The Meat Racket: The Secret Takeover of America's Food Business

by Christopher Leonard

  The fight for survival within the beef industry is increasingly being fought between the fewer and bigger competitors that remain. The industry is divided into two broad sectors: There are the producers who raise the cattle, which are ranchers and big feedlot owners. Then there are the meatpackers that kill the animals and sell their beef, the companies like Tyson Foods or JBS Swift. Both of these sectors are more concentrated than they have been at any time in history. On the meatpacking side, there are now just four companies that buy 85 percent of the cattle sold in the country. Tyson is the biggest, followed by Cargill, JBS Swift, and National Beef. As meatpackers have become bigger, feedlots have tried to keep pace, expanding to meet the needs of their corporate buyers.

  But the defining fight under way in the cattle industry isn’t just a battle between big and small operators. It’s a fight about control, a tug-of-war between the producers and the meatpackers. And the big meatpackers like Tyson Foods are clearly winning.

  While Tyson and the other meatpackers have not been able to fully integrate the cattle business, they have been able to take control of the market by virtue of their size. When feedlot owners sell into a market of just four buyers, it’s hard to reasonably call that market competitive. In the face of increasingly volatile prices and depressed profits, most cattle producers have opted to abandon the free market altogether. They have chosen, instead, to sell their animals under contract to companies like Tyson, with contracts that are modeled on those used for chicken and pork farmers. The remaining minority of cattle producers who sell their animals on the open market find that they must often take the price that is dictated to them by Tyson, Cargill, or JBS. It’s hard to get a better price when the buyers refuse to bid against one another.

  What has evolved is a kind of de facto vertical integration, with whole networks of feedlots tied to meatpackers under contract. The cattle market is technically an open one, but no one behaves that way, and it’s an open secret that they don’t. There is ample evidence that the big four meatpackers have chosen to divvy up the market, picking territories where they can buy all the cattle from a feedlot without facing a competing bid.

  This arrangement means that Tyson has a steady supply of cattle to keep its plants running. And its contracts have allowed it to exert more control over the cattle business without owning the animals outright. When Tyson decides it wants to use a certain growth hormone in its cattle, for example, all it needs to do is put the word out to its contract feedlots. There is no struggle to convince independent producers or advertise the need for it with open market purchases.

  But a stubborn minority of feedlot owners and ranchers is still trying to maintain an open market for cattle by refusing to sign contracts with meatpackers. By doing so, they are trying to keep one last corner of the meat industry from being fully chickenized. There are economic reasons for these cattle producers to want to stay independent. But there are cultural reasons as well, reasons that trace back to the obstinate character of people like Gene Carson.

  Gene Carson owns Maverick Feeders, LLC, outside of Dodge City, the feedlot where the cowboys Antonio, Christian, and Cachu were riding their circular cattle drive. There is something odious about the very word “contract” to a cattleman like Carson. He got into the business decades ago, straight out of college, and the first lesson he learned was that a cattle buyer’s word is his bond. A cattle trade is built on ethics, not contracts. Contracts were for lawyers, and lawyers were for city slickers.

  Carson started Maverick Feeders in the early 1990s, just south of his hometown in Dodge City, Kansas. The company was properly named, as Carson founded it promptly after quitting his job as a senior cattle buyer for National Beef, one of the country’s four biggest meatpackers. Carson didn’t like the corporate tone that was seeping into the culture of National Beef back in the 1990s, a culture that seeped into all the cattle business and seemed to have taken it over by 2011. It was a flaccid, spirit-killing culture defined by a single motto: “Father, may I?”

  Something about asking “Father, may I?” rubbed Carson the wrong way. He didn’t like getting orders from a corporate office and he dreaded the thought that one day he might be promoted to a place like Kansas City where he would sit in an office all day and where the only manual labor left for him would be mowing the lawn when he got back home. Carson couldn’t picture himself mowing the lawn. That wasn’t work. His idea of work was cutting horses and raising cattle. He worked as long as he was awake many days, and he didn’t want to live his life any other way. So he quit his good-paying job at National Beef and rented a feedlot carved out of the isolated plains south of Dodge City. And over the years the feedlot expanded and expanded again until it reached its present size in 2011, covering the hillsides all around him.

