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Inside the Beltway
Bill Bullard
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If you shop at the grocery store you will have noticed that beef prices have increased roughly 12% year over year. Bill Bullard, CEO of R-Calf USA, joins me to discuss why beef prices have risen and the three things that need to be done to help bring them down.
Hey everyone and welcome back to today's show. Real excited to be talking with Bill Bullard, who is the CEO of RCAF USA. So, Bill, thanks for coming on. Appreciate it.
SPEAKER_01Glad to be here. Thank you.
SPEAKER_00I've been focusing a lot recently on my podcast on cost of living. Obviously, that's a big concern for Americans across the board, not only when it comes to food prices, but energy prices, housing prices, and healthcare costs. But for the purposes of this, because you represent a trade group of cattle producers, let's focus for a little bit on uh on beef. So tell me first of all a little bit about your group. How long have you been doing this? What are you guys involved in?
SPEAKER_01So I represent RCAF USA, which is the largest producer-only cattle association in the United States. And we also represent sheep producers. So we're unique in that we represent only the farmers and ranchers who raise cattle and sheep in the multi-segmented beef supply chain. So we're interested in ensuring that the America continues to have a vibrant family-scale farming and ranching operations that are producing an abundant and wholesome supply of affordable food.
SPEAKER_00And most of the ranchers in your group, I'm curious, are they ranchers who have been doing this for three, four, five generations?
SPEAKER_01That's correct. Many of our members, we have thousands of members in 43 states, and many of those members are generational farmers and ranchers. Um, some of them fifth, sixth generation on their operations. Some of them are new entrants into the industry, not many. Uh, and some of them, of course, um have been involved throughout their lifetime. So we have uh a very diverse group in terms of their uh demographics and and their the length of time that they've been involved. But many of the ranchers are generational ranchers.
SPEAKER_00You did mention, though, there's a couple of newbies, so to speak, who come into the business. Is it difficult in this day and age to get into that business and make a success of it?
SPEAKER_01Well, unfortunately, that's that's the truth. Um the average age of the U.S. farmer and rancher is now over 58 years of age. So we have many retiring uh ranchers. And uh because of the prolonged lack of profitability experienced by current farmers and ranchers, uh, we we do not see new entrants uh entering at a pace sufficient to offset um, you know, the decline in the numbers of producers and those who are retiring. So our industry has been shrinking. Uh that's one reason that the industry has been shrinking for the last four decades.
SPEAKER_00The farmers and ranchers, excuse me, the ranchers I should say, that are in your group, do they mostly run small, mid-size, large? Like what are we talking when we're talking about the scale of their operations?
SPEAKER_01Well, that's very interesting because there's 622,000 beef cattle operations or farmers and ranchers in the United States based on uh the U.S. Census. But if you look at how many of those producers have a herd size that would essentially qualify as a full-time producer, and the minimum number would be 100 head of mother cows. There's only about 65,000 of those left in our industry. So that's really the heart of the industry, representing uh the people who are involved in this full-time, their entire livelihoods are dependent on a profitable uh cattle operations. And our members vary from very small, uh, 20 cows, for example, to very large, uh, running cow herds uh that in 1,500, 2,000 mother cows. So we represent the entire spectrum, but the industry as a whole, the average size of the U.S. cattle herd is only about 44 head. And that's because there's a lot of smaller operations in the southeast. Most of our members are up in the Dakotas and Montana, Wyoming, Oregon, Colorado, Nebraska, in what the area that we consider cattle country. And those are typically much larger ranchers. And because they are in rather remote areas, um, they don't have opportunities for second jobs. And they are dependent on the cattle industry and sheep industry for their livelihoods.
SPEAKER_00As I mentioned, affordability is something I'm focusing on in my next series of podcasts. So ground beef is up about 15 to 19 percent year over year. It's about $6.90 now uh on average per pound. Stake up about 16 to 17 percent year over year. So I'm wondering if you can take me through bullet point by bullet point. Why have we seen an increase in these costs?
