker 4: The meat packers are importing this beef from Australia, New Zealand.
Speaker 4: In these twenty different countries I talked about earlier. They're
Speaker 4: importing them cheaper than what we can produce it here,
Speaker 4: but there's no label on it. What there is on
Speaker 4: it is a US inspection sticker, leading and suspecting consumers
Speaker 4: to believe, well, that must be a domestic product. And
Speaker 4: so because the consumer can't choose between the cheaper foreign
Speaker 4: product and the more expensive USA produc product, there's no
Speaker 4: price saving for the consumer because the packers and the
Speaker 4: retails will price it identical because they don't have to
Speaker 4: distinguish it, so they pocket the increased profitability of buying
Speaker 4: low and selling high. And the most affluent beef consuming
Speaker 4: market in the world, and that's the United States of America.
Speaker 4: That's an example of our dysfunctional market. Consumers have not
Speaker 4: benefited from these increased volumes of imports. Instead, these increased
Speaker 4: volumes of imports have reduced demand for our domestic cattle,
Speaker 4: driving hundreds of thousands of cattle producers out of the
Speaker 4: industry over the past four decades.
Speaker 2: Can I start a beef processing plant? Why can't I
Speaker 2: go into it? It seems like a very profitable business. Certainly,
Speaker 2: if you're a JBS or someone like that, you seem
Speaker 2: to be making a lot of money, why don't we
Speaker 2: have new entrants.
Speaker 4: So you have four packers controlling eighty percent of the
Speaker 4: fed cattle market, meaning they also control about eighty percent
Speaker 4: of the box beef market, meaning they've got long term
Speaker 4: and short term contracts with the major retailers. They have
Speaker 4: shelf space with those retailers. So, if you're a small
Speaker 4: packing plant trying to get started, how are you going
Speaker 4: to market your beef? When you're marketing into such a
Speaker 4: highly concentrated, consolidated market where the retailer has long term
Speaker 4: contracts with the largest dominant global beef packers, how are
Speaker 4: you going to access the marketplace? So we've had lots
Speaker 4: of smaller meat packers try to start up that it
Speaker 4: requires a huge capital outlay to do so. Nevertheless, the
Speaker 4: government actually during the past administration, has been encouraging their
Speaker 4: growth and development. But they're struggling. They're struggling because they
Speaker 4: have difficulty in marketing their product. Even if they're marketing
Speaker 4: a high quality product, they're marketing into a commodity structured
Speaker 4: marketplace and the advantage falls to the meat packers. So
Speaker 4: until and unless we enforce our antitrust laws and our
Speaker 4: fair competition laws, we will continue to see these upstart
Speaker 4: experiencing severe difficulty in finding a profitable marketing outlet for
Speaker 4: their product.
Speaker 3: You know, like I said, I really like beef. Everyone's
Speaker 3: into protein these days. That we talked about this recently
Speaker 3: on another episode. Protein is really hot. Animal protein in
Speaker 3: particular is really hot. There's a lot of influencers when
Speaker 3: people have podcasts and they say things like eat more
Speaker 3: red meat, and our attitudes about red meat of change.
Speaker 3: When I was growing up that was scary of don't
Speaker 3: cut back on your red meat. Now it's like a
Speaker 3: red meat is like the healthiest thing you can eat.
Speaker 3: I don't know if that's true, but a lot of
Speaker 3: people would say that how much of the prices that
Speaker 3: we pay, whether it's for the price of cattle or
Speaker 3: the end price of our ground beef, for whatever steak
Speaker 3: is about the secular trend towards people wanting to have
Speaker 3: more animal protein in their diets.
Speaker 4: Sure, so, I think it's a huge factor. I think
Speaker 4: there are a number of factors contributing to the consumer's
Speaker 4: increased demand and willingness to pay more for beef, and
Speaker 4: I think they're in life. The answer to the problem.
Speaker 4: If we enforce our antitrust laws and let the market
Speaker 4: signals flow in our industry, we will begin to expand
Speaker 4: and our production will soon hit an equilibrium with the
Speaker 4: consumer demand, and we would see prices subside. In fact,
Speaker 4: if consumers are unwilling to pay current prices for beef,
Speaker 4: they would shift to other protein sources like lamb, chicken,
Speaker 4: and pork, and you would see the price point from
Speaker 4: the retailers begin to fall, and you would see the
Speaker 4: high beef prices subside. Actually, but if the government causes
Speaker 4: us to happen, if the government interferes and forces the
Speaker 4: demand for live cattle to decline, we're not going to
Speaker 4: increase the size of our US cattle herd, and America
Speaker 4: will become increasingly dependent on foreign sources for the beef.
Speaker 4: Right now, at twenty twenty four, about twenty two percent
Speaker 4: of all the beef available in the US market was
Speaker 4: imported product. And if we look at our sister industry,
Speaker 4: the sheep industry, would who is the direction our cattle
Speaker 4: industry is going. In twenty twenty four, seventy three percent
Speaker 4: of all the lamb consumed in America came from Australia,
Speaker 4: New Zealand. We've decimated our domestic sheep industry. Now we're
Speaker 4: now government has its sights on the cattle industry, and
Speaker 4: the increasing imports without any product differentiation in the marketplace
Speaker 4: will simply exacerbate the ongoing shrinking of our cattle producer
Speaker 4: in terms of the number of participants, number of cattle,
Speaker 4: and the number of marketing outlets.
Speaker 2: All right, we're going to have to leave it there,
Speaker 2: Bill Bullard, I just realized Bullard nominative determinism. Right, you
Speaker 2: had to go into cattle. Thank you so much for
Speaker 2: coming on offline.
Speaker 4: My pleasure. Thank you very much. Joe.
Speaker 2: That's really interesting. I'm definitely closely related to the Chicken
Speaker 2: series that I did, and again it seems to be
Speaker 2: that chickenization the running through agriculture. I hadn't realized that
Speaker 2: cows cattle ranching were basically like the last frontier agriculture either.
Speaker 3: And I, to be honest, I would have already assumed
Speaker 3: it had been more or less on that. I actually
Speaker 3: think the Walmart thing is very interesting because on the
Speaker 3: one hand, people look at an entity like Walmart and
Speaker 3: it's like, here's this monopsity player. It's gonna drive so
Speaker 3: much power. On the other hand, you say, here's a
Speaker 3: new market entrant. This is is like here is it?
Speaker 3: The market has just gotten more competitive. I think it's
Speaker 3: an interesting gut check for people who want to think
Speaker 3: about like market competition that when you read the headline
Speaker 3: Walmart is going to get into beef processing, do you
Speaker 3: read that as like bad or good? Because you asked,
Speaker 3: why aren't there more interest? Well, here's a new entrant
Speaker 3: coming in. I have to say.
Speaker 2: I shop at on I buy beef. I buy those
Speaker 2: big Have you ever seen the big, like long packages
Speaker 2: of ground beef.
Speaker 1: Oh?
Speaker 2: Yeah, they're pretty good. Actually, I am kind of floored
Speaker 2: that there's no country of origin label on these. I
Speaker 2: never thought about that.
Speaker 3: I am a little skeptical would change much like might
Speaker 3: not like, would you spend meaningfully more or less on
Speaker 3: beef presuming you expect that it was like healthier or whatever,
Speaker 3: that it was safely arrived.
Speaker 2: Yeah, Well, what I would say is I do shop
Speaker 2: at Walmart, but I shop at Walmart generally for bulk beef,
Speaker 2: and if I'm looking for the really good stuff, I
Speaker 2: will go to an independent farmer, of which there are
Speaker 2: many in Connecticut. And I realized, like not everyone has
Speaker 2: that luxury, and I will try to get the good beef.
Speaker 3: I might try to get the good beef too. It
Speaker 3: might come from Japan. Don't they like treat their cows
Speaker 3: really well, like they like give their cows like beer
Speaker 3: and all that stuff massages. Yeah, No, I think I
Speaker 3: love talking about animal industry economics. There's a lot of tension.
Speaker 3: I will say one other thing, which is, you know,
Speaker 3: I asked that question about like, well, why should we
Speaker 3: care the beef consuming part of the world, which is
Speaker 3: the of the country, which is the vast majority of
Speaker 3: the country. The US used to run a very big
Speaker 3: trade surplus and food stuff. Only very recently, in the
Speaker 3: last couple of years, has that turned into deficit. It's
Speaker 3: probably a source of some concern to me that like
Speaker 3: we no longer can domestically satisfy all of our food needs.
Speaker 2: If you're worried about domestic semiconduct, then you probably should
Speaker 2: be worried about food capacity.
Speaker 3: I think there are some some overlap issues.
Speaker 2: You can't eat the chips, Joe, oh, except.
Speaker 3: For except the other chips that we can eat. I know,
Speaker 3: I think there are some I think there are some
Speaker 3: things to worry about or think about with food that
Speaker 3: are a little different, a little similar, that maybe we
Speaker 3: should talk about more.
Speaker 4: At some point.
Speaker 2: Absolutely, all right, shall we leave it there for This
Speaker 2: has been another episode of the All Podcast. I'm Tracy Alloway.
Speaker 2: You can follow me at Tracy Alloway.
Speaker 3: And I'm Jill Wisenthal. You can follow me at the Stalwart.
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