The question in the headline reflects the most pertinent issue facing the U.S. beef industry. That is because the U.S. cattle herd on Jan. 1 had shrunk to its lowest level since 1951. A fifth year of herd liquidation meant the Jan. 1 total for cattle and calves was 87.157 million head, down 1.9% or 1.684 million head from the year before. Yet there are still no signs that herd rebuilding is about to start.
The current numbers and likelihood of even smaller numbers for another 18 months have several consequences, almost all of them negative. Ranchers will continue to receive record or near-record prices for their calves and yearlings. But they won’t be making huge margins as their operating costs will remain extremely high. Cattle feeders will struggle to make money because of the shrinking supply of cattle outside feedlots and the high prices. HedgersEdge.com estimates that the outside supply on July 1 was down 926,000 head from the prior year.
Fewer cattle means that beef processors have lost money most weeks this year. There is growing talk about a number of plants being forced to close if the beef herd doesn’t start to grow until next year. This also begs the question of where brand-new plants that are being built or proposed will get their cattle from. At least eight new plants are in the works, with an avowed slaughter capacity of more than 9,000 head per day.
I have my doubts that much of this proposed new capacity will come to fruition. The industry already has surplus capacity. I calculate that the 76 largest plants, ranging from 7,000 head to 20 head per day of capacity, have a combined capacity of 135,330 head per day. Yet the industry has seldom seen daily slaughter totals this year above 125,000 head. In other words, capacity utilization is only just above 90%, and that’s only on a five-day basis. Saturday kills are almost nonexistent.
USDA meanwhile continues to pledge millions of dollars in federal grants to small and independent meat processors. The goal is to help the companies expand their capacities in an effort to increase competition in the meat industry and to give farmers more options, it says. Its latest pledges total $110 million and range in value from $123,000 for a small custom meat shop in Washington state to $10 million for an expansion of a new producer-owned beef plant in Texas that plans to employ 1,500 people.
The grant awards to more than 50 meat and poultry processors are meant to help alleviate the industry’s consolidation over decades that has at times decreased profits for farmers and increased prices for consumers, says Agriculture Secretary Tom Vilsack.
The Texas plant is Producer Owned Beef (POB) and is a new beef harvest and processing plant near Amarillo, TX. Its goal is to increase cattle processing capacity and competition and distribute plant profits to producer owners, who will reinvest in their businesses and communities, says USDA. POB will primarily serve the region of Texas, Oklahoma and New Mexico, which ranks number one nationally in cattle on feed capacity but third largest in fed cattle processing capacity. USDA funds will be used to support the purchase of the facility’s equipment as part of POB’s effort to significantly increase regional processing capacity by 15% and national capacity by 3%. It expects to serve 250 cattle producers and create more than 1500 new full-time jobs, says USDA.
Noah’s Ark Processors LLC will also receive $10 million from USDA. It is based in Hastings, NE, and is one of three kosher beef distributors in the country. With support from USDA, it will double its cattle slaughter and processing capacity by expanding its facility and processing floor, says USDA. This expansion will allow Noah’s Ark Processors to serve an additional 54 producers while fully meeting the domestic and international demand for kosher beef. This project is expected to create 40 new jobs.
North State Processing LLC in North Carolina will also receive $10 million. It is a new processing company created by local and experienced producers aimed at providing processing capacity to small and medium independent producers, says USDA. Utilizing USDA funds, North State Processing will construct a new USDA-inspected facility focused on cattle, ostrich, emu, water buffalo and alpaca processing in Hamlet, NC. It anticipates serving 37 producers and creating 54 new full-time jobs, says USDA.
Only the Texas plant will be large enough to significantly increase the daily capacity, as it proposes to harvest 3,000 head per day. But the increase in capacity at other plants will undoubtedly mean that competition for cattle even in smaller regions will increase. — Steve Kay, WLJ columnist
(Steve Kay is editor/publisher of Cattle Buyers Weekly, an industry newsletter published at P.O. Box 2533, Petaluma, CA, 94953; 707-765-1725. Kay’s Korner appears exclusively in WLJ.)