SPEAKER_01Well, so we need to go back um about a decade. And back in the uh 2012 to 2014 period, um, our industry had already been shrinking. It's been shrinking for, as I said, four decades. So since 1980, which is uh going on 50 years ago, uh in 1980 we had 1.3 million farmers and ranchers who raise cattle. Uh we've lost 52% of them in just over a generation. They've they've uh exited the industry, they've gone out of business. And so the industry was shrinking for several decades and for two primary reasons. Number one, their marketplace, the marketplace was highly concentrated. We've got four meat packers controlling 85% of the Fed cattle market in this industry. That's based on 2019 data. Um, and so they had they inherently possess market power, buying power, and they have been able to exert buying power upon the industry in order to pay producers less for their cattle and to yet uh simultaneously sell the beef at inflated prices. So this has been going on for decades. Now we go, we reached 2012 to 2014 period, and we hit a widespread drought that caused uh that accelerated the ongoing liquidation of the cow herd. And as at that time, our cow herd was at a 70-year low. And so we had extremely tight supplies, and yet beef demand from consumers remained quite strong, and the beef prices rose and cattle prices followed. And there was an expectation at the end of the drought, at the end of 2014, that our cattle producers would experience relatively high prices for another three years. And that's because of the long biological cycle of cattle. It takes three years from the time you make a decision to begin expanding the herd until the herd is actually expanded and you're bringing more pounds of beef to the marketplace. That was the expectation at the very beginning of 2015. But cattle prices inexplicably collapsed, and they collapsed further and faster than at any time in history. So anyone who had tried to expand during that period suddenly found themselves with the depressed prices and the and collapsed cattle prices. And then what we saw beginning in early 2017 is retail beef prices started marching skyward. But at 2017, cattle prices started to stair step downward. So you had this inverse relationship in an industry where the only ingredient in beef is cattle. So you would expect there to be a synchronous, harmonious relationship between the price of beef and price of cattle. But beginning in 2017, we we saw an unprecedented spread between what consumers were paying for beef and what cattle producers receiving for cattle. And then we hit uh about the early 2021. We had another widespread drought, a second shock to the system. So our industry was already shrinking, was accelerated in its liquidation in 2013 through 14, tried to rebuild, uh, then began shrinking again due to collapsed prices, and then we hit another widespread drought in 2021. This shrunk our herd size now to a level that we've not seen for 75 years. And yet we had continued incredible demand for beef on the consumer side. And so beginning in the 2022-23, cattle prices broke free from the constraints that had kept them suppressed. And they started chasing beef prices skyward. And now in the last couple of years, we've had this situation where we've had the highest nominal prices for cattle and the highest nominal prices that consumers are paying for beef. But very importantly, we know that the marketplace is fundamentally broken, uh, as evidenced by the inverse relationship between rising beef prices and falling cattle prices from 2017 all the way through early or late 2022. And then we saw cattle prices break free and consumer prices remain high. So, what we know is that there has been incredible margins captured by first the meat packers and then the retailers within the beef pricing structure. And so the high prices that are we're experiencing today, we believe, are in part due to anti-competitive behavior on the part of the monopolistic retailers, as well as anti-competitive behavior on the part of the monopolistic beefpackers. We have a highly concentrated system. And uh, and I mentioned before that uh there were two reasons that our herd has been declining for so long. The first was the high concentration of the marketplace and the exercise of abuse of market power, buying power by the highly concentrated meat packers. But the second is when we entered the era of free trade, the globalization, and we gave to the meat packers unlimited access to cheaper imported beef from around the world. And those packers were able to import beef, which is a direct product substitute for our domestic beef. And because Congress repealed country of origin labeling, consumers can't tell the difference. The packers can unilaterally decide from where to source the beef to satisfy the consumer's generic demand. And while we know they're buying the beef cheaper, bringing it into the US and selling it to unsuspecting consumers as if it were domestic product, and therefore keeping the wider margins for themselves between the lower cost imports and then pricing it just as if it were a domestic product. So it's failed trade policies and failure to enforce our antitrust laws and our fair competition laws that have resulted in the shrinking of our industry to a to a to where we reach a crisis point. And uh, we've been in a chronic crisis for the past decade. Now we're in an acute crisis. Uh, we are incapable of producing enough beef in America to meet America's uh appetite for beef. And so that's a national security issue. If we're unable to domestically produce sufficient volumes of uh one of our most important protein sources, uh, we become vulnerable and dependent on foreign countries for our food. And that's uh that's contrary to the national interests, the security interests of the United States. And so the reason we're experiencing high prices is because we have neglected and ignored the ongoing contraction of one of our most important agricultural sectors. And it shrank to a level where it could no longer withstand any kind of an economic shock. And yet it was subjected to two within a decade, two widespread droughts that further shrank the herd and reduced our supply situation. So we have extremely tight supplies and we have incredibly strong beef demand. And we had the prospects of we're not going to be able to rebuild for another three years. Uh, and the industry has not yet begun the rebuilding process, which itself is alarming because we hit the price point that should have triggered and incentivized our cattle producers to start expanding back in 2023. But as of today, we've had no measurable increase in the number of uh mother cows within our cattle herd.
