Bankruptcy for beef plant

Jul 26, 2013

Northern Beef Packers—a small processing plant in South Dakota—has gone through a lot in its goal to produce excellent beef from local cattle. Is making tasty beef such a steep order? For the little plant, it seems it is as another problem mars its track record.

The long-embattled Aberdeen, SD, plant finally filed for Chapter 11 bankruptcy on Friday, July 19. The move was to give the company more time to “restructure” its financial situation. While this is yet another setback to add to the long list of issues in the plant’s troubled history, many in the area remain hopeful for the future.

Northern Beef owes money to 277 unsecured creditors which amounts to millions in debt. Creditors range from small local businesses with liens for a couple thousand, to state cattlemen owed some hundreds of thousands, to an unnamed “prime investor” for over $1 million. Reportedly, creditors include local and national businesses and individuals, and even a South Korean company.

According to court documents, the company has assets of between $50-100 million, but liabilities of between $10-50 million. The company has until Aug. 8 to file a statistical summary, a statement of financial affairs, and other necessary documents with the U.S. Bankruptcy Court for the District of South Dakota.

While “bankruptcy” sounds scary to many, Aberdeen Mayor Mike Levsen told local Aberdeen News, the business strategy could see Northern Beef through to operation in the future.

“Sometimes it is a step toward a good resolution. It could work out for the better or worse. We will have to see what happens.”

Others working with the plant had similar things to say.

“It’s a Chapter 11 so they will have a chance to file a plan, and if they are successful, that would be great,” Todd Wilkinson, vice president of the South Dakota Cattlemen’s Association, told WLJ.

“Hopefully they can make the reorganization work.” Wilkinson said he hoped that, even if Northern is unable to get its financial feet back under itself and the plant needs to be sold to another owner, the plant gets back up and running.

“Having a packing plant in Aberdeen so close to North Dakota and South Dakota would be a significant benefit to our market,” he said, estimating an impact of $2 per hundredweight in shipping costs alone saved with having a local plant. He also stressed the quality of the plant itself.

“It’s a phenomenal facility. It’s the most state-of-theart packing plant in the country.”

He described it as “designed right” and having a lot of money invested in that design and level of innovation.

Herman Schumacher, a Herreid, SD, rancher, who supplied Northern Beef, voiced hope that the small, regional Northern Beef would return to production. The company had an estimated capacity of processing 1,500 head a day, though it reportedly never reached that level during its roughly nine months of operation.

“This is a tough situation, no doubt,” Schumacher said. “I am very hopeful they can find their bearing and move on. This plant will not only be a benefit to Aberdeen, but the Dakotas and the entire region.”

Schumacher reportedly loaned Northern Beef almost $200,000 as an unsecured creditor which has yet to be repaid. He said he had been paid for the cattle he furnished the plant with, and that he believed other ranchers supplying the plant had been paid for cattle.

Frederick rancher John Sumption voiced similar sentiments to Aberdeen News. “It is sad to hear about the bankruptcy. It seems like the plant has struggled financially since the day it began.”

Northern Beef tried to begin its process back in 2007.

Since then, it has been beset by environmental fines, bureaucratic hang-ups, and difficulty in securing funding, among other issues. It opened its doors to begin processing cattle in October of last year. Unnamed workers from the plant—all but six of whom were laid off and all of which have had paychecks delayed due to the current financial problems—told the Associated Press the plant has not processed cattle for several weeks.

Following the bankruptcy filing, Northern Beef CEO David Palmer had this to say in an official announcement:

“For the last several months we have been working to secure a strategic equity investment to move our business into the next phase of production. Due to the size and importance of this investment, the process is taking longer than what was originally expected. At the same time, the beef packing industry has been experiencing some of its worst processing margins in recent decades, causing expected start-up costs to be much higher than anticipated. This has significantly reduced our cash position and is preventing us from meeting our current obligations.”

Palmer described the move as “a significant step towards remedying this situation.” He said he expected the “negotiated a debtor-in-possession financing facility with a group of secured lenders and other interested parties” would allow the plant to accomplish its “restructuring goals.” — Kerry Halladay, WLJ Editor