Many people over the years have had aspirations to start a new beef processing venture. It is worth noting, therefore, that of the new plants that went from drawing board to reality in the past 20 years, more failed than succeeded. In light of the first real expansion currently underway in the U.S. beef processing sector since the early 1990s, it is important to remember what the ingredients are for success. Here are the key ones.
As home realtors invariably say, it’s all about location. A new plant will obviously struggle if it has to compete head-on with long-established plants within a region. Researching how many cattle are within that region is critical. A newly–formed company in Nebraska that recently unveiled plans to build a $200 million, 300,000-square-foot beef processing plant in North Platte apparently did its homework. Sustainable Beef LLC says most of its cattle will be purchased within 200 miles of North Platte.
This leads to another ingredient. Do not underestimate the level of competition that will come from other packers on both the buy and the sell side. Sustainable Beef will face fierce competition for cattle from JBS’s Grand Island, NE, and Greeley, CO, plants and from Tyson’s Lexington and Dakota City, NE, plants. Cargill and National Beef’s Dodge City, KS, plants also occasionally buy cattle from western Nebraska. However, this greater competition for fed cattle will likely boost the prices of other classes of cattle as more cattle are placed in feedlots to meet the added demand. The new operation will also face strong completion when it starts to sell its beef products.
It is also critical that any new enterprise raises enough financing not only to build a world-class plant but gives it sufficient working capital to operate for its first three years. Virtually no plant makes money in that time and can be considered a success if it breaks even in the third year. That is what felled Northern Beef Packers in Aberdeen, SD. It struggled for five years with financial, legal and other issues before starting operations in October 2012. It quickly faced a capital crunch and filed for Chapter 11 bankruptcy protection in July 2013.
The plant finally reopened in late 2015 as New Angus LLC after being bought out of bankruptcy for $44 million by an investment firm. The plant had cost $109 million to build. The timing of the restart was better than for Northern Beef Packers. The latter faced tight cattle supplies in the region while New Angus began as supplies were starting to grow again. It proved that timing is a crucial ingredient for a new plant startup.
Another essential ingredient is to have highly experienced managers in all the key positions, especially the general manager, operations manager, heads of sales and marketing, head cattle buyer and head of food safety. New plants will increasingly also need to have highly experienced IT personnel and human resources staff.
New plants must also be able to have slaughter, fabrication, hide and rendering facilities under one roof. They ideally should have the ability to produce ground beef, especially if the plant is harvesting fed and non-fed cattle. This is what Agri Beef Co.’s new 500-head-per-day plant in Jerome, ID, intends to do.
Among the worst things a new venture can do is to predicate its success on highly unrealistic expectations. This is what happened to Future Beef’s operation in Arkansas City, KS. The company claimed it would produce carcass yields far above the industry average. But it filed for bankruptcy only seven months after it opened in August 2001. I don’t know who lost the most money but a Canadian bank that was owed more than $160 million by the former Future Beef plant bid $28.7 million to become its new owner. The plant then reopened as Creekstone Farms Premium Beef.
One reason for Creekstone’s success was it started producing high quality beef under a strong brand name. Brands are an increasing essential for new processors of fed cattle. In fact, a new venture might not survive without having a significant percentage of value-added sales. JBS USA Beef enjoyed record profits last year. One reason was that its value-added programs grew 20 percent from 2019, which saw a 16 percent growth on the prior year.
Attracting and keeping labor is another obvious ingredient for success. I wish the new Sustainable Beef team all the best in attracting people to work in their plant in North Platte. It will not be easy though. Even before the COVID-19 pandemic, packers told me labor was their No. 1 issue. — Steve Kay
(Steve Kay is editor/publisher ofCattle Buyers Weekly,an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
