Pickett v' Tyson Fresh Meats, Inc' Americas Cattlemens Trial

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Pickett v. Tyson Fresh Meats, Inc.Americas
Cattlemens Trial
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Pickett v. Tyson Fresh Meats, Inc.
CCMP

• The first class action case ever brought under
  the Packers Stockyards Act.
• Estimated 30,000 plaintiffs
• Defendant Tyson bought IBP in 2002
• Subsidiary is Tyson Fresh Meats, Inc. based in
  Dakota Dunes, South Dakota

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Packers Stockyards Act
CCMP

• Passed in 1921 after finding of price
  manipulation of top five packers.
• Big Five had 45 mkt share.
• Prohibits
• Unfair, discriminatory and deceptive practices
• Courses of business engaged in with the purpose
  or effect of manipulating or controlling price.

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Pickett v. Tyson - Claims
CCMP

• Tyson used Captive Supply (CS) inventories with
  the purpose or effect of lowering cash prices.
• CS have no legitimate justifications
• CS not necessary for quality.
• CS not necessary to keep plants full.
• CS not necessary for efficiency.
• CS not necessary for risk management.
• Thus, the only impact is negative to price.

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Definitions
CCMP

• Cash market priced and delivered within seven
  days
• Includes live weight, dressed or grid sales.
• Includes conventional cattle, natural, branded,
  etc.
• Cash market is the holy grail for price discovery
  due to daily negotiation interface.

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Definitions
CCMP

• Captive supplies - commited to packer more than
  seven days out
• Live weight, dressed or grid sales.
• Forward contracts either basis contracts or
  fixed price contracts pegged to CME.
• Marketing agreements many versions of formula
  pricing typically pegged to cash mkt.
• Joint ventures Tyson jointly owns Cactus or
  Simplot cattle, PL from feeding and processing
  jointly shared.
• Packer owned Tyson had little cattle owned.

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Plaintiffs Evidence
CCMP

• Tens of thousands of pages of internal Tyson
  documents from 1994 to 2002.
• Detailed transaction data quality, price, method
  of purchase
• Profit and loss summaries, weekly
• Plant cost data
• Inventory data
• CS contracts Cactus, CattleCo, Simplot, etc.
• Nobody has ever had this information!

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Pls Evidence Testimony
CCMP

• Owner of largest U.S. bull test station
• Bulls are source of all genetic change
• Bulls are selected for many different traits
• Growth, mothering, calf size, carcass, etc.
• No difference occurs in demand for bull quality
  between captive and cash sellers

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Pls Evidence Feeder testimony
CCMP

• Factors affecting price from feeder perspective
• Live cattle supply
• Wholesale boxed beef trade
• Retail consumer demand
• How far out packers are from purchase to kill
• This is the best captive supply estimate
• When packers are further out, price is lower

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Pls Evidence Feeder testimony
CCMP

• When Tyson has more captive supplies
• They bid less, depressing the whole price
  structure
• Competitors bid at the lower price level, as
  well
• Feeders sell at lower price in a panic.
• Cash market becomes thin with captive supply
• Fewer cattle price all the other cattle
• Narrow, one hour bid windows on Wed, Thurs result
  in panic selling.

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Pls Evidence From the Horses Mouth
CCMP

• Bob Peterson, CEO of IBP (before Tyson purchased
  the company)
• 1988 IBPs competitors own their own cattle and
  use them to affect prices. IBP will do it too if
  producers dont stop the practice.
• 1994 I told you we would do it if you didnt
  stop our competitors. We do not plan to stop.

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Pls Experts Dr. Bob Taylor
CCMP

• Investigation eight years of data
• Data from millions of Tyson transactions price,
  quality, method of sale, profit/loss.
• Hundreds of variable regression analyses to sort
  out captive supply impacts from the impacts of
  other market factors.
• Data on Tyson plant costs, plant utilization,
  transaction costs
• Comparison to past govt/university studies
• They lacked data to make conclusions on
  efficiency and cost
• They lacked information that could show
  causation
• They made assumptions, based upon packer
  executive claims, that proved incorrect when data
  was analyzed.

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Pls Evidence Dr. Bob Taylor
CCMP

• Market characteristics
• Big Four packers have over 80 market share
• Tyson has inherent, strategic, information
  advantage over producers inventory, price
  trends, national scope producer daily
  willingness to sell.
• Tysons captive supplies grew from 25 in 1994 to
  60 in 2002.

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Pls Evidence Dr. Bob Taylor
CCMP

• Price impact
• Regression analysis showed more captive supplies
  always caused lower price
• The price decline is mathematically predictable
  with a 99 confidence level
• Coefficient (.0000562) / 1,000 hd
• The average price impact over eight years was
  three to seven percent, with an average of 5.1
• This is like the packers getting one out of every
  20 cattle free.

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Pls Evidence Dr. Bob Taylor
CCMP

• Necessary to increase quality? CS cattle were
  10 lower choice grade than cash cattle.
• Necessary to keep packing plants full?
• No correlation between higher captive supplies
  and Tyson keeping plant full.
• There are sufficient cash cattle to fill plant if
  bid on them.
• Necessary to lower transaction cost? No impact
  of CS either way.
• Necessary for keeping consumer prices low? Tyson
  did not pass on savings to consumers, but kept
  increased profit.

