Two years ago, Henry County cattle farmer Clint Woods could pocket $1,600 for each 800-pound calf sold at auction. This year, “it looks like we will get $800 to $900 per head,” Woods said. Beef, one of the most valuable farm crops from the bluegrass state, used to generate $1 billion in sales annually. Now Kentucky cattle farmers are barely breaking even or losing money for the 1 million young cows, steer or calves sold each year to fatten in feedlots out west.
While cattle farmers lose about half of their income, supermarket beef prices have barely budged, edging downward about 10 percent, according to CattleFax, a beef industry analyst firm.
The bottom line? Just because the price of a calf sold to a feedlot for fattening and slaughter has tumbled doesn’t mean the consumer can find a bargain filet at the supermarket. Beef cost an average $6 per pound in 2015. That historic high slipped to only $5.74 in 2016, according to the U.S. Department of Agriculture.
Like the oil industry, the food industry is highly segmented by middlemen and driven by huge corporate players and volatile trading markets. When crude oil drops below $50 per barrel, pump prices never plummet. Instead, petroleum analysts are just as likely to talk about tight refinery capacity or currency fluctuations to explain why gas prices remain high.
To explain the worst beef market in decades, experts cite dizzying factors. They include accusations that mega meat packers hold too much power, that high-frequency trading drives cattle markets down and that retailers are making bank. Low prices for corn and feed crops made it easy for greedy farmers to raise too much meat while others point to declines in beef consumption, especially by millennials. “We’ve never seen anything like this before. It’s as bad as it’s ever been,” Ed Greiman, a representative of the National Cattlemen’s Beef Association, told 100 Kentucky cattlemen at a recent meeting about terrible market conditions in Winchester. “We know it’s been a perfect storm.”
On average, Americans each ate 202 pounds of meat in 2014. Now, there is so much meat in the supply chain that the U.S.D.A. predicts consumers will eat more as prices eventually fall, up to 217 pounds of meat, per person, this year. That forecast means that every week, each consumer is expected to chew through two pounds of chicken and turkey, one pound of beef and one pound of pork.
Put another way, beef’s popularity has dropped steadily since its peak at 95 pounds per capita in 1975. Last year, Americans ate an estimated 55 pounds of beef each.
As an undergraduate studying agricultural economics, young Munfordville cattle farmer Steven Green suspected the changing eating habits of his generation might be one of the factors driving cattle prices down.
Green surveyed nearly 300 consumers ages 18 to 25 for a research project at Western Kentucky University. Of those surveyed, 16 percent said yes when asked if “a negative video or article convinced you to discontinue meat consumption.” Another 30 percent responded yes when asked if whether they ever “had a bad experience with beef products.”
These results square with some estimates that one in five millennials indicate they are practicing vegetarians. Among older generations, vegetarians run scarcer, at about one for every 20 people.
“The urban millennial’s perception of beef is hazy, at best,” Green told fellow researchers of the Kentucky Academy of Science at the University of Louisville in November. “These are the young men and women that will be the next consumers.”
Cattle farmers losing clout
In the U.S., most chicken and pigs are born and raised on concrete indoors, operations run by large corporations that control breeding, husbandry, slaughtering and wholesale markets. As a result, few chicken and hogs are raised by independent, family farms. Cattle, however, remains largely the province of the small farmer, like the 40,000 cattlemen in Kentucky, the largest beef state east of the Mississippi. Those farmers remain captive to volatile commodity beef prices, since most of the 1.1 million beef cattle bred in the state are purchased for fattening on feedlots out west by corporate agri-companies and “come back to Kentucky as box beef,” Henry County cattle farmer Bobby Foree said.
Two years ago, Foree sold 300 calves for as high as $1,927 per head when prices topped out at $2.29 a pound. Today, those same yearling steers go for $1.29 a pound.
If live cattle prices remain low as expected, consumers might expect a supermarket meat war. If it comes, look for retailers like Wal-Mart and Kroger to battle around grilling season in the form of $5.99 ribeyes instead of the going rate of between $8 to $10 per pound, said Louisville- based agriculture commodity analyst Matt Beeson.
For now, Foree said low prices mean “farmers will not have much profit at all.”
To cope, Foree, a lawyer and vice president of the Kentucky Cattlemen’s Association, said he has “been practicing more law” to make up lost farm income.
At his farm on the outskirts of Newcastle, farmer Woods has taken jobs off the farm to make payments on the 95acre spread. His wife works off the farm too for a veterinarian. Both are delaying farm improvements like a new fence gate needed for the main pasture while they expect the poor cattle market to last a good while.
The plunging beef prices forcing small cattle farmers like Woods and Foree to spend more time working off the farm represents a disturbing trend called “the chickenization of beef,” said Paul Wolfe, senior policy analyst at the National Sustainable Agriculture Coalition, the Washington, D.C., lobby repre-
When big players control markets, “farmers don’t know if the price they are getting is good,” Wolfe said. When farmers fail from crippling market pressure, industry consolidation forces out family enterprises. That’s what happened in poultry and pork and some shakeout is taking place in Kentucky beef.
To date, low beef prices have driven some 25 percent of cattlemen in and around Danville, Ky., to seek farm refinancing and lower their monthly land payments, said Ag Credit principal loan officer Joe Goggin.
“This is the kind of market in which the real farm managers survive,” Goggin said. “Some farmers won’t make it.”
So, who’s making money?
As farmers sell low and consumers still pay high, some point a finger at retailers.
“Grocery stores are making very good money,” Beeson, the analyst, said.
Not true, said Valu-Market co-owner James Neumann.
“I haven’t noticed any major pickup in margin,” Neumann said. For proof, he provided sample data from a nationwide grocery co-op, which supplies $1 billion annually in wholesale grocery, meat and produce to independent supermarkets like his family-owned Louisville chain.
On Main Street in West Louisville, the family-owned Superior Meats wholesales mostly to restaurants. When the market soared two years ago, Superior Meats might have paid $11 for a pound of strip loin in 2015. Now strip loin costs $9 a pound, he added.
“We haven’t seen pricing quite come down as far as the cattle prices,” co-owner Ben Robinson said. Big meat packers who buy from farmers and sell to retailers “basically control the market.”
“In Kentucky, we send more than $1 billion of our resource, which is cattle, out west. Every time you eat one of those burgers, you send money out of the state,” he said.
Most beef cattle are slaughtered in the U.S. by JBS, Tyson or Cargill, meat conglomerates that control about 70 percent of the beef industry. JBS, for example, slaughters 27,000 cattle every day, said Terry Ryan, feedlot manager for JBS Five Rivers. But packer profit margins average between 1 and 5 percent, slim figures compromised by reduced plant efficiency, he said.
At its nine packing plants in the United States, for example, JBS’ labor shortage is so miserable that 10 percent of the workforce “don’t come to work on Monday.”
“We can’t get our cattle harvested. We can clean up the mess but you can’t get the labor and I don’t know when that problem is going to go away,” Ryan said.
Industry experts also say cattle trading on the Chicago Mercantile Exchange has been volatile beyond rational trends. The National Cattlemen’s Beef Association asserts that automatic, high-frequency trading by computers has skewed the market south.
“We call that spoofing the market. It affects our livelihood,” said Greiman, adding he just refinanced his own familyowned Iowa cattle farm and feedlot. “I can’t lose any more money.”
Some analysts like Beeson say farmers tend to be conspiracy theorists who blame the market. Others, like former cattle futures trader Brian Luftman, now owner of a farm investment company in Lexington, agree with farmers that “plenty of speculation is probably what is happening to drive prices down. These prices are brutal.”
Fairer cattle trading practices are the promise of new federal rules finalized in the waning days of the Obama administration at U.S.D.A. But that reform of the federal Grain Inspection, Packers & Stockyards Administration, or GIPSA, has been put on hold for 60 days by President Donald Trump.
For a farmer who has received $1,000 per calf this year instead of $2,000 a few years ago, the new GIPSA rule that was to be final in February would enable him to file a federal complaint and wield other means to challenge anti-trust practices and unfair competition, Wolfe said.
“All too often, processors and packers wield the power, and farmers carry the risk,” former USDA secretary Tom Vilsack said upon releasing the rules in December.
“We’ve been waiting five years to get these rules out,” Wolfe said. “The sooner it gets done, the better.”
Whatever the cause, Kentucky agriculture commissioner Ryan Quarles said, “the disconnect between the packers and the retail price is very high.”
Of the 76,000 family farms in Kentucky, cattle run on 40,000. For all, the biggest threat to survival “is the lack of consistent farm income,” Quarles said in an interview last month. “You can’t predict your cash flow from year to year.”
Farmers will have to wait longer for relief. Unlike chicken or pigs, cattle have a longer life cycle. Cattle herds grew 6 percent last year with those numbers expected to expand at least as much in 2017.
For farmers, “It may be early 2018 before we hit the bottom,” said Kenny Burdine, an agriculture economist at the University of Kentucky.