The latest casualty in the beef processing industry makes you wonder who will be next. From the outside, it appeared that National’s Brawley beef plant had a nice little deal going on the West Coast. Feedlots filled with dairy steers that were no doubt contracted to go to Brawley Beef, and when Japan would only accept cattle from the U.S. less than 20 months of age, Brawley was a shoe-in to get the business with all those age- and source-verified dairy steers.
What changed? Fewer dairy steers to go around. Cattle feeders everywhere were looking for mouths to feed due to the shortage of beef-type feeder cattle. Feeding dairy steers has always been the last thing cattle feeders want to do, but more of them have been showing up in Southern Plains feedlots, and with cheaper feed than southern California or Arizona, cattle feeders had to give them a go. We also understand that greater utilization of sexed semen in the dairy business has had an effect on the volume of dairy steers on the market.
But Brawley appeared to have other issues to consider. The Colorado River Basin Regional Water Quality Control Board told National Beef that they must upgrade their wastewater treatment facilities to the tune of $14 million—in the next six months.
Sen. Ben Hueso (D-CA) is asking the water board for an extension on the timeline for improvements to be completed. “National Beef has identified the wastewater pretreatment capital improvements schedule required by the water board as one of the main reasons why they need to close their business,” he said.
The city of Brawley, which has about 25,000 residents, is desperate to keep the plant operating and concerned about their tax base when the plant closes April 4. It would be devastating to see the largest employer vanish with the loss of 1,300 jobs and all the business activity that goes with it, which is estimated at $102 million. The city and county have put together an ad hoc group of politicians to craft a plan and offer National Beef incentives to stay.
They have proposed a plan to reduce operating costs that will provide $2.1 million in savings per year through an economic development utility rate reduction. They also proposed to reduce the plant’s water rate and utility tax to the tune of $700,000.
But the big part is regulatory compliance on their wastewater treatment facility, which is in need of an upgrade. The county board of supervisors proposed to allocate $3 million in Agriculture Benefit funds to help with wastewater improvements. These Agriculture Benefit funds were set up to mitigate the impact of losing farm acreage to solar development in the area. The city of Brawley has already been fined $1 million by the water control board.
There is even a proposal to increase the supply of fed cattle to the plant, presumably from the beef cattle industry as producers recover from drought. It doesn’t appear that these politicians realize that the dairy industry is the limiting element for most of the cattle feeding in the area. The ad hoc group is anticipating a 10 percent increase in cattle inventories by 2016. This may be a little far-fetched, in my opinion. We were told that National would need an additional 200,000 head of cattle annually to operate the plant efficiently; they’ve been running just four days a week.
The Brawley plant was built around 1998, the idea of a group of area cattle feeders. They attempted to operate the plant for a few years until National Beef purchased it from the feeders, who were more than happy to let one of the big four packing companies run it. Sources tell us that the plant has not been maintained over the years and is in need of upgrades and repair. Additionally, operating costs have risen sharply because of California environmental regulations.
Brawley Beef is just one more symptom of a changing cattle and beef industry. This is a major event for the region, just like when Cargill closed down their Plainview, TX, plant. Packers are in a tough position and there are not many plants operating at full capacity and won’t be for many years, if at all. My experience has been that when a plant goes dark, it tends to stay dark. Packers will consolidate production into fewer plants. At this point, it appears that neither Leucadia National Corp. nor National Beef are willing to operate the plant. Cattle are part of the story, but it appears that upgrades and operating costs have changed dramatically in the past year. — PETE CROW