Lawsuit Alleges Meatpacker Conspiracy

Class Action Points to Cattle Price Fixing Through Slashing Slaughter Volumes

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
Connect with Todd:
R-CALF USA alleges in a class action lawsuit that meatpacking companies have conspired to depress fed-cattle prices. (DTN/Progressive Farmer photo by Jim Patrico)

OMAHA (DTN) -- The nation's largest meatpacking companies conspired to unlawfully depress fed-cattle prices paid to ranchers starting in 2015, a national cattle group alleges in a new class-action lawsuit filed in federal court in Illinois on Tuesday.

The Ranchers-Cattlemen Action Legal Fund United Stockgrowers of America (R-CALF USA) filed the lawsuit on behalf of four cattle-feeding ranchers in Iowa, Nebraska, Kansas and Wyoming.

The lawsuit alleges the nation's largest meatpacking companies engaged in fed-cattle price fixing, unjustly enriched their businesses, manipulated the prices of fed cattle and as a result the Chicago Mercantile Exchange live cattle futures and options, and committed a number of violations of the Commodity Exchange Act, among other allegations.

Named in the lawsuit are Tyson Foods, Inc., Tyson Fresh Meats, Inc., JBS S.A., JBS USA Food Company, Swift Beef Company, JBS Packerland, Inc., Cargill, Inc., Cargill Meat Solutions Corp., Marfrig Global Foods S.A., and National Beef Packing Company, LLC. In addition, the lawsuit also names 10 unidentified cattle futures and options traders who trade on the Chicago Mercantile Exchange.

Collectively, the companies process more than 80% of fed cattle in the United States.

The lawsuit filed in the U.S. District Court for the District of Northern Illinois in Rockford seeks punitive damages and restitution in requesting a jury trial.

In its lawsuit R-CALF USA alleges the packers conspired to "suppress the price of fed cattle that they purchased in the United States," beginning on Jan. 1, 2015, and continuing to the present.

"Packing defendants' coordinated conduct, including slashing their respective slaughter volumes and curtailing their purchases of fed cattle in the cash cattle market, precipitated an unprecedented collapse in fed cattle prices in 2015," the group alleges.

"Packing defendants then continued to suppress the price of fed cattle through coordinated procurement practices and periodic slaughter restraint. Packing defendants' conspiracy -- which is confirmed by witness accounts, trade records, and economic evidence -- impacted both the physical fed-cattle market and the market for live-cattle futures and options traded on the CME."

The lawsuit said fed-cattle prices increased steadily between 2009 and 2014, "in response to strong beef demand and a shortage of fed cattle following the droughts of 2011 through 2013."

Then after prices peaked in November 2014, the cattle industry expected fed-cattle prices to stabilize in 2015 and continue around that level for a number of years, the lawsuit said.

"This widely predicted price stability did not occur," the lawsuit said. "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."

The plaintiffs argue the practices are estimated to have depressed prices by an average of 7.9% since January 2015.

"R-CALF USA is taking this historic action to fulfill its promise to its members to prevent the Big 4 packers from capturing the U.S. cattle market from independent U.S. cattle producers," R-CALF USA Chief Executive Officer Bill Bullard said in a statement.

"We have exhausted all other remedies."

COMPANIES RESPOND

In a statement to DTN, Tyson denied the allegations.

"We're disappointed this baseless case was filed," the company said. "As with similar lawsuits concerning chicken and pork, there's simply no merit to the allegations that Tyson colluded with competitors. This complaint is nothing more than another transparent and opportunistic attempt by attorneys to make money for themselves at the expense of consumers. Tyson operates with integrity every day. We welcome competition, which makes us a better company, enhances the quality of our products and provides more choices at greater value to our customers.

"We depend on thousands of independent cattle, pig and chicken farmers and ranchers as a vital part of our supply chain. Contrary to the assertions in this lawsuit, Tyson wants its suppliers to succeed. Tyson will vigorously defend itself and its proud heritage of supporting America's farmers and ranchers."

Cargill said in a statement to DTN, "For many years, Cargill has served as a trusted partner to American cattle ranchers, committed to supporting their family farms and livelihoods. We believe the claims lack merit, and we are confident in our efforts to maintain market integrity and conduct ethical business."

A spokesperson for Marfrig told DTN the company would not comment, as it had not officially been notified of the lawsuit.

DTN's attempts to reach other defendant companies for comment were unsuccessful.

SEPARATE CLASSES

The lawsuit attempts to recover losses suffered by two classes. The first includes cattle producers who sold fed cattle to any one of the companies from January 2015 to the present. The second consists of traders who transacted live-cattle futures or options contracts on the CME during the same time.

The lawsuit alleges the conspiracy involved the packing companies "periodically" reducing slaughter volumes to reduce demand for fed cattle; curtailing their purchase and slaughter of cash cattle during those same periods; coordinating their procurement practices for cash cattle; importing foreign cattle at a loss so as to reduce domestic demand; and simultaneously closing and idling plants.

The lawsuit said a confidential witness previously employed by one of the companies "confirmed that packing defendants expressly agreed to periodically reduce or restrain their respective slaughter volumes so as to reduce demand for fed cattle."

FUTURES MARKETS ALLEGATIONS

In alleging manipulation of the live-cattle futures and options markets, the lawsuit points to an action taken by Tyson in 2015.

"For example, on Aug. 14, 2015, Tyson announced that it was closing its Denison, Iowa, beef plant, which resulted in price declines in the cash and futures markets," the lawsuit said.

"In particular, the spot or front-month August contract fell $0.004 per pound ($160 per live cattle future) and the October 2015 contract fell $0.01 per pound ($400 per live cattle future). According to one market participant, 'some feedlots may have surrendered after seeing futures fall earlier in the session, partly on word that Tyson closed a beef plant.'"

R-CALF said despite a "drastic collapse" in fed-cattle prices, the packing companies and their wholesale customers continued to benefit from record beef prices.

"This disconnect allowed packing defendants to reap record per-head meat margins during the class period at the expense of fed-cattle producers," the lawsuit alleges.

"The same data demonstrate that packing defendants drastically reduced their purchases of cash cattle during these periods of slaughter restraint. Packing defendants did so in an attempt to 'back-up' (that is, create a glut in) the number of slaughter-ready cash cattle and encourage producers to accept lower prices for their highly perishable product. Doing so not only dropped cash cattle prices, but also the prices paid under packing defendants' formula and forward contracts.

"Once packing defendants had broken the cash-cattle trade and created a relative supply glut, packing defendants collectively ramped up their cash cattle purchases and reaped supra-competitive profits at the expense of the producers."

Read the lawsuit here: https://www.r-calfusa.com/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

(CZ/ES)

Todd Neeley