SPEAKER_00So I have a bunch of follow-up questions. Okay. The first one is you mentioned that droughts affect the cattle herd level. Why is that?
SPEAKER_01So um cattle and sheep are both grazing animals. They spend the majority of their lifespan out on grassland grazing and foraging. And uh, and when they are about um a year old or older, they would be brought into a confinement setting, into a feedlot, and fed a final um fattening ration that would bring them to slaughter weight and they're sold to the packer. So the lifespan of a cow, for example, um for an animal before it is ready for slaughter, from the time that it is born, is it takes about 15 to 18 months uh to raise that animal, feed the animal until it is reaches its optimal slaughter weight. And most of the life is spent uh at first uh when the calf is born on the and suckling the mother, uh, it will remain on the mother for about four to six months, and then it's weaned, and then it would be sold to the next segment in our ranching industry, and that's called the backgrounding or stocking section. And there the animal would spend another five to six months grazing and foraging uh until it reaches that approximately one year of age, and then it's moved into the confinement area where it's fed corn uh and you know um high concentration diet in order to fatten it for slaughter. Weight. So the reason drought affects them is because uh the drought will reduce the grass uh that grows on a particular farmer rancher's operation. And without grass, they can't keep the cows. So they either have to purchase hay to feed cows, which is often uh not not economical, and instead they begin to liquidate the herds. So drought triggers liquidation simply because of the natural biological uh cycle and the production management husbandry that's applied to the cattle industry.
SPEAKER_00So if I'm a rancher and I have 40 cows now that are ready for slaughter and I'm looking to sell them, correct me if I'm wrong, but it sounds like what you're saying is I, as the farmer, only have about four or five options of who I can sell them to as the packer. Is that right?
SPEAKER_01That's correct. When you have four meat packers controlling over 80% of the Fed cattle market, fed cattle market means the cattle that are raised uh specifically for beef production. So it's a calf that's that's raised for 15 to 18 months, sold directly to the packer. So four packers control 85% of the approximate 24 million head of cattle that are marketed each year for beef production. Uh the meat four packers control 85% of that means that if they have any alternatives, the 15, whatever 15 to 20 percent left in the marketplace uh would be smaller to regional packers, many of which may be uh long distances from a particular farmer rancher, making it uneconomical to ship the cattle that far. So many packers uh have only four uh legitimate market outlets available to them on a national level. But on a regional level, some cattle producers who have cattle ready to sell to packers may only have one or two packers that are actually bidding for cattle in their regions. So we have they have they're experiencing extremely high levels of concentration in their particular region. And a good example of that is the entire state of Colorado, because the United States requires mandatory reporting of livestock prices. And yet they have a provision within that statute that says that in the event that the information about the price of cattle uh could can't be disclosed because there isn't enough competition, then the market prices are not even publicly disclosed. The entire state of Colorado has not reported cattle prices for about seven years, and that's because there are too few packers in that entire state uh to overcome the confidentiality requirements of the mandatory price reporting law.