  By 2011, Carson belonged to a group of feedlot owners spread throughout the High Plains who have refused to abandon the cash market in favor of contracts. The benefit of doing this isn’t immediately clear to an outsider. Every year, the independent feedlots seem just a little more isolated, a little more outside the favored circle of the big four meatpackers. The most influential trade groups and lobbyists increasingly deride the cash market as a throwback to the industry’s history, just another manifestation of the cattle drives and cowboys that have been made obsolete by technology’s onward march.

  But for Carson, the decision is pretty simple. And it comes from a special insight. He spent about twenty years working as a cattle buyer himself for National and other companies. The thought of becoming a contract producer seems not only appalling but economically illogical. Meatpackers don’t sign contracts to benefit feedlot owners. They sign contracts to benefit themselves.

  “If you crawl in bed with a rattlesnake and think you ain’t gonna get bit, then you’re pretty stupid,” Carson said.

  * * *

  The main strip in Dodge City is called Wyatt Earp Boulevard, named after the legendary gambler and lawman. Earp was one of the first people ever able to impose a measure of discipline on the American cattle business, and he did this in part by killing people. Earp famously gunned down three outlaw cowboys at the OK Corral in Arizona in 1881, setting the standard by which he would govern the cattle towns springing up around the migration routes that cowboys used to drive herds to the packing houses.

  Things have mellowed since the OK Corral. Earp’s six-shooter has become just another charming prop for Dodge City’s healthy tourist industry. Now there is an Applebee’s downtown next to Boot Hill, the plot of land where errant cowboys were once buried after they got shot. But there is still a fight that is centered here, albeit a much quieter one. It is a fight by companies like Tyson finally to subdue the Wild West, and to replace it with a predictability and corporate character that was unthinkable for most of the business’s history.

  This fight is waged from the giant compounds that embody modern beef production, like the National Beef plant that sits on the eastern edge of town. The National plant is a mini city, where semitrucks loaded with live cattle arrive around the clock and nose up to a chute where the cattle are led inside. About 6,000 cows can be killed and butchered within the plant each day. The sprawling parking lot is filled, at all hours, with the cars of 2,500 employees who report to their stations inside the factory.

  Less than two miles east, there is a similar plant owned by Cargill. And sixty miles west is the Tyson plant outside Garden City.1 This triumvirate of meatpackers has quieted the once rowdy competition that used to support a free market for cattle. Back in 1980, the four biggest meatpackers controlled just 36 percent of the cattle market. They faced daily competition from hundreds of smaller firms to buy the best cattle and to supply the best beef to grocery stores and restaurants at the best price.

  With that competition wiped out, the meatpackers have more leeway to set the rules of the game. They have also gained the power to keep wages low in their slaughterhouses, giving rise to a more pliable workforce. Wyatt Earp would likely flee Dodge City out of bore
dom today. The street named after him is quiet most days. The small stores along Wyatt Earp Boulevard cater to the Hispanic, Asian, and West African immigrants who moved to town for steady jobs and a quiet life. La Jerezana Shoes sells the latest styles from Mexico and provides convenient money orders for shift workers who want to send their wages back to Latin and South America. Just down the sidewalk, the African Grocery sells carpets, juices, and cooking supplies for nostalgic immigrants who want the flavor of home. On a languid afternoon, two women in traditional Muslim headscarves sat on plastic chairs in the back of the store and watched daytime television, getting up to help the periodic customer. These immigrants from the developing world are willing to accept wages and benefits that the locals walked away from decades ago, a critical evolution that has helped the meatpackers keep their costs down.

