Kay’s Cuts: New US packing plant pipe dreams

Steve Kay, 16/02/2023

A monthly column written for Beef Central by US meat and livestock industry commentator, Steve Kay, publisher of US Cattle Buyers Weekly




WHO doesn’t dream of building a new, state-of-the art beef processing plant? As it happens, plenty of people in the US do.

Spurred by the perceived lack of slaughter capacity during the worst of the COVID-19 pandemic, more than seven groups over the past 18 months announced plans to build a new beef processing plant.

There’s one huge glitch however in their plans. The US industry never had a capacity shortage.

I calculate that the largest 70 beef processing plants in the US have the capacity to harvest 134,000 head per day. That is well above current (January) slaughter levels of 124,000 to 127,000 head per day.

I wrote during the worst of the pandemic of dramatically reduced slaughter levels that a sudden labour shortage caused, as US meatworkers tested positive for the virus.

Packers also had to lower their chain speeds because of the many protective measures they put in place. This labour shortage took nearly two years to recover to near-normal staffing levels. Even today, daily US slaughter levels have not topped 130,000 head and Saturday slaughter levels have seldom risen above 40,000 head per day.

The other big question-mark is where these new plants, if they open, will get their cattle from.

I calculate that the proposed new facilities, plus an expansion in capacity at three existing US plants, would add 11,740 head per day to current US capacity. This total does not include a highly ambitious plan by two entities to build a US $1.1 billion, one million square foot food processing facility in western South Dakota. The plant would have an 8000 head per day capacity and would process beef and include a specialty bison line, said the entities in June last year.

Observers at the time wondered how such ambitious plan could possibly come to fruition.

The US cattle herd declined slightly more than expected in 2022, with a slightly larger decline in beef cows than expected. USDA’s annual inventory report confirmed that the herd had its fourth consecutive year of decline in 2022. USDA reported that all cattle and calves in the US as of January 1, 2023 totaled 89.271 million head, 3pc or 2.803 million head below the 92.077 million head on January 1, 2022.

The report also suggested that cattle numbers might not start increasing year-on-year until 2025. That’s not my forecast but that of senior protein analyst Lance Zimmerman at Rabobank. The US beef cow herd will take time, and meaningful progress in rebuilding will not come until 2025 at the earliest, he wrote in a new report recently.

Investors ‘undaunted’

Some meatworks investors, though, seem undaunted, or perhaps ignorant of the supply difficulties that new plants will face.

A Florida equity real estate firm recently said it is investing US $150 million in a proposed new plant in Iowa. Cattlemen’s Heritage Beef Co is moving along with its plans to build the plant in the wake of the investment from Karis Capital of Naples, Florida.

Des Moines-based Cattlemen’s Heritage expects to break ground on the facility later this year. It will eventually offer beef processing capabilities that will keep 400,000 cattle in Iowa for harvesting and processing, it says.

Meanwhile, the Cattlemen’s Heritage Beef Co says construction will begin this spring on its proposed new US $520M beef processing plant in Mills County, Iowa. The operation will be fully sustainable and traceable while using Midwest beef raised and sourced from family farms, says the company.

Cattlemen’s Heritage will fill a critical gap in the beef supply deficit and help meet the expanding demand of consumers, producers and retailers, says principal developer Chad Tentinger.

Walmart investment in processing

A proposed new operation in western Nebraska might have the best chance of success. That’s because US retail supermarket giant Walmart has taken a minority equity stake in Sustainable Beef LLC, which is about to start construction on a new US $325 million beef processing facility in North Platte, Nebraska.

This is Walmart’s biggest-ever investment in the US beef processing industry. The plant has broