Packer Buyer Power Behind Widening Cattle Price Spreads
New research on packer buyer power may finally explain why the gap between cattle prices and wholesale beef prices doubled over the past decade. Economist T. Jake Smith of the University of Nebraska-Lincoln shared these findings during R-CALF USA’s 2026 Annual Convention. His work, co-authored with economist GianCarlo Moschini of Iowa State University, dives into a puzzle that has frustrated cattle producers for years.
The study, titled “Spatial Price Competition and Buyer Power in the U.S. Beef Packing Industry,” set out to identify what drives cattle prices. Additionally, it examined the spread between what ranchers receive and what beef sells for at wholesale. For many producers, that spread has become a painful reminder of an uneven playing field.
A Price Spread That Doubled
Smith presented a chart tracking farm-to-wholesale beef price spreads from 2000 to 2025. From 2000 to 2014, the spread stayed relatively steady at under 40 cents per pound. However, beginning around 2015, it climbed above its long-term average. Then it spiked sharply during the COVID-19 years of 2020 and 2021.
Although the spike eventually eased, the spread never returned to earlier levels. In fact, the average from 2015 to 2025 reached nearly 80 cents per pound. That is roughly twice what producers saw in the earlier period. To Smith, this distortion clearly benefited the highly concentrated beef packing industry while cattle farmers and ranchers absorbed the loss.
How Packer Buyer Power Creates a Markdown
Smith theorized that packer buyer power caused the distortion. Therefore, he searched for specific sources that could explain the widening spread. He measures buyer power as the gap between the true value of cattle and the price a packer actually pays. This gap, he explained, is called the markdown.
For example, suppose a packer is willing to pay $244 per hundredweight for a steer. That figure represents the steer’s value. However, if buyer power lets the packer buy that steer for only $240, the $4 difference becomes the markdown. Smith’s modeling found the total markdown fell between $3.50 and $4 per hundredweight. Because cattle sell for less than their value, that markdown pushes the price spread higher.
Three Sources of Buying Power
Smith tested several possible sources and identified three that contribute to the markdown. The most prominent was the structure of the marketplace itself. Thousands of feedlots stretch across the Central Plains and beyond, yet only a few packing plants sit in fixed locations.
He explained the logic simply. When two plants in different locations bid for the same cattle, the closest plant does not need to bid its full value. Instead, it only needs to outbid the more distant plant. Because transportation adds cost, the farther plant will not bid as high. As a result, this geographic advantage contributed 54% of the total markdown.
The second source involved alternative marketing arrangements, or AMAs, priced from a regional spot market. Smith said these arrangements shape packer incentives. When packers underbid in the spot market, they still receive their AMA cattle, but now at a lower price tied to that weaker spot market. Consequently, AMAs contributed 40% of the markdown.
Finally, Smith pointed to multi-plant ownership as the third source. However, his modeling showed it added only 6% to the total markdown.
Why Capacity Constraints Matter
Smith’s study also examined how capacity constraints influence packer bids. He treated these constraints separately because they do not change the gap between value and price. Instead, they change how packers value the cattle in the first place. Furthermore, capacity disruptions can lead to higher spreads and lower slaughter volumes.
The research revealed another important pattern. As cattle supplies shift, the buying power markdown stays constant. Meanwhile, capacity constraints drive the swings in price spreads. This distinction helps producers understand which forces are steady and which fluctuate.
What This Means for Cattle Producers
For independent ranchers, this research offers something valuable: a clear explanation grounded in data. The findings confirm what many producers have long suspected about packer buyer power and its effect on their bottom line. Understanding these forces gives producers and policymakers a stronger foundation for future conversations about fairness in the cattle market.
R-CALF USA, the largest producer-only trade association in the United States, shared the research through its weekly commentary by CEO Bill Bullard. The organization works to protect the profitability and viability of the nation’s cattle and sheep industries. As debates over market concentration continue, studies like this one give hardworking families the information they need to stand up for a fair return on their labor.
Readers can watch the full presentation by visiting r-calfusa.com and clicking on speaker videos.