  Controlling the cattle producer has become a process of simple math. With only four giant meatpackers in the market today, the cash market for cattle has become competitive in name only. Just twenty-five or thirty years ago, a cattle producer like Carson might have had a dozen meatpackers to choose from. Fattened cattle were sold at auction barns where meatpackers bid aggressively for the best animals, one upping another in heated auctions. It was the best kind of price discovery, transparent and built on vigorous competition. Bad cattle fetched low prices, the best cattle fetched the highest price the market would bear. Those auctions for finished cattle have ended. The market, such as it is, is played out in a series of phone calls as meatpackers dial up the feedlots and tell them what they are willing to pay. The competition can be pallid. If two meatpackers don’t want to buy cattle during any given week, for example, that leaves only two buyers to choose from: not the best scenario for igniting a bidding war. If three of the meatpackers aren’t in the market, that would leave only one buyer, who could offer a take-it-or-leave-it price.

  This gives meatpackers a chokehold over the independent feedlot owners and ranchers that supply them. If someone like Gene Carson can’t get a fair price for the cattle he raises, if he can’t hit that magical break-even point of $1.29 a pound, then all the expensive corn and the rental of his muddy pens will have been for nothing. Outside of Dodge City, getting a fair price for cattle isn’t just dependent on the volatile swings of the futures market in Chicago. It’s more dependent on simply finding someone willing to bid for his animals.

  To understand how competition could have reached such a lowly point, it’s helpful to see the market through the eyes of someone like Carson, who used to buy cattle for a big beef packer, until he got so disgusted that he quit.

  * * *

  Gene Carson used to go out into the cattle pens even when it was raining. He donned a poncho and got out of his truck, wading out into the muddy pens to inspect the cattle closely. He could gauge how much beef their frames would yield, guessing how many of them would win the USDA grade of “choice” beef that would be worth the most at a supermarket.

  This was back in 1991, when cattle buyers like Carson fought one another for the best animals to deliver to the meatpackers that employed them. Millions of dollars in revenue and profits hung on the equations that raced through Carson’s mind as he examined each pen. If he paid too much for the cattle, even by a few pennies per animal, a whole day’s production could be unprofitable for his employer, National Beef in Dodge City.

  Carson got his first job as a cattle buyer just out of college, working for the old-line beef company Armour. He was moved around the Midwest and eventually settled in Dodge City, where he got hired on by Hyplains. Small- to midsize companies like Hyplains still heavily populated the business into the 1980s, and they relied on their cattle buyers to make sure they beat the competition to the best pen of cattle. Carson was a shrewd buyer, but fair. The feedlot owners liked working with him, even if he was tough. Hyplains eventually made him head buyer.

  Carson used a number of tricks to get Hyplains the best cattle without spending a penny more than he had to, a process called “putting the kill together.” To assemble a good kill, Carson employed a team of buyers who visited the feedlots and reported back to him what they saw. Carson employed a strategy called “laying the noose.” He gave each of his buyers a secret order to buy several pens of cattle at a given price. Then at an appointed time later in the afternoon, Carson instructed all of them to make the trade. That was called “pulling the noose.” Within minutes, Hyplains locked up thousands of cattle before the competition could get at them. The competitors found out the next morning that the first cut of cattle was off the market.

  Things started to change during the 1980s, as one meatpacker bought another and drove the smaller ones out of business. With fewer and fewer companies in the market, meatpackers needed fewer and fewer buyers. In 1990 Hyplains was purchased by National Beef, which took over the Dodge City plant and began to expand it into the megaplant it is today.

  Gene Carson, the head cattle buyer at Hyplains, got a new boss. He also got an education in the new rules of cattle buying. Carson reported to Tim Klein, who oversaw operations at National Beef. Month by month, Klein made it clear to Carson that the rules of the industry were changing. As beef companies expanded, they centralized their operations. That meant that decision making shifted from the buyer in the field to a team of buyers at company headquarters.