SPEAKER_00Okay, so step one in now the rancher sells to the packer. Who's responsible for the slaughtering, the rancher or the packer?
SPEAKER_01So the the rancher will raise the animal while it is alive. They will then sell it to the packer, and that's where the cattle industry and the beef industry begin and end. Uh the live cattle sold to the packer, the packer will slaughter the animal and cut it up in its primals and and market it to in the wholesale market. So the cattle producer doesn't slaughter cattle, it is the meat packer that slaughters the animal, converts it into a consumable beef product, and that's where the beef industry begins and the cattle industry ends. It's right right at that point.
SPEAKER_00Okay, so the packer pays the farmer for the head of cattle that they want to buy that they're going to slaughter. Does the rancher incur the cost of transporting the cattle to the slaughterhouse?
SPEAKER_01So that depends. Typically, um typically, no, that the uh the meat packer will pay the freight for the animals, but it's based uh it could work either way, but that's uh that's one of the most common ways to sell the animal, sell it for a live uh a live weight price, sell it to the meat packer. The meat packer picks up the cattle and slaughters them. Another way that can be sold is sold on a carcass weight basis, where a price would be negotiated, the animal would be uh delivered to the packer, and after the animal is slaughtered and the carcass uh is weighed and evaluated, only then does the rancher get paid for the live animal.
SPEAKER_00Okay. So now at this point, the cows have been slaughtered. How does it get from the slaughterhouse? What's the process to our shelves at Kroger, Costco, wherever our grocery store might be?
SPEAKER_01So the larger packers will uh cut up the animal after slaughter uh and and they would convert it to boxed beef. They would put it in um sealed plastic um wraps and then market that in the wholesale market. It could go through a wholesaler and then be delivered directly to a retailer. And so the the time that the that is spent with the actual beef product, once uh once the animal is slaughtered, the beef is produced. Uh, it will be cut up and then marketed through either a wholesaler or sometimes directly to the retailer and then reaching the consumer.
SPEAKER_00I don't know if you're familiar at all with the show Yellowstone. Do you watch that?
SPEAKER_01I I'm familiar with it. I haven't watched it.
SPEAKER_00Okay. Well, I was just I don't know how factual that show is, but obviously it's about a family of cattle ranchers, and I'm thinking of some of the things in there and some of the upfront costs described in the show that the rancher puts in. So, for example, you know, if they have 40 cow right now in their herd and they want to increase that to 60, do they do that simply by breeding, or do they do that by going out and buying cows from somebody else?
SPEAKER_01Well, they could they could do it through breeding. It will take some time. Um, that they would have to decide to hold back their females, the heifers, uh calves, and then breed them the following year and then wait another year before that heifer will have a calf, and they could enlarge the size of their herd in that manner. Or they can go and buy bred cows and introduce them into their herd to expand the herd. But very importantly, the herd size will be dictated by the carrying capacity of the farmer ranch, the the available grass uh that that can be consumed and maintained over uh for perpetuity because you don't want to overgraze. And so if somebody is running 40 cows, that may be all that their operation uh can maintain. And in order to expand the herd, they would either have to go out and buy more land or lease more land in order to increase their carrying capacity. And so there's a lot of factors that would limit uh the ability of the U.S. cattle producer to expand the herd. And chief among those would be the uh the availability of sufficient uh forage and grass uh to raise more cattle.
SPEAKER_00So, what are the typical input costs that the rancher puts in until they're ready to sell it to the slaughterhouse?