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CCMP
Choice Retail Beef vs. Nebraska Live Cattle
Direct
1970 to 2001
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Defendants Claims
CCMP

• Captive supplies not cause lower price
• Quality benefits from selling CS through alliance
  or partnership strategy
• Information benefits for producers in getting
  carcass data back
• Keep plants full
• Lower transaction costs

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Defendants Witnesses
CCMP

• Competitor Tim Schiefelbien of Swift
• Two field buyers Damara Smith/Gary McDonald
• Three captive sellers
• Jim Keller, Pioneer Feedyards, KS
• Lee Borck, Beef Marketing Group, KS
• Jim Herring, Friona Industries, TX
• Two Tyson Executives
• Bruce Bass, VP Procurement
• Dick Bond, Pres., Tyson Fresh Meats

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Def Witnesses
CCMP

• Tyson field buyers
• They dont think CS lowers price
• They compete with other packers vigorously each
  day.
• But they were outside decision making structure
  on captive supplies.

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Def Witnesses Captive Sellers
CCMP

• Keller (Pioneer) and Borck (BMG) formula sales
• Others set the price, he doesnt have to do it,
  and God bless em for doing it for him.
  (Keller).
• He likes CS because not like to negotiate, can
  sell cattle at peak, and can get kill data.
• Admission Tyson could give kill data on cash
  sales
• Gets favorable deals on price.
• Herring (Friona) mixed cash and captive seller
• Like CS because risk management, and target
  certain cattle to certain packers.

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Tyson Experts Dr. Hausman
CCMP

• Smart in math, not smart in cattle.
• Did not look personally at Tyson data.
• Admitted that Taylor established correlation
  between more CS and lower price.
• Claimed that Taylor not establish causation.
• Rather, producer expectations of price cause them
  to deliver more CS in the week when price goes
  down for other reasons.

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Tyson Experts Dr. Hausman
CCMP

• Admitted CS cattle of lower quality.
• Claimed Tyson needed CS to keep plants full, but
  did no study.
• Otherwise they would have to bid higher in the
  open market.
• Claimed that transaction costs for CS procurement
  were lower, but did no study.

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Tyson Experts Dr. Schroeder
CCMP

• Beef marketing specialist who championed captive
  supply alliances for years.
• Failed to look at any Tyson data.
• Claimed CS needed to increase quality because
  consumer demand for beef was lower.
• Also, consistency, etc.
• Claimed that Taylors models were wrong.

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Tyson Executives Dick Bond
CCMP

• Dick Bond, president of Tyson Fresh Meats
• Did not know who was on his board.
• Did not know Tysons profit in last few years.
• Admitted that they save no transaction costs on
  CS cattle eliminated no buyers as a result.
• Admitted that they cannot connect CS cattle to
  high quality beef for consumer, indeed they have
  outlets for all qualities of beef.
• Admitted that plants always stay full regardless
  of CS numbers.

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Tyson Executives Bruce Bass
CCMP

• Sets the price for all 10 Tyson plants daily
• Has four Code Calls with buyers each day to
  convey top bid price or clean cost.
• Establishes price in response to certain
  information
• Futures markets
• Boxed beef prices and movement info from in house
• Kill capacity in plants
• Offal prices
• Cash trends
• Inventories including show list carryover,
  captive cattle, and other committed cattle.

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Tyson Executives Bruce Bass
CCMP

• Question When inventory is higher, the price
  you set is lower, correct?
• Answer Yes.

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Tyson Executives Bruce Bass
CCMP

• How? Bass has a weekly tracking sheet.
• Buyers track show list carryover, and show list
  size (drive through buyers with no bids)
• Bass keeps captive cattle b/c CS yards tell him
  numbers one to three weeks in advance.
• Bass keeps cash inventory bought last week for
  this weeks kill.
• This is how it is done!

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Jury Verdict Form
CCMP

• Do you find, by a preponderance of the evidence
• 1. That there is a nationwide market for fed
  cattle?
• Answer Yes

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Jury Verdict Form
CCMP

• Do you find, by a preponderance of the evidence
• 2. That the defendants use of captive supply had
  an anticompetitive effect on the cash market for
  fed cattle?
• Answer Yes

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Jury Verdict Form
CCMP

• Do you find, by a preponderance of the evidence
• 3. That the defendant lacked a legitimate
  business reason or competitive justification for
  using captive supply?
• Answer Yes

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Jury Verdict Form
CCMP

• Do you find, by a preponderance of the evidence
• 4. That the defendants use of captive supply
  proximately caused the cash market price to be
  lower than it otherwise would have been?
• Answer Yes

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Jury Verdict Form
CCMP

• Do you find, by a preponderance of the evidence
• 5. That the defendants use of captive supply
  injured each and every member of the plaintiffs
  class?
• Answer Yes

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Jury Verdict Form
CCMP

• What amount, if any, do you find that defendants
  use of captive supply damaged the cash market
  price of fed cattle sold to IBP during the period
  from February 1, 1994 through October 31, 2002?
• Answer 1,281,690,000

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Presentation by Michael C. Stumo, Domina Law
pc General Counsel, OCM Omaha office
800-245-5801 Direct line 860-379-6199