Close
Home News  Processing plant closures on the rise
. . . . . .
Monday, August 18, 2014

Processing plant closures on the rise

by Traci Eatherton, WLJ Managing Editor

Tyson Foods Inc. announced last week, ahead of its purchase of Hillshire Brands Co., it will close three facilities it acquired in the 2001 purchase of beef and pork processor IBP Inc. Tyson’s closures come on the heels of Cargill’s announcement to close its Milwaukee, WI, plant and L&H’s announcement to close it San Antonio, TX, plant. Cargill closed its Plainview, TX, plant last year and earlier this year, Brawley, CA, lost its National Beef Packing Co.

Dwindling cattle numbers, continued drought and other factors are changing the U.S. packing industry, and leaving hundreds of employees hunting for new work. Tyson’s latest announcement will cost about 950 jobs.

Many of the plant closures have come with little warning and short closure deadlines. Cargill gave its employees just two days warning, while L&H employees got one week. Tyson will close its Cherokee, IA, plant effective Sept. 27, while its Buffalo, NY, and Santa Teresa, NM, sites get a little more notice, with expected closures during the first half of 2015.

In addition to beef processing plants closing, a number of other ag commodities are seeing plant closures.

J.R. Simplot Company has announced plans to close two potato processing plants in Idaho, according to news reports. Simplot spokesman David Cuoio said layoffs at the Aberdeen plant are now expected to happen in September, and the Nampa plant will likely close Oct. 31. Another J.R. Simplot plant was demolished in Caldwell, but rebuilt to combine the three plants. The new facility will be staffed by about 300 workers, with a net loss of about 750 employees between the three plants.

Earlier this month, more than 300 people who make Hot Pockets at a California manufacturing plant were given their notice, as Nestlé USA moves to consolidate operations, the company announced. The deep-fried frozen food pockets have been made at the San Fernando Valley facility since 1988, but it will soon be moving those positions to its plant in Mt. Sterling, KY. It plans to invest $13 million in that plant and alter its production schedule into a 24-hour operation.

“Unlike other manufacturing facilities we operate in California, the Chatsworth facility presents some challenges to our business needs,” Nestlé USA’s Chief Technical Officer Martial Genthon said in a written statement announcing the move.

History lesson in plant closures

These few examples of closures in the last six years reflect a trend in the United States that has gone on for more than a decade, according to Glynn Tonsor, Livestock Economist for K-State Research and Extension.

“For more than 12 years we’ve been shrinking the U.S. beef herd, so we need fewer processing plants and feedlots than we used to,” Tonsor said. “Economists call this excess capacity in the industry. Plant-by-plant there may be individual reasons for the closings, but the national-level story of why we are having closures is we simply have more hooks and more processing capacity than we need.”

Tight cattle supply has driven the closures, which has affected different major packing companies in different areas. Tonsor said location of the plants is part of the issue.

“The availability of cattle, the proximity to the border to be able to import cattle from Mexico or Canada and the proximity to large dairies if it’s a cow processing facility all come into play,” he said. “But, at the end of the day each plant has to have a local supply relative to its capacity. Some plants are in a better position with that than others.”

Tonsor said the United States’ beef processing industry is slowly moving north and east compared to what it used to be. He recognizes the Milwaukee plant closure doesn’t fit that trend, but in general, the processing move is consistent with the cattle supply moving north and drying up in the industry’s southwest corner—an area that has experienced severe drought the past few years.

Economic impacts

Many are affected by the closures, Tonsor said, especially the local plant workers who have lost jobs. The local impact of a closure, from an economic perspective, is a reduced tax base for the area and property value pressures, as examples, that adversely affect the local economy.

“That doesn’t fit the livestock or meat supply chain per se, but I don’t want to understate the impact (of closures) on the local economy,” he said.

From a national perspective, Tonsor said he believes the excess capacity issue will take time before it’s resolved, and it will get worse before it gets better. Perhaps the announcements aren’t surprising, but it’s hard to say which plant is going to close next and when.

“We’re probably not done; we may have more yet (to close),” he said. “We’re probably going to shrink the herd even more. To grow the herd, we have to shrink supplies by holding females out of the supply chain to expand the breeding herd.”

The uncertainty of which packing plant or feedlot might close next is an economic drain, Tonsor said.

When the industry comes to equilibrium, where the right number of packing plants and feedlots are in place, the uncertainty will lessen.

“There’s notable value in (reduced uncertainty), because feedyard or cow/calf operators who retain ownership might be little less worried about local market access,” he said.

Tonsor said he doesn’t believe the excess capacity issue and individual plant closures will affect consumers, because competition in the packing industry remains vibrant. There isn’t one plant processing all cattle, and several companies are still running mul tiple plants.

How herd rebuilding comes into play

Currently, the process of herd rebuilding in the United States on the heels of drought conditions and high cattle prices, is showing mixed signals, Tonsor said. He believes herd expansion is occurring, and some reports indicate that.

“We do have fewer heifers showing up in the feedyards,” he said. “That tells me they’re staying on a ranch somewhere, but to be fair, there are mixed signals.”

The most recent U.S. Department of Agriculture cattle inventory report shows herd expansion is not happening, Tonsor said. So it remains unknown if cow/ calf producers have started the process.

“Once it has started, it’s a two-year process from when we hold a heifer back until we get a calf that enters the supply chain to grow the total calf crop,” he said. “Most would say it’s even three years by the time you account for delays in getting an animal bred. It’s a multiyear story.”

The beef industry has a much longer biological lag in the entire production process compared to many other meat industries, Tonsor said. The lag is a good thing in that cattle producers have price support because of current tight supplies and strong demand. However, it’s a bad thing for operators in the feeding and processing segments, because excess capacity could take that much longer to be resolved. — Traci Eatherton, WLJ Editor

 
 


  • Currently 3.5/5 Stars.
  • 1
  • 2
  • 3
  • 4
  • 5
 
User Box (click to open)
 
SEARCH IN WLJ
Sign up for our newsletter!
   
 
S M T W T F S
1
2 3 4 5 6 7 8
9 10 11 12* 13* 14* 15*
16* 17* 18 19 20* 21* 22*
23 24* 25 26 27 28 29*
30*
 
 

© Crow Publications - Any reprint of WLJ stories, except for personal use, without permission, written consent and appropriate attribution is prohibited. 2008 Crow Publications. All rights reserved.