‘Big Four’ Beef Cos. Face Class Action Lawsuit Over Alleged Conspiracy to Suppress the Price of Fed Cattle [UPDATE]

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A stable of fed cattle providers and the nation’s largest cattle producer trade organization have banded together in a lawsuit filed over what they describe as a more than four-year conspiracy among the “Big Four” beef packers to suppress the price of steers and heifers raised and fed for the production of high-quality beef products in the United States.

Filed in part by the Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America—R-CALF—the case claims defendants bought fed cattle from plaintiffs ostensibly for slaughter, but instead processed the carcasses into beef for sale to other processors, wholesalers and retailers. The 121-page complaint charges that the defendants, who, among others, include Tyson Foods, JBS USA Food Company, Cargill Incorporated, and National Beef Packing Co., coordinated since at least January 1, 2015, to slash their respective slaughter volumes and reduce their purchases of fed cattle in the cash cattle market, which the plaintiffs say “precipitated an unprecedented collapse in fed cattle prices in 2015.”

The defendants, who the suit points out control the U.S. market for the purchase of slaughter-weight fed cattle, allegedly continued their collusive conduct through what the lawsuit calls “coordinated procurement practices and periodic slaughter restraint,” all of which the plaintiffs argue harmed both the physical fed cattle market and the market for live cattle futures and options traded on the Chicago Mercantile Exchange (CME).

As for the defendants’ apparent motivation behind the so-called conspiracy, the lawsuit posits that, as always, money—or, more specifically, lengthening the divide between what’s paid for fed cattle and what’s charged for beef—is the determining factor: 

“Packing Defendants’ profitability is driven by the ‘meat margin,’ which is the spread between the price packers pay for fed cattle and the price they charge for beef. As the supply of fed cattle is insensitive to short-term changes of price – owing to the long life cycle of fed cattle, their perishable nature, and their lack of any alternative use – and as beef demand is relatively insensitive to changes in price, the meat margin is very sensitive to changes in aggregate industry slaughter levels. Consequently, Packing Defendants can increase the meat margin, and thus their profitability, by working cooperatively to reduce their respective slaughter volumes, thereby depressing the price of fed cattle.”

The situation for the plaintiffs prior to the beginning of the defendants’ alleged conspiracy was one in which fed cattle prices increased steadily from 2009 through 2014 due to strong beef demand amid a drought-related shortage of fed cattle, the lawsuit says. After fed cattle prices topped out in November 2014, according to the complaint, many in the industry reportedly expected the price of fed cattle to even out the following year and hover at that level for some time after.

As the suit tells it, however, that’s not what occurred. More from the complaint:

“This widely predicted price stability did not occur. Instead, Packing Defendants used their market power, price sensitivities, and the thin cash cattle trade to their advantage and embarked upon a conspiracy to depress fed cattle prices.”

For the defendants to accomplish their supposed goal of fed cattle price suppression, the case alleges, the companies had to:

Come 2015, the lawsuit says, the bottom fell out for fed cattle prices, allowing the defendants to reportedly “reap record per-head meat margins” at the expense of the plaintiffs.

The lawsuit, which cites alleged violations of the Sherman Act, Packers and Stockyards Act and the Commodity Exchange Act, can be read below.