Planning a new beef processing plant has suddenly become all the rage in the U.S. beef industry. Another newly formed beef company plans to build a $325 million beef processing plant in southwest Iowa. Cattlemen’s Heritage, an investor-owned corporation led by Chad Tentinger, plans to build a plant about five miles from Council Bluffs that will process 1,500 head per day or 400,000 head per year. Construction is set to begin next spring. The plant is expected to employ 750 people when it begins operating in late 2023.
The company’s announcement follows a flurry of announcements earlier this year and last year about expansion plans at existing plants or plans for new plants. Another new company, Sustainable Beef, announced in March its intention to build a new 1,500-head-per-day plant in North Platte, NE. The fifth largest beef processor American Foods Group last month announced plans to build a new plant as well. A total of eight announcements since last August means that beef processing capacity will increase industry-wide capacity by 6,700 head per day if all the plans come to fruition. That is on top of about 135,000 head per day now.
The goal of Cattlemen’s Heritage is to help young farmers get started in the cattle business, says Tentinger. The company expects to process cattle from Iowa, Nebraska and South Dakota. The plant will focus on buying cattle from small, family-owned operations. The company has no interest in buying its cattle from a couple of large feedlots. It wants as to buy cattle from as many producers as possible, he says.
This goal is laudable. But it begs several questions that also apply to the proposed Sustainable Beef plant in Nebraska. The first is: Where do these plants expect to get enough workers to fully operate their plants? I noted in my June 7 column that lack of labor, not processing capacity, is what currently bedevils the U.S. beef processing industry.
A labor shortage has been growing for several years and the COVID-19 pandemic exacerbated the shortage. Workers left their jobs and despite packers raising starting wages to $22 per hour and offering signing bonuses and even free college tuition for workers’ children (as JBS USA has done), many workers decided not to return to their old jobs, The result is that many beef, pork and poultry plants are running 10 percent to 15 percent below capacity, as Tyson Foods disclosed in May.
My second question relates to supply. Live cattle numbers currently remain at a slightly elevated level. The June 1 Cattle on Feed total was up only 0.2 percent on a year ago. But it was the second largest June 1 number in USDA’s data series. That will change going forward mainly because of drought. By the time new plants come on stream, the available fed cattle supply might be one million head less than today because of herd liquidation this year and in 2022 and 2023. As much as the new plants hope small cattle feeders will support them, the reality is that existing players, national or regional, will do their utmost to outbid them for the best cattle.
My third question relates to beef marketing. Nowhere did I see any mention by the two newly formed companies of what kind of beef products they intend to produce and how they might differentiate them from the beef produced weekly by existing players. These players still produce largely commodity beef. But they also have dozens of specialty, branded beef programs that are well-established. How will the new firms compete with that and in the commodity beef market?
Veteran marketing guru Mack Graves in a recent article made several highly pertinent comments on the topic. “My fundamental problem with the hunger for more capacity is that the new folks and some of the old proposing to convince investors to support their ‘build it and they will come’ desires, start and end with cattle slaughter/processing. Beef marketing is almost an afterthought. As I review the business rationale stated for the new plants, it is that is the big boys are screwing us and we aren’t going to take it anymore, so we’ll build our own plants that will be more efficient.”
Yet the beef industry is dominated by the production side of the house, says Graves, with little resources being applied against beef marketing in forms unimagined today but needed for the industry to grow and prosper in the face of continued chicken expansion and alt-meat products’ market incursions. His concern is that this plant building spree will only result in exacerbated over-capacity, resulting in those who are undercapitalized from the get-go to lose money faster than they can count it. And cattle producers lose again, he says. — 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.)
