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Punchin' the packers

(July 2, 2002 -- CropChoice news) -- Cattle owners, ranchers and feedlot operators yesterday launched a class-action against the four U.S. meat packing companies that control 82 percent of the marketplace-- Tyson Foods, Inc. (recent purchaser of IBP), Cargill's Excel Corporation, ConAgra Beef Company, and Farmland National Beef Packing Company. The plaintiffs allege in the lawsuit that in April and May of 2001, the companies engaged in insider trading.

They purchased millions of head of cattle from the nation's producers while knowingly using false and deceptive pricing reports that effectively manipulated the prices below fair market value, according to attorneys for the plaintiffs. The case was filed in Aberdeen, South Dakota.

"The packers pattern their unethical behavior after today's big Wall Street businesses, like Enron and Worldcom," says Herman Schumacher, a South Dakota cattleman and one of the class representatives. "Cattlemen have been seriously damaged. When the price reporting error was discovered, live cattle prices jumped immediately $40 to $50 per head. It's now time for cattle owners to stand up and demand no less from the beef industry than we demand from ourselves and our children: honesty and fair play."

The pricing reports that the plaintiffs claim the packers used to drive down live cattle prices were produced by the U.S. Department of Agriculture (USDA), based on information supplied by the packers. The reports related to the price of "boxed beef," which is the price the packers receive for their finished product. For nearly a month last spring, the USDA reported that the price of boxed beef was falling sharply, which allowed the packers to obtain significant price concessions from cattle producers. In fact, the actual price of boxed beef was increasing dramatically over the same period. Instead of correcting the USDA's reports, the packers took advantage of the mistake, basing its bids for cattle on the falsely reported data.

"In the 29 days that the false reports were published throughout the industry, it looks like the packers pocketed an extra $40,000,000," says Jim O'Connor, one of the lawyers representing the plaintiffs. "That's money the market would have distributed to cattle owners had the packers acted lawfully."

The lawsuit hasn't caused much of a stir among the companies in question.

"We believe the suit is without merit and we'll defend ourselves vigorously," says Mark Klein, spokesperson for Excel Corp. "It is ironic to me that the same types of people who clamored for a new price-reporting system are now unhappy with it."

The devil of that system might be in the details, though.

"We didn't get a new price reporting system," says Kansas cattleman and class representative Mike Callicrate, referring to the Livestock Mandatory Reporting Act that Congress passed in October 1999. Following its implementation in April 2001, criticism ensued. A USDA report placed much of the blame on the 3/60 guideline, under which it won't release market reports if fewer than three packers are in a market, or if one packer purchases more than 60 percent of the livestock in that period.

The problem as Callicrate and others see it is that no more than one or two bidders are active in the market. Because of the lack of reporting under the 3/60 rule, they are the only ones who know current market conditions.

"Make no mistake, cattlemen have failed to achieve the objectives of market transparency, current price information, and full public disclosure of all contract terms and conditions on captive supply arrangements with the passage of mandatory price reporting," he says. "Because of the 3-60 rule and other confidentiality provisions, we now have price reporting without price information. USDA will have more information, cattle producers will have less information, and the illegal, preferential, secret deals will not be exposed."