Beef Market Consolidation Helps Stocks, May Hurt Rural Communities
Consolidation in the beef industry may be helping the Yonder 40 stock index, but cattle raisers and politicians in both parties worry about maintaining open markets.
Maybe it's because rural areas learned long ago how to hang on when the going got rugged, but the Yonder 40, 40 publicly traded stocks designed to gauge the rural economy, is weathering the national economic downturn better than the other leading stock indicators.
Since July 1, when the Yonder 40 began, the index of rural stocks has dropped considerably less than the other major indexes. That was true last week, as all the primary stock indexes lost ground. The Yonder 40 can brag — if bragging is in order in such a dismal market — that it was hammered less than the others. The 40 was down by less than two percent last week. The S&P 500, Dow Industrials and NASDAQ all dropped closer to three percent in the week.
The Yonder 40 was bouyed by a rise in the prices for meatpacking companies. Smithfield Food Inc. rose three percent this week. Tyson Foods was up nearly 10 percentl.
These rising prices in a down market come in the week where JBS SA, the Brazilian meatpacker, announced that it would buy National Beef of Kansas City and that it was in negotiations to buy Smithfield Food Inc.'s beef business for $565 million. If all those deals are completed, JBS would control 32 percent of the US beef market and Tyson would have 25 percent. (Smithfield and Tyson are members of the Yonder 40.)
While perhaps good for stock prices, the further consolidation of the meat industry may not be so beneficial for rural communities, however. The Organization for Competitive Markets, an organization of independent farmers and ranchers, said late last week that "current concentration in the beef industry has made competition weak in many areas and non-existent in large swaths of the country. Combining three major packers into one is unprecedented in the U.S. cattle industry."
Currently, according to OCM, independent beef producers seldom receive competitive bids for their cattle. "As captive supplies have grown, most independent feeders receive competitive bids one out of approximately five weeks," OCM wrote in a statement on the JBS acquisitions. "Packers use this market access risk to drive producers into contracts which, in turn, creates more market access risk."
Independent producers have sought bans against packer ownership of cattle. The JBS purchases will increase the likelihood that such a ban will be put into the new farm bill, according to Senate Agriculture Committee Chairman Tom Harkin of Iowa.
Sen. Charles Grassley (Republican of Iowa) issued a statement on Wednesday saying the JBS purchases "will reduce market opportunities for family farmers and increase prices and provide less choice for consumers. "I've been pressing the Justice Department about consolidation in agriculture, but the Department doesn't appear to think there is a problem … Now producers will only have 3 major beef packers to sell their livestock to. Is it going to take only one packer in the industry for the Justice Department to say there isn't competition?"
This is how the full Yonder 40 faired the week ending March 7:
|Yonder 40||Ticker||Price March 7||Price Change 2/29 to 3/07||Percent Change 2/29 to 3/07|
|Burlington Northern Santa Fe Corp.||BNI||$88.02||$0.24||0.3%|
|Peabody Energy Corp.||BTU||$52.98||-$3.64||-6.4%|
|ConAgra Foods Inc.||CAG||$21.25||-$0.85||-3.8%|
|Cato Corp. Cl A||CTR||$15.10||-$0.56||-3.6%|
|Deere & Co.||DE||$83.22||-$1.99||-2.3%|
|Dean Foods Co.||DF||$20.74||-$0.78||-3.6%|
|Family Dollar Stores Inc.||FDO||$18.80||-$0.35||-1.8%|
|Fleetwood Enterprises Inc.||FLE||$4.26||$0.00||0.0%|
|Gaylord Entertainment Co.||GET||$29.04||-$1.05||-3.5%|
|International Speedway Corp.||ISCA||$39.66||-$0.18||-0.5%|
|Mohawk Industries Inc.||MHK||$69.75||-$1.66||-2.3%|
|Mine Safety Appliances Co.||MSA||$40.18||$0.07||0.2%|
|Plum Creek Timber REIT||PCL||$39.48||-$1.21||-3.0%|
|Penn Virginia Corp.||PVA||$41.46||-$1.10||-2.6%|
|Regions Financial Corp.||RF||$20.36||-$0.84||-4.0%|
|Sturm Ruger & Co.||RGR||$7.92||$0.02||0.3%|
|Stage Stores Inc.||SSI||$12.73||$0.07||0.6%|
|Tractor Supply Co.||TSCO||$36.44||-$1.00||-2.7%|
|Waddell & Reed Financial Inc.||WDR||$29.70||-$1.64||-5.2%|