About a month ago, National Beef announced that it was going to buy Iowa Premium Beef in Tama, IA. The plant processes around 1,100 head a day and works at providing high Choice and Prime product. Sysco Food Group took it over and tried to market their own brand to food service outfits—the white table cloth crowd. They market Black Angus cattle raised from family farms sourced from Iowa and Minnesota.
Over the years this plant has been passed around to several operations but seems to struggle. I’ve never seen the plant, but I’m told it’s an old operation and isn’t set up well to profit from the drop credit. And it isn’t a terribly efficient plant. It seems to me if a packing plant isn’t making money right now there is a serious problem in some aspect of the business.
Now National Beef is going to add Iowa Premium Beef to its portfolio of slaughter facilities, which they only have two, in Liberal and Garden City, KS. They process about 12,000 head a day. Tama will add about 7 percent of their capacity. Several years ago, National unloaded Brawley Beef because it was inefficient and needed a lot of up grading, which I assume the Tama plant does too.
Believe it or not, it is difficult to attract capital into the beef packing business even though beef packing has been a great business for the past 18 months or so. But it remains a cyclical business that moves with the cattle cycle and of course beef demand, which remains extraordinarily good.
Last year, National Beef sold 51 percent of the company to Marfrig, a Brazilian packer, which raised a lot of hackles with some of our cattle groups. So now National is trying to add market share with Tama, which should seem like normal corporate growth.
National Beef is run by Tim Kline and has been for years. He really has guided National very well. National Beef is also associated with U.S. Premium Beef, which is a producer-owned company that delivers premium cattle to National. Producers must own or lease delivery shares to be eligible to market with National. U.S. Premium Beef has approved feeders and seedstock producers that will help cattlemen earn good premiums, which average around $55 per head.
Several groups are concerned about the Brazilian influence of National Beef. R-CALF has been petitioning the new attorney general to block the merger with Iowa Premium and National, citing that Iowa and Minnesota is the last remaining cash market for fed cattle.
Roughly 50 percent of the trade in that area is cash, and many times in recent weeks the cash market in that area has been at a premium over the futures market. Packer buyers must compete much harder for the good cattle, because they generally sell in small lots through auction markets. I don’t think R-CALF will be able to thwart the deal on antitrust laws because it’s just too small of a deal.
Also, President Donald Trump recently met with the new Brazilian President Jair Bolsonaro and offered an olive branch, saying that USDA would be doing plant inspections very soon to see if Brazilian packing plants can produce and deliver fresh beef to the U.S. that is equivalent to U.S. beef.
In 2017, Brazil was able to ship fresh beef to the U.S. and failed miserably at inspection. This was during the time of the Brazilian carwash scandal when the government found out about illegal meat inspections and political kickbacks and cronyism. This is when the Batista boys who own JBS were caught up in the scandal, as well.
I have been told that if Brazilian plants can resume fresh beef exports to the U.S., APHIS will set a very high bar. And if they fail again it will be a while before Brazilian fresh beef makes it into the U.S. Foot-and-mouth disease will be high on the radar too.
About the only product that Brazil would find a market for is fresh trim to produce ground beef. U.S. consumers consume more ground beef than any other country—nearly 60 percent of our beef is sold as ground product. Brazil appears to have better market access around the world than we do, and they have a traceability system that opens lots of doors for them.
I don’t think this merger is much of a deal. Cattle producers should be more concerned about keeping a packing plant open because we are quickly moving towards the days of limited shackle space, which will give packers just a little more leverage on the fed cattle market. — PETE CROW