SPEAKER_01Well, you've got uh so you're you're looking at maintaining that animal for 15 to 18 months. Um, uh at least a year of that is on grass. And while on grass, you go through the seasons, the summer and the winter. And so in the spring and summer, you would would need to purchase equipment in order to uh produce hay, cut hay, and then you would have to bale the hay or stack the hay in some manner. And so you are uh experiencing fuel prices uh that are a major factor on a ranching operation. And then you feed the animals through the wintertime because uh the grass isn't growing, particularly up in the northern. Sector tier of the United States. And you wait till spring to put them back out on grass. And then you'll have veterin costs. You'll have costs of mineral and salt, for example, and any other supplements that you need to feed, your feed costs. And so there are certainly significant costs, all of which have been affected by inflation and that have created, put a squeeze on the value of cattle and the potential profitability of those cattle because of increased production costs. And in some regions, we've all heard about the fertilizer fertilizer shortage, particularly down in the southeast. It's a common practice and a necessity to fertilize pastures in order to maintain the caring the production capacity for the operation. And so fertilizer costs would also be included in that.
SPEAKER_00The group that you represent, do they mostly sell their cattle and it's then going to be consumed domestically, or do they sell it to go overseas as well?
SPEAKER_01So about 13% of our domestic production is exported. The rest is consumed domestically. And so most of our producers, most of the meat produced from their animals will be consumed domestically. Although we do have producers who are involved in export programs, and they meet the criteria for the uh export country in their production practices, and those animals would be slaughtered with the expectation that they would be destined for Japan or South Korea, for example. But the majority of our producers would sell to the domestic market.
SPEAKER_00We were talking about free trade versus protectionism. So obviously, what happens is a lot of these overseas guys come in and they dump their beef into the U.S. market, which of course your group would be against because that's competing against domestic production, which is completely understandable. But is it that the cost of producing cattle overseas and then selling the beef in the U.S. is cheaper than it is in the U.S.? Is that what it is?
SPEAKER_01That's one factor. So you've got the in the in the southern hemisphere, for example, you have year-round grass. So your production costs are lower. But you all they also um uh enjoy lower wage rates in those countries, and they enjoy just lower production costs, and they oftentimes enjoy a currency valuation differential that gives them an advantage in the U.S. market if our dollar is stronger than their respective currencies. And so those are artificial factors that ensure that we don't have a level playing field between the cost of production domestically and the beef that is produced on foreign soil. Then, in addition to that, when we entered the World Trade Organization back in 1995 and went through the Uruguay round of the general agreement on tariffs and trade, um there was an agreement back then that uh that countries had to change their food safety standards in order to facilitate more imports. And the United States um abided by that requirement, that agreement, and we lowered our food safety standards because of the recognition that many of these developing countries couldn't meet our higher standards. So we once had a standard that said that in order for a foreign country to export beef to the United States, they had to have, they had to have a food safety system that was at least equal to that of the United States. And that uh that requirement was changed. The United States lowered its standard in order to facilitate more imports. And now all the country has to do is have a standard that is uh equivalent to that of the United States, which means it just has to be close enough. And that has increased the volume of imports from foreign countries, and it has, from our perspective, increased the risk to consumers of consuming beef that is not meeting the high production standards in the United States. We also had a requirement that we had to have monthly inspections by U.S. food safety inspections officials in those foreign plants to certify those plants eligible for the United States. Foreign countries complained that that was too uh was too much of an obstacle for them and too much of a burden. So we relax that. So we no longer do monthly food safety inspections in foreign plants. Now they only need to be periodic inspections. So the United States has uh uh clearly uh lowered its food safety and production standards in order to accommodate uh country or beef from countries from around the world. So we're importing from countries like Costa Rica, Nicaragua, Honduras, uh, Brazil, Australia, New Zealand, Canada, Mexico, 20 different countries that we import meat from.
SPEAKER_00So if we were to solve this problem overnight, which obviously we can't, but if there were three things that we could do right now, today, to help bring down the cost of beef, what would those be?
