There sure is a lot of talk and plans being developed to add packing capacity in the cattle business. One of the first things that comes to mind is you’re not going to be the low-cost producer coming out of the chute. The packing plant is not the market; it’s a tool to access the market. Remember, nothing happens until that consumer spends money on beef.
What you can do as a producer is add value to your feeder cattle and make them more valuable to the feeder or the packer. There are more markets available today than ever before. I got an invitation to attend Painted Hills Natural Beef’s annual meeting. Painted Hills produces a no-hormone, natural beef product. So does Country Natural Beef. There are all kinds of value-added beef programs that a rancher can participate in, and it should be simple to find one that fits your production.
The latest announcement of a proposed packing plant in Rapid City, SD, has caught everyone’s eye. It’s a big idea from a young lady who claims to be a fifth-generation South Dakota rancher. She certainly thinks big. She says the 1 million square foot plant will have the capacity to slaughter 8,000 head per day. I don’t know if you could find that many fed cattle in that area to process. They also are planning a bison line.
The investment is estimated to be $1.1 billion, and I’m pretty sure it will be other people’s money, what I call opium. Politicians get addicted to it every day. Therefore, President Biden is throwing $1 billion at the beef processing industry. It’s other people’s money, and he has no responsibility to make it work. What I’m seeing is a ranch person who may have access to capital and wants her fellow cattle producers to earn more on their cattle. She talks about being the second bidder at the auctions. It sounds like she may be drinking South Dakota’s West River Kool-Aid.
You need to make your market with your value-added beef product. A packing plant isn’t going to instantly make the market. Like I said before, it’s a tool to access the market, get your market and brand established and then build your packing house. This is what Agri Beef is doing with their new Jerome, ID, plant. They have a market for their beef and need to facilitate that market so they can grow.
I guess I’ve been reporting on this industry far too long and have become cynical, but I have never seen the original owners of a new packing plant make it work. The feeders that built Brawley Beef made it work for several years, but it may not have worked that well. Then National Beef Packing Company got ahold of it and closed it after a few years for environmental reasons.
One beef packing plant in Tama, IA, opened in 1971 and eventually became Iowa Premium. The plant has had several owners, but National Beef bought it in 2019. National Beef recently stopped construction on a $100 million expansion because construction costs became too high.
If National Beef thinks it’s too expensive to make additions to their facility, I would think that these other proposed plants will find the same problem. Maybe that $1.1 billion price tag for the South Dakota plant will only process 4,000 head a day rather than the advertised 8,000 head per day.
Entering the beef business is a tough thing to do, and it’s easy to look over the fence and think the other guy has greener pastures. It’s just human nature. Yes, profitability was out of whack the past two years. Packers are only earning around $250 per head in today’s market. Soon, they will be giving it back when the nation’s cow herd gets small enough to change the market.
Traditionally, slaughtering cattle has been a 1-2 percent margin business. The industry improved margins with value-added products—producing and marketing beef products that consumers want. And believe it or not, making beef patties is a value-added part of the business. The money is not in the killing, but in the cutting. And remember, over 50 percent of all beef is consumed as ground beef.
So, you guys that have big packing plants on your minds, just realize what your true goals are, what your place is in the beef supply chain and whether you have the capital to risk on a packing plant. What can you offer consumers that the Big Four packers don’t? And make sure you have a market for your new, innovative beef product. Meanwhile, keep praying for rain. — PETE CROW