  Carson was too much of a cowboy to fit with National’s buying program. He was used to operating by his instincts, feeling out the market and then striking when the opportunity was right. Under Klein, Carson needed to get the green light from corporate before he could make a move. He had to call headquarters before he could pull the noose.

  Carson tried pulling the noose on his own a few times, and he was invariably chastised for it later by Klein. Eventually, Carson agreed not to make a trade unless he had permission from Klein.

  Then Klein called Carson into his office to talk about a bigger problem.

  — It looks like you have a reputation for paying too much, Klein told him.

  National had evidence to back up the claim. It compared Carson’s purchases with what other buyers were paying at other slaughterhouses. Carson was paying several cents more per every hundred pounds of cattle he bought.

  This didn’t surprise Carson. He often paid top dollar, because he got the best animals. He prided himself on getting the first cut of cattle, before the competition got to them. For all he knew, the other National buyers were settling for the second or third cuts of cattle.

  Through Carson’s career, he bid on cattle using one simple number, a metric he called “choice cost hanging in the cooler.” What that metric represented was the value for a pound of “choice”-grade beef hanging in the cooler at a slaughterhouse. Choice-grade beef was the high-quality stuff. It’s what made a good steak. That’s what beef packers were aiming to get because that’s what fetched the highest price. Select-grade beef, on the other hand, went into hamburger or other cheaper cuts.

  In the old days, Carson figured out the choice cost hanging in the cooler and reverse-engineered that number to figure out what he would bid on any given pen of cattle. He could eyeball a pen of cattle and figure out instantly how many of them would grade choice, how many select, and how much meat they’d yield. It let him bid prices that were razor-sharp in their precision. This was at the heart of Carson’s job, and the job of every cattle buyer.

  Now Klein was telling Carson that it only mattered how his costs stacked up against those of a buyer several counties away.

  — Are we going to compare choice cost hanging in the cooler? Carson asked.

  — That’s irrelevant, Klein told him.

  And that was the end of Carson’s career as a cattle buyer. In Carson’s view, Klein was telling him that quality didn’t matter anymore.2 Carson was not supposed to start his calculations with the cost of choice beef in mind and then work backward. The modern cattle buyer was involved in a numbers game more than anything. He was looking to ensure a steady flow of cattle into the front door of the mod
ern megaplant. This was how beef became more like chicken: more standardized, less specialized. There wasn’t as much difference between the best steak and the lowest quality hamburger. The quality of meat was getting pushed toward the middle, toward the commoditized “good-enough” quality of poultry. Tim Klein disputed Carson’s interpretation of his comment. Klein didn’t mean to say that quality didn’t matter. For him, the main point was that Carson was paying too much for cattle. National’s analysis was showing that Carson’s cattle weren’t bringing enough extra value to justify the higher price he paid.

  Carson said the final straw came when National promised him a raise and then recanted on that promise a few months later. Going back on your word wasn’t something that was done in the cattle business.

  “I just wanted plum out,” Carson said. “I could see this corporate world was taking over.”

  So he founded Maverick Feeders. And only then, from the vantage point of the cattle producer, was it really clear just how complete the corporate takeover would become.

  * * *

  On Monday and Tuesday mornings, the cattle buyers fan out into the rolling hills and flat cornfields around Dodge City, looking to put the kills together for their bosses at Tyson, Cargill, National Beef, and JBS Swift.

  The cattle buyers visit Maverick Feeders, and then some of them drive down Highway 400 back toward town. Just across the street from the Cargill plant, they take a right turn and head up the long gravel driveway into Winter Feed Yard. Up at the top of the gravel driveway is the head office, a small brick building that looks and feels like a corporate bank branch. The carpet inside is nice and new, the desks are made of burnished wood and adorned with new iMacs. The first thing that greets a cattle buyer when he enters the office is a friendly black German shepherd named Vicky.