SPEAKER_01Number one, um urge Congress to pass mandatory country of origin labeling for beef. Okay, and that way all beef sold in America's grocery stores would be labeled as to where uh the animal originated. And so if a consumer wanted to support the domestic supply chain, they could exclusively purchase a product from the U.S. And that would strengthen the U.S. cattle industry and incentivize its expansion. So the first thing, and then it's very important, um because the meat packers can purchase this beef cheaper in foreign countries and then sell it in the United States, and all beef sold in the United States bears a U.S. food safety inspection shield. And that leads consumers to believe that it must be a domestic product. It's not. All imported and domestic beef is required to be labeled. So the the the inspection shield does not denote origin. So country of origin labeling for beef is the first and most important measure. The second measure is to restore competition in our domestic livestock markets and to prevent the packers from exercising their inherent buying power. They possess the buying power because of their market dominance, but they need the tools with which to actually execute that buying power. And what they use are tools to extract cattle from the marketplace without having to compete for those cattle. So they have suppressed competition that has caused uh decades of depressed prices in cattle industry. So, number one, country margin labeling. Number two, restore competition in the market by prohibiting anti-competitive cattle purchasing practices. And number three, we have to have relief from excess of imports. We must begin to manage trade as opposed to the uh failed uh free trade theory. And in trade management, we need to establish quotas because if we were to shut off imports today, we would the tight supply situation we're experiencing now would be exacerbated. So we need to phase in limits on the volume of imports that can come into this country. And that will provide our domestic industry the space it needs and the confidence that it needs, that if it invests in expansion, that that investment is likely to be recouped in a competitive marketplace. And so, and then we, in addition to the limits on the uh products to a tariff rate quota, we also need the tariffs to offset the artificial advantage gained by lower production costs, uh lesser uh food production and food safety requirements, and um the adverse effect of currency uh devaluation or valuation differences between uh countries from around the world. So, country marginal labeling, restore competition, and manage trade. Those would be the three key components to uh to rebuilding this cattle industry and to meet our national security uh interests of being self-reliant in the production of beef. And very importantly, the cattle industry is a single largest segment of American agriculture, which means it's vitally important to the economies of rural communities all across America. They're the cornerstones for rural communities. And as we've seen 52% of our cattle producers exit the industry over the past four decades, we've hollowed out rural communities all across America. And now they're scrambling for some substitute like AI data centers, for example. Um, and so uh we we need to restore the economic vitality of rural America, which will strengthen America. And in order to do that, uh one of the key focuses has to be on the single largest segment of American agriculture, and that's the live cattle industry.
SPEAKER_00And last question for you. So I assume your group lobbies, just like all trade associations do. So when you go to the elected officials and you say, look, these are the three things we need. We need country of origin labeling, we need relief from excessive imports, we need anti-com, you know, competitive laws enforced. What are you told by that?
SPEAKER_01Well, so um we have bills, we we were successful in having bills introduced to do just that. Uh, we have what's called the American Beef Labeling Act in the Senate. Senator John Thune, the majority leader in the Senate, introduced that uh legislation. And it is a bipartisan bill. Senator Corey Booker from uh New Jersey is the co-sponsor. We also have a companion bill in the House that we were unsuccessful in getting into the farm bill that was introduced by Congresswoman Harriet Hageman and uh Republican and Congressman Rokanna, a Democrat from California. So it's bipartisan legislation, it's good for America. But what we're running into are those who support the interests of the multinational meat packers. And the multinational meatpackers do not want consumers to know where the meat comes from. And they have held Congress at bay for decades, and they continue to fight vehemently uh to prevent this important legislation from being introduced. Uh, we now have a Secretary of Agriculture that uh has, we've not seen this before, that has really focused on the problems associated with the decline in our cattle and sheep industries, um, threatening our national security. And so we now have from the administration an intense focus on this uh industry. And of course, part of that is because of the consumer affordability issue. They're they're really focusing on the issue on the industry to find out what's wrong. And so now we have investigations by the Department of Justice and by the Federal Trade Commission into the entire beef supply chain, looking to see how much of this inflated beef price is is caused by legitimate increased input costs versus illegitimate uh antitrust uh violations and other anti-competitive practices in the marketplace.
SPEAKER_00All right. Well, Bill, this was a really great conversation. I know I certainly learned a lot from it. And when I interview some of these farm state Republicans, I'm gonna ask them about some of the things we talked about. So I appreciate you coming on and thank you so much for your time.
SPEAKER_01My pleasure. Thank you very much.