During R-CALF USA’s 2026 Annual Convention, economist T. Jake Smith of the University of Nebraska-Lincoln presented findings of a recent research paper he co-authored with economist GianCarlo Moschini, Iowa State University, titled Spatial Price Competition and Buyer Power in the U.S. Beef Packing Industry.
The researchers set out to identify the drivers of cattle prices, and price spreads between cattle prices and wholesale beef prices. Smith provided a chart depicting farm-to-wholesale beef price spreads from 2000 to 2025, which he said was deserving of a thorough research study.
The chart showed that from 2000 to 2014, the farm-to-wholesale price spread remained relatively constant at under $0.40 per pound throughout the period. But beginning around 2015, the spread began rising above its long-term average and spiked significantly during the COVID-19 years of 2020-21. And though the spike subsequently subsided, the spread has remained elevated above the pre-2015 period. The average spread from 2015-2025 was nearly $0.80 per pound, twice what it was during the earlier period.
To Smith, this was a puzzle. What could cause such a severe distortion between the price of cattle and the price of wholesale beef, a distortion that clearly benefited the highly concentrated U.S. beef packing industry at the expense of U.S. cattle farmers and ranchers?
Smith theorized the distortion resulted from the packers’ exercise of buyer power, so he set out to identify buyer power sources that could explain the price spread increase.
Smith measures buyer power as the gap between the actual value of cattle and the price the packer actually has to pay for the cattle. This measurement, Smith said, is called the markdown. For example, if a packer is willing to pay $244 per cwt for a steer, that is the steer’s value. But, if buyer power is exerted, enabling the packer to buy the steer for only $240 per cwt, which is $4 per cwt less than the packer was willing to pay, then $4 per cwt is the markdown: the gap between value and price resulting from the exercise of buyer power.
Smith’s economic modeling found that the total markdown resulting from the exercise of packer buyer power was between $3.50 and $4 per cwt.
If cattle are purchased subject to a markdown, meaning they’re purchased for less than their value, then this will increase the spread between cattle prices and beef prices.
Smith tested several possible sources of buyer power and identified three that contribute to markdowns that increased the price spread.
The first and most prominent source of packer buying power was the structure of the marketplace itself, with thousands of feedlots widely dispersed across the Central Plains and elsewhere but with only a relatively few packing plants in fixed locations.
He explained it this way: If two plants in different locations are bidding for the same cattle, the plant closest to the cattle need not bid a price it is actually willing to pay as it only needs to bid higher than what the second plant is willing to pay. And due to the cost of transportation, the price the second plant is willing to pay for cattle closest to the first packer is less than it would be willing to pay if the cattle were closest to it.
Smith found that the markdown based on the geographical structure of the industry, which creates a difference between what a packer is willing to pay and what it has to pay given where its competitors are located, contributed 54% to the total markdown.
The next prominent source of buying power was the packers’ use of alternative marketing arrangements, or AMAs, that are priced based on a regional spot market price. Smith said AMAs influence the packers’ incentives in the spot market, as they know that when they underbid for cattle in the spot market, they’ll still have the AMA cattle delivered to them to slaughter but at a lower price because of the way the AMAs are linked to the spot market.
Smith’s model reveals that AMAs contribute 40% to the packer buyer power markdown.
The third source of buying power identified by Smith was multi-plant ownership, but the economic modeling found it contributed only 6% to the total markdown.
Smith’s study also addressed how capacity constraints influence packers’ bids for cattle. He explained that capacity constraints are treated separately from markdowns in their research because they don’t change the gap between value and price. Instead, capacity constraints change how the packers actually value cattle. He said capacity disruptions can lead to higher price spreads and lower slaughter volumes.
Smith’s study also reveals that as cattle supplies change, the buying power markdown remains constant while capacity constraints drive swings in price spreads.
You can watch Smith’s presentation by going to r-calfusa.com and clicking on speaker videos.
