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Agricultural News

R-Calf USA Calls on DOJ to Stop Feedlot Purchase

Mon, 05 Jul 2010 21:53:41 CDT

R-Calf USA Calls on DOJ to Stop Feedlot Purchase In response to recent national and international news articles announcing that Brazilian-based JBS Swift has agreed to purchase McElhaney Cattle Company one of the United States' top 25 cattle feeding operations with a one-time capacity of 130,000 head R-CALF USA sent a formal request letter this past Friday to the U.S. Department of Justice (Justice Department) urging immediate antitrust enforcement action to block the sale.

In its letter, R-CALF USA referenced the findings made pursuant to a 2008 congressional hearing of the U.S. Senate Committee on the Judiciary, Subcommittee on Antitrust, Competitive Policy and Consumer Rights ("Senate Subcommittee"). The hearing examined the competition issues concerning JBS Swift's then proposed acquisition of two U.S. beef packers and the United States' largest cattle feeding operation Five Rivers Ranch Cattle Feeding, LLC (Five Rivers). As a result of evidence raised at the hearing, including evidence provided by R-CALF USA, the Chairman of the Senate Subcommittee, Herb Kohl, urged the Justice Department to "at a minimum" require JBS Swift to divest Five Rivers. R-CALF USA's letter to the Justice Department included the following quote from Chairman Kohl:

The acquisition of Five Rivers would give JBS Swift an enormous captive supply of cattle. JBS Swift could strategically slaughter this captive supply at certain times without needing to purchase cattle on the spot market. Such conduct could substantially depress prices paid to independent ranchers. Many academic studies have shown that captive supplies depress cattle prices, and allowing JBS Swift to gain such a large captive supply by virtue of its Five Rivers acquisition could have dangerous consequences for independent producers. I therefore urge that you obtain the divestiture of Five Rivers should the Justice Department decline to block the acquisitions as a whole.

R-CALF USA's letter states that if the Department of Justice allows JBS Swift to acquire McElhaney Cattle Company, "the increased market power and harm to competition arising from JBS Swift's acquisition of Five Rivers, which, as revealed by the Senate Subcommittee's examination is particularly detrimental to independent cattle producers, will be greatly intensified." the letter continues, "Such an outcome should not be tolerated and we respectfully urge the Justice Department to bring an immediate enforcement action to prevent JBS Swift from acquiring McElhaney Cattle Company."

R-CALF USA further forewarns the Justice Department that JBS Swift likely will point to recently higher cattle prices as evidence that the company is not exercising market power in the U.S. cattle market. However, R-CALF USA states, "our U.S. cattle herd which now is estimated to be the smallest in 50 years (since 1958) has been so decimated by the abusive market power wielded over time that JBS Swift, despite possessing substantial market power, is currently unable to fully exploit that power because cattle supplies are so exceptionally tight." In support of its claim, R-CALF USA cites a recent study that "analyzed the relationship between the dynamic cattle cycle and the potential for market power in cattle purchases." R-CALF USA suggests the study substantiates its claim that "when cattle stocks are low, as they are today, markdowns of cattle prices (due to the exercise of market power) would not be expected to be as severe as when cattle stocks are high."

Click here to read the full letter sent to the DOJ by R-Calf.



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