Beef and Pork Marketing Margins and Price Spreads during COVID-19

Abstract

COVID-19-related disruptions led to a historic rise in the spread between livestock and wholesale meat prices. Concerns about concentration and allegations of anticompetitive behavior have led to several inquiries and civil suits by the U.S. Department of Agriculture and the U.S. Department of Justice, with increases in price differentials serving as a focal point. This article notes the difference between price spreads and marketing margins, outlines corresponding economic theory, and describes the empirical evidence on wholesale meat and livestock price dynamics in the wake of COVID-19 disruptions. At one point during the pandemic, beef and pork packers were both operating at about 60% of the previous year's processing volume. We explore how such a massive supply shock would be expected to affect marketing margins even in the absence of anticompetitive behavior. Moreover, we document how margin measurements are critically sensitive to the selection of data and information utilized. Finally, we conclude with some discussion around policy proposals that would pit industry concentration against industry coordination and economies of scale.

Keywords: Beef; COVID‐19; Cattle; Hog; Marketing Margin; Pork; Price Spread; Q11; Q13.

Figure 1

Percent Change in Daily Number of Cattle and Hogs Slaughtered on Weekdays and Weekly Number of Young Chickens Slaughtered in 2020 vs. 2019 [Color figure can be viewed at wileyonlinelibrary.com]

Figure 2

Weekly Wholesale Boxed Beef Value, Live Cattle Price, and Price Spread [Color figure can be viewed at wileyonlinelibrary.com]

Figure 3

Inflation‐adjusted Weekly Farm to Wholesale Beef Price Spread, January 2005 to June 2020 [Color figure can be viewed at wileyonlinelibrary.com]

Figure 4

Weekly Wholesale Pork Cutout Value, Dressed Hog Price, and Price Spread [Color figure can be viewed at wileyonlinelibrary.com]

Figure 5

Impacts of a Disruption in the Meat Processing Sector on the Marketing Margin Assuming Fixed Proportions [Color figure can be viewed at wileyonlinelibrary.com]

Figure 6

Alternative Calculations of Farm to Wholesale Beef Marketing Margin, January 2004–June 2020 (weighted average 5‐area total all grades fed cattle and comprehensive cutout prices) [Color figure can be viewed at wileyonlinelibrary.com]

Figure 7

Impact of Fed Cattle Price Selection on Farm to Wholesale Beef Marketing Margin Calculations, January 2004–June 2020 [Color figure can be viewed at wileyonlinelibrary.com]