US agriculture secretary Sonny Perdue ordered an investigation into widening prices between cattle and beef on Wednesday after a recent fire at a TysonFoods Inc slaughterhouse in Holcomb, Kansas, shut the plant.
Cattle prices have tanked because the fire temporarily eliminated a key buyer of livestock. Farmers have worried that meat packers such as Tyson, Cargill Inc and JBS USA would take advantage of the situation by dropping their offering prices.
At the same time, beef prices climbed as buyers for restaurants, food service companies and grocery chains scrambled for meat.
Profit margins for the packers are above $400 per head of cattle slaughtered, up from around $150 before the fire and well above the previous record of $308, according to Denver-based livestock marketing advisory service HedgersEdge.com.
USDA Investigation
The USDA will investigate whether there is evidence of price manipulation, collusion or other unfair practices, according to a statement.
"If any unfair practices are detected, we will take quick enforcement action," Perdue said.
Tyson said it would cooperate with the investigation. The company resumed some limited work at the plant this week, but it will take a few months to repair damage to the roof and equipment inside, according to a statement.
Cargill and JBS did not immediately respond to requests for comment.
The North American Meat Institute, an industry group that represents meat companies, said packers acted properly after the fire disrupted beef production.
But the USDA's investigation "demonstrates the government's understanding of the extreme strain placed on the cattle industry by the plant fire," said Jennifer Houston, president of the National Cattlemen’s Beef Association.
US beef sector
A small number of large packers dominate the US beef sector, which has fuelled complaints among some farmers about the power of the companies over cattle and beef prices.
The USDA is responding to those concerns with its probe, said Derrell Peel, agricultural economist at Oklahoma State University.
"I don't think they have a choice but to launch an investigation given the backlash out in the country," he said.
Still, the beef and cattle markets seemed to act appropriately given the sudden disruption from the fire, Peel said. The plant killed about 6,000 cattle a day, or 5% of the total US slaughter, prior to the fire.
"Markets don't like shocks and so when you get a shock like that, markets take very dramatic actions," Peel said.
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