Kay's Korner

Oct 4, 2013

More plant closures loom

The shrinking U.S. cattle herd has claimed another victim. Cow processor Martin’s Abattoir & Wholesale Meats in North Carolina ceased operations mid-September after 58 years in business. It’s the third cow processor to close in the past two years. JBS USA closed XL Four Star Beef in Nampa, ID, in 2011 and San Angelo Packing in Texas closed in March this year. National dairy cows numbers are stable but beef cow numbers will likely decline again this year. So more cow plants might close, leaving fewer options for cow/calf producers to market their cull cows.

Martin’s was one of those businesses you hate to see disappear. W.C. Martin, Sr., began it in 1955 and it eventually became one of the most important businesses in its home town of Godwin and beyond. Apart from having 180 employees, Martin’s generated numerous other jobs.

That’s the “multiplier” effect of meat packing plants and why they are often the economic lifeblood of rural towns across America.

That’s what the city leaders in Aberdeen, SD, hoped for when they supported the idea of a new plant. Their hopes were bolstered by an inflated claim that the plant would generate a $10 billion boon to the region in its first five years. In the event, the plant closed in July and might not reopen. Its owners are still seeking a buyer but I can’t imagine who would want to buy a plant when others are closing and cattle numbers throughout North America continue to decline.

Martin’s at one time processed up to 150,000 cows annually and had sales of more than $100 million. It was the industry’s 21st largest beef processor, according to my annual survey of packers. Declining cattle numbers nationally but especially in its region made it increasingly difficult for the company to operate profitably, the firm’s Angie Martin told me. The firm used to buy cows from 25 states but increased transport costs ended much of this procurement. Martin’s had capacity to process 700 head per day but it had processed only 350 head four days per week for the past year.

Cow processors in other regions saw a lot of cows come to market in 2011 and 2012 due to the savage drought that hit Texas-Oklahoma and then move north into Kansas, Missouri and Nebraska. But the drought also reduced beef cow numbers in 2012 in these five states by 872,000 head and nationally by 866,000 head. That’s enough to supply nearly seven plants of Martin’s size. That’s why I’m concerned that other small cow plants will close.

Beef cow slaughter this year started below last year but was well above last year in April, May and June. It has since fallen sharply versus last year and will end the year smaller than in 2012. But the damage has been done. The 2012 calf crop was 1.034 million head below 2011’s and this year’s calf crop will be smaller again.

A smaller crop means fewer steers and heifers available for feeding and processing. The number might be even smaller should cow-calf producers feel confident enough and have the grass and water to start herd rebuilding and retain more heifers. Throw in flat or reduced supplies of cattle from Canada and muchreduced supplies of cattle from Mexico and the pressure on feedlots and fed beef processing plants to run efficiently will intensify next year.

My data show that the 70 largest federally-inspected beef processing plants in the U.S. have the capacity to process just over 131,000 head per day. That’s down from 136,000 head six years ago. The 70 plants range in capacity from 6,000 head to 40 head per day and have a weekly total capacity of 655,000 head, not counting Saturday kills. Yet the industry so far this year has processed an average of 614,000 head per week, including Saturday kills. So there’s 7-10 percent overcapacity in overall beef slaughter at the F.I. level.

Further pressure on fed beef processors will come when USDA starts enforcing its new rule on country of origin labeling (COOL) on November 23. Under the previous rule, packers had the flexibility to comingle beef cuts and could use catchall labels such as “Product of the U.S., Canada and Mexico.” Their retail customers used these labels as well. But the new rule prohibits comingling. So a label has to read “Born, raised and slaughtered in the U.S.” or Born and raised in Canada, slaughtered in the U.S.,” etc. Packers are trying to persuade customers to use other than only the first label. If they can’t, some fed beef plants will struggle to find enough solely U.S. cattle to stay in business. — Steve Kay

(Steve Kay is Editor/Publisher of Cattle Buyers Weekly, an industry newsletter. Reach him at 707/765- 1725. Kay’s Korner appears exclusively in WLJ.)