Washington Insider-- Thursday

Something Suspicious About Soaring Meat Prices

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

DOE Official Comments Spark Fresh Concern From RFA Over RFS Waivers

Comments by current Energy Undersecretary Mark Menezes during his confirmation hearing for the post of Deputy Energy Secretary have raised new concerns about small refinery exemptions (SREs). Menezes was asked if the DOE would consider past year applications for SREs.

This appears to be an effort to address the 10th Circuit Court ruling which said that invalidated three SREs issued for the 2016 compliance year on the basis that they had to have requested SREs in years following 2010. “I can assure that as EPA sends over these … filings if you will to be consistent with the 10th Circuit decision,” Menezes said. “We will review them expeditiously and we will return them as promptly as we can to the EPA with our determinations as we have done in the past.”

The Renewable Fuels Association (RFA) has decried the situation, telling EPA Administrator Andrew Wheeler in a letter that the effort amounted to an “end run” that was not consistent with the court ruling.

RFA President Geoff Cooper said the apparent effort is a “thinly veiled attempt to circumvent the 10th Circuit’s decision” by retroactively seeking exemptions to establish a continuous string of SREs and thus maintain the refiners’ eligibility for SREs in subsequent compliance years.

FCC Proposes Establishing 5G Fund for Rural America

The Federal Communications Commission (FCC) is seeking comments on a proposal to retarget universal service funding for mobile broadband and voice to deploy 5G services to rural areas of the country by setting up the 5G Fund for rural America.

In a notice in the Federal Register, FCC said that while T-Mobile has committed to deploy 5G service to 99% of Americans within six years and cover 90% of those living in rural areas, FCC said it was “concerned” that some rural areas will still not be serviced due to “insufficient financial incentive” for mobile wireless carriers to invest in 5G-capable networks and potentially leave areas of the country excluded from 5G for years to come.

FCC noted that given issues that have been revealed with the deployment of 4G LTE networks in rural areas, it proposes to distribute up to $9 billion in two phases to support 5G service in rural areas.

The initial stage would target at least $8 billion for rural areas, targeting a 5G Fund Phase I auction in 2021. Phase II would target “harder to service and higher cost areas, such as farms and ranches,” with $1 billion in funds “specifically aimed at deployments that would facilitate precision agriculture.” Comments on the plan are due by June 25.

Washington Insider: Something Suspicious About Soaring Meat Prices

Politico and others are pretty steamed up about meat prices these days. “Supermarket customers are paying more for beef than they have in decades,” Politico says, but hastens to add that the companies that process the meat for sale are paying farmers and ranchers “staggeringly low prices for cattle.”

Now, the USDA and prosecutors are investigating whether the meatpacking industry is manipulating prices. The federal government did the same thing 100 years ago when antitrust prosecutors broke up meat “monopolies.” Can they repeat the process Politico asks?

The Department of Justice is looking at the four largest U.S. meatpackers -- Tyson Foods, JBS, National Beef and Cargill -- which collectively control about 85% of the U.S. market for the slaughter and packaging of beef, Politico says.

Meatpackers say beef prices have spiked during the pandemic because plants are running at lower capacity as workers fall ill, so less meat is moving through supply chains.

However, there is “evidence that something isn’t right in the industry,” said Sen. Chuck Grassley, R-Iowa. In April, he requested federal investigations into “market manipulation and unfair practices” within the cattle industry. So have 19 other senators and 11 state attorneys general.

Much of the criticism is aimed at the unusual price behavior. Ed Greiman, general manager of Upper Iowa Beef who formerly headed the Iowa Cattlemen’s Association, attributed the consumer price increase to plants running at lower capacity.

“I’m running at half speed,” Greiman said. “Cattle are backing up because we can’t run our plants fast enough. Nothing is functioning properly. We need to be careful not to put blame on any one thing or part of the industry because we can’t get these plants going."

The industry has long been a focus for government antitrust enforcement. Exactly 100 years ago, after years of litigation, the five biggest U.S. meatpackersâ??which then accounted for 82% of the beef marketâ??agreed to an antitrust settlement with the Justice Department that helped break their control over the industry.

“There’s greater concentration in meatpacking now” than in 1921, said Thomas Horton, an antitrust professor at the University of South Dakota, who previously worked at the Justice Department. The first antitrust laws were “passed to take care of the Big Five. Now we have the Big Four. We’re going backwards.”

Not only are their fewer packing plants but about 70 percent of cattle are sold under contracts for delivery at an a certain weight with the price to be determined later. The is usually by a formula that takes into account how much cattle sell for in the cash market.

The use of contracts has some advantages for ranchers, because they know they have buyers and don’t have to spend time in negotiations, said Ted Schroeder, an agricultural economist at Kansas State University. But the decline in data from cash sales has made it harder to figure out the “right” price for cattle, he said.

Worker illnesses and temporary plant closures have held plants to about 50% of operating capacity, Schroeder said and calls the rising consumer prices and falling cattle prices “normal” responses to market trends. It’s economics 101 We are pretty close to the wholesale and farm prices he would expect “given the bottleneck,” he said.

Not everyone agrees. Last year, ranchers filed an antitrust suit against the four meatpackers for colluding to depress cattle prices. The suit, pending in Minneapolis federal court, alleges that the large packers began coordinating in 2015 to reduce the number of cattle slaughtered while also limiting how many they bought in the cash market. Ranchers with excess animals on their hands were forced to sell for less or enter into long-term contracts beneficial to meatpackers.

“The Big Four simultaneously withdrew from the cash market with intent to reduce prices across the board,” said Bill Bullard, CEO of Ranchers-Cattlemen Action Legal Fund, one of the lead plaintiffs in the suit, in an interview. This “drove prices down at least 8 percent,” said Bullard.

The Justice Department could once again try to make a case that the meatpackers have engaged in “an anticompetitive set of industry practices, which taken together, violate antitrust law and require a broader restructuring,” Bullard said.

Bullard’s group is also pushing for broader changes to the industry, such as requiring packers to buy at least half of their cattle from the cash market or prohibiting contracts that don’t include prices.

Senator Grassley, meanwhile, says he’s not ready to call for the breakup of major meatpackers, but he has “a great deal of questions about whether they’re operating within the law.”

Kansas’ Schroeder, though, warned against moving the industry backwards. Breaking up the meatpackers would likely lead to higher consumer prices, he thinks and insisting on cash sales would eliminate some of the advantages, like stable supply, that contracts offer. “We should be cautious how we approach regulation, so we don’t turn the apple cart upside down, he said.”

So, we will see. The U.S. meat supply chains are extremely complex and difficult to change and have developed high levels of efficiency and well tested safety practices that are also hard to change.

At the same time, the coronavirus pandemic is a threat unlike any seen in modern times and will bring unanticipated pressures and challenges that producers should watch closely as the industry accommodates, Washington Insider believes.

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