Packers, Producers Lock Horns Producers Allege That Dakota Dunes-Based Company [Tyson/IBP] Distorted Beef Prices; Company Denies Allegations

October 31, 2003

By Rita Brhel

Yankton Daily Press and Dakotan

319 Walnut St.

Yankton, SD 57078

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Beef may be what's for dinner, but how that beef gets onto your dinner plate is under fire.

In a jury trial being set Jan. 12, 2004, in Birmingham, Alabama, senior U.S. district judge Hon Lyle E. Strom, of Omaha, Nebraska, may help settle an eight-year battle between a powerhouse packer and a group of cattle producers.

In Pickett vs. IBP Inc., approximately 31,000 producers and 4,000 feedlots claim IBP intentionally decreased cash-marketing activity and depressed live prices of feedlot-finished beef cattle through captive-supply practices, including forward contracting, producer alliances and joint ventures.

Captive supply is the number of cattle a packer is guaranteed through marketing contracts with producers. These contracts secure date of delivery and a fixed price. Cattle sold in cash markets are bid on and delivered day of sale.

The plaintiffs say Dakota Dunes-based Tyson Fresh Meats, formerly IBP, violated the federal Packers and Stockyards Act of 1921 by "using unfair, unjustly discriminatory or deceptive practices or devices; manipulating or controlling prices; creating a monopoly in cattle acquisition; or restraining commerce in cattle." Complaints occurred from 1994-2002.

But Tyson officials say fluctuating market prices are the result of basic supply and demand, and occurred regardless of IBP's steady captive supply.

IBP took unnecessary blame for nationally low beef prices, said Tyson spokesman Gary Mickelson. But plaintiff lawyer Dave Domina of Omaha, Nebraska, said producers were cheated out of a fair price by IBP's massive bargaining power.

Whether cash prices are influenced by captive supply is drawing mixed responses from economists.

Clem Ward, agricultural economist at Oklahoma State University in Stillwater, Oklahoma, said producers' complaints are valid.

Ward has focused his research on the influence of captive supply on market prices.

"Let's say a packer has 90 percent of its cattle supply committed. It has a lot of bargaining power for that last 10 percent," Ward said. "But if the packer has only 10 percent committed, it can't be as selective with what it pays for the remaining cattle."

Also, early bids tend to set the tone for market prices, Ward said. Therefore, if bids start low early in the day, the price doesn't normally shoot up high. But, if bids start high early on, the closing bid may be well above the opening bid.

"If a buyer has a lot of cattle to buy, he or she may have to bid high to purchase cattle," Ward said. "But, if a buyer only has to buy a few cattle, he or she could bid lower."

However, Bob Wilson, market analyst of HedgersEdge.Com, said "allegations made against IBP are ludicrous." Wilson bases his findings on his experience in the cattle business and education in economics.

"Fluctuating cash-market prices result from basic supply and demand," he said. "The high prices occurring now are from increased demand, not because (a packer) has lost control or changed its captive supply. Overall beef spending has increased among consumers and supplies are tighter, causing prices to soar. All the while, the captive supply numbers of IBP (Tyson) have not changed. Supply and demand are controlled by the retail industry and consumers, not by the packers."

Wilson said the producers must realize that price fluctuations are a normal part of the real-world marketplace.

"Just this Monday, cattle prices opened at $90 to $93 (per hundredweight), which was $3 to $5 under the price a week before," he noted. "And (Thursday), prices were $1 to $1.02, and still, through all of this, IBP (/Tyson) had the same captive supply. The captive-supply argument does not work."

To counter the plaintiffs' allegations that IBP attempted to monopolize the beef cattle market, Wilson said increasing the numbers of packer from three or four to 20 or 30 could hinder producers, because the packers now in working the cattle industry have "deep enough pockets" to keep the cash market desirable for producers. Without packers able to pay the high prices, there would be no one bidding up the price, he said.

The South Dakota Beef Industry and Cattlemen's Association said they remain neutral and did not offer comments. In addition, several area producers either did not return telephone calls or refused to comment on the case.

Allen Heine of St. Helena, Nebraska, thought this may be due to fear of retaliation from Tyson.

Heine, who sells 25 percent of his beef cattle to IBP/Tyson, said the defendant has a "good stranglehold on the beef market," and that the allegations made against IBP are truthful.

While drought, a closed Canadian border and higher consumer demand have helped fuel high beef prices, Heine speculates that packers' captive supplies are lower than usual and that they have "lost control of the forward markets."

However, Mickelson maintained that "the plaintiff's allegations are without merit."

"Numerous studies have proven changes in cattle prices are due to basic supply and demand, not the consolidation of the packing industry or the use of livestock marketing arrangements," he said.

Furthermore, "more than any other major packer, Tyson Fresh Meats relies on independent cattle producers to provide a steady supply of livestock to keep the company's plants running efficiently," Mickelson said. "We have no reason to do anything to hurt cattle producers."

He said marketing arrangements were made with IBP by producers "seeking a more efficient way of selling their livestock," and that the number of producers developing marketing arrangements has increased since the case was originally filed in 1996.

Along with this fall's record high cattle prices, this is "further proof these arrangements are not hampering the marketplace," Mickelson said.

But Carrie Longwood, executive director of the South Dakota Stockgrowers Association, said that "while the association itself remains neutral, the number of plaintiffs alone makes it obvious that there's a lot of concern and unrest among the producers in this country and that something needs to be changed to help keep producers satisfied with the industry."

South Dakota Stockgrowers Association