Justin Tupper is a second-generation sale barn operator, a third-generation rancher in his family’s beef cattle operation and current president of the U.S Cattlemen’s Association. Tupper recently addressed the issue of competition in the beef industry at the USDA Forum in Virginia.

“Who’s the most important bidder at an auction?” said Tupper. “It’s the second to last person who drove the bid to the top. That’s the competition we have to have – you have to have a second bidder. Competition is at the center of everything that happens in the cattle arena from top to bottom. A free-market system only works with true and transparent price discovery and competition at all levels.”

When there are numerous sale barns in an area, they’re competing daily for producers to bring cattle. “That keeps the price as high as it can be,” said Tupper. “That works in an up or down market. It means auctions work hard to get the producer the largest share of the market.”

With less competition, there’s less incentive for auctions to get top dollar at sales. “Where I’m from, we called them the ‘seed corn cap buyers,’” said Tupper. “Those are the farmers who came from Iowa or Nebraska to buy one or two loads of cattle, add them to their cattle and feed them corn they raised. That created competition and got us the best prices for livestock at the sale, no matter what the market was doing at the time. We were always competing at a high level to get the highest market share.”

Tupper noted the recent Ag Census results showing a clear decline in such operations. “Since 2017, we’ve lost 17% of producers who raise from one to 2,500 head,” he said. “Meanwhile, we saw a 6% increase in the operators of 2,500 head and above. That’s about 30% of the cattle in the U.S. We’re losing the small farm and rancher, we’re losing that competitive edge, and it’s moving into larger operations.”

The number of backgrounders, including those who move calves from cow/calf operations into backgrounding or stocker operations, is also shrinking. “In this sector, we’ve been losing small and medium size operations since the 1980s,” said Tupper. “With fewer people competing, there’s less chance to get top dollar and less chance to make sure the producer gets their market share.”

Over the years, small-scale finishing farms and feedlots have seen movement to larger corporate family farms or corporate feeding. This diminishes competition and consolidates cattle into large groups.

Committed cattle are a major portion of fed cattle, and many feeders have an alternative marketing arrangement (AMA). “Part of that AMA is a commitment to one packer,” said Tupper. “If they feed 50,000 head, all go to one packer. That is a huge advantage for the packer, no matter what the market is.”

Tupper said the packer often doesn’t care what the market is – if they know how many cattle they’re going to have and their facility is full, that’s what matters. Committed cattle in corporate feedyards that commit to one packer contribute to shrinking competitive edge. Tupper stated that if competition in a free-market system is lost, there’s nothing left.

Packing sector statistics show the industry is losing regional and small packers, which contributes to more lost competition. “In 1974 there were more than 1,000 processing plants slaughtering more than 1,000 head per day,” said Tupper. “In 2022, that number was 242 facilities.”

Industry leaders have lobbied with U.S. Cattlemen to get the Cattle Contract Library and work through some of these issues, but confidentiality rules mean not all information is disclosed.

“The small family farmer or feedlot that feeds just a few and can’t even get a packer to bid on their cattle has no idea if the big feedyard is getting $5 over the weighted average or what’s he getting for that commitment to all the cattle going to one packer,” said Tupper.

In the 1970s and ‘80s, most cattle were sold live. Those who had better cattle got better prices. “Somewhere along the line, they decided the only way to get paid for better cattle was on a grid,” said Tupper. “That took the onus off the packer and put it back on the producer to produce better cattle. Today, about 80% of cattle are sold in some kind of AMA, whether it’s a grid or contract. The rest – about 15% to 20% – are sold in the spot cash market.

The spot cash market, or the five-state weighted average, is the price that sets the base price for those 80% of the AMAs. If the base price is set with only 20% of the cattle and the price is lower, Prime and Choice will get premiums.

“But if you’re taking three to four dollars less in the base price, those ups mean very little, and that’s where our argument is,” said Tupper. “We believe they can manipulate that 20% by putting in heiferettes and lower quality cattle and put those into the five-state weighted average to keep that base price down.”

This gives the packer a significant advantage over anyone trying to sell in the spot cash market.

Tupper said negotiated trade hit a record low in January. “This is what’s disturbing about a thinly cash-traded market – 85% of cattle are sold to four main packers, with often in any region only one or two of those packers actually competing or bidding,” said Tupper, “and many times only one so there’s no competition. You take what they decide they’re going to give.”

A free-market system must include transparency and competition. “In the cattle lifecycle, we’ve been losing ground,” said Tupper. “We must defend competition and transparency if we want this industry to survive. We must also defend the opportunities for the small family farms the same as large, corporate feedyards.”

Tupper believes an overhaul of the system isn’t necessary, and producers probably don’t want a big change. “We do need a referee in the game to keep a level playing field with competition being the key factor in all segments,” he said. “The big four packers want to eliminate competition because it will allow them to take a bigger piece of the pie. That’s simple economics. But it’s no different when the government years ago had to break up Big Oil or Ma Bell. We have to make sure living and working in rural America can be profitable and to make our food system more resilient, reliable and sustainable.”

For details on the Cattle Contract Library, visit ams.usda.gov/market-news/livestock-poultry-grain/cattle-contracts-library.

by Sally Colby