Meat processors earn record profits amid price increases, but producers feel ground down

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The feeder is not the one making the money, and the producer is not making the money… the packer is making the money Rayburn Smith

Nathan Wilson | Reporter

NRMC – Dr. Akhtar – Sept. 2022 – 300×250

Meat processors earn record profits amid price increases, but producers are feeling ground down.
As national meat processors have enjoyed a banner year, ranchers locally and nationwide have been left out of the bounty.
Rayburn Smith, who works with Superior Livestock Auction and owns Rayburn Smith Cattle Company in Clarence, feels there is a misperception about who is profiting from the rising price of meat. While he estimates that his cattle have fetched about 20% higher prices in the past month, his costs have been increasing for much longer. “Everything we buy has gone out the roof,” Smith advised “A lot of the stuff we’re buying, like diesel and fertilizer, it’s all a hundred percent to 200 percent higher, I don’t know where they get that seven percent inflation, it don’t make sense.”

This article published in the Feb. 19, 2022, print edition

Smith doesn’t sell his cattle directly to the meat processors; instead, he will sell his calves at an auction scheduled for April 7-8 at the Natchitoches Event Center. After the auction, his cattle will go to feed lots to be fed until their weight increases to the amount desired by the processing industry. Smith indicated that many cattle ranchers are in the red, “Cattle prices have picked up a little bit, but they haven’t picked up enough to keep up with inflation.” he said.
Smith doesn’t attribute the deficit between his sale prices and his costs to the feeders, instead he places blame squarely on the meat processors. “The feeder is not the one making the money, and the producer is not making the money, the packer is making the money and they’re not passing it on down and its hurting the cattle people.” he concluded. He sees meat packers making between $400-$500 per head and purchasing around 650,000 head each week. “That profit has been as high as $1,100 per head in the past few months.” he stated.
Tyson Foods made headlines last week after announcing a 48% increase in earnings versus the same period of the previous year. Meanwhile Pilgrim’s Pride, which focuses on poultry, saw its sales increase 22% from the previous year while its costs rose by only 19%. The difference of 3% may not sound like much, but along with higher volumes it has driven Pilgrim’s earnings to more than double from the prior year.
The disconnect between record profits by processors and losses by agricultural producers lies in a key advantage the meat processors enjoy: their suppliers don’t have many choices. As meat processing companies have bought one another to grow, the industry has consolidated until just four companies, Tyson, Cargill, National Beef Packing and Pilgrim’s parent company JBS, control more than half the market each for chicken and pork and around 85% for beef. The effect of this oligopoly is less competition, allowing processors to command lower prices from meat producers and higher prices from consumers.
Stephen Lirette, a poultry farm owner, revealed he is unable to raise his prices despite seeing his costs increase, “We have a contract with a large corporation and we’re locked in price.” Elaborating, he made it clear that increases in poultry prices for consumers had no relationship to the price he gets for his product, “The price of meat going up, it has nothing to do with us on the farm end, because what they pay us has not increased in five to six years.”
Lirette was blunt about the troubled relationship between producers and the local processor, “There’s no free market, so it’s sort of like indentured servitude.” he said, “We really see no sign that they will keep up with the cost of inflation because there’s no competition.”
In the past, Lirette has scaled up his business and become more efficient to preserve his livelihood. “We’ve always increased the amount of volume,” he stated, “so we just run a ton of chickens through there, but we’ve kind of hit a wall, and we’re also having dramatic inflationary prices that’s never occurred before.”
Daniel Cason, whose family owns Cason Timber and Cattle in Coushatta, feels the relationship between cattle ranchers and beef processors nationally has become one-sided “Those processors, they control the market, they control what they pay the feed lots, which in turn control what we get paid.”
Speaking on the prices he charges versus the cost to raise cattle, Cason described seeing his herd’s value increase modestly while every expense has increased more, “Our input costs have gone up significantly and the costs of the animals we sell, we’re talking five, 10 percent.” Running through a list of his cost increases, Cason estimated an overall 50 to 100% increase in costs between feed, tractors and labor and with some fertilizers tripling.
One solution Cason sees to the conundrum of low prices is to focus attention on his local market; he purchases local feed and utilizes a smaller processor, Parish Meat Processing in Sibley, to provide better profitability. He then sells his beef to local consumers through word of mouth and his website, LABestBeef.com, “That’s the only other option besides going to Wal-Mart, and really there being just one guy at the top that’s making the money off of it.” Tallying up his recent sales, Cason provided an estimate “We produce high quality local meat on a small scale, we’re talking 60 to a hundred head a year.”
Despite his success with local sales, Cason still relies on sales to feed lots for most of his business, planning to sell most of his calves at the upcoming auction in Natchitoches. He estimated that he produces 1,200 calves a year, “There’s not enough local market for me to sell that many here locally.”
Offering his outlook for the industry Lirette was nostalgic, “If I had to go back in time and do it all over again I would, because it’s been very good to me and my family” he said, “but looking forward, I don’t know what the answer is.” Smith and Cason both identified one cause for optimism: the promise that meat producers can expect more options among meat processors on the horizon. The USDA announced in July 2021 that it would direct $500 million to support expansion of smaller meat processors, and six months later President Joseph Biden announced plans to double the amount. Cason described already seeing the effect, “I see a lot more resurgence of the smaller, local butcher shops starting to come back to process not just beef, but also pork, and chicken, lamb.” Smith, referring to the upcoming auction, made an invitation, “All the local people are invited to this sale. There’ll be people from all over the United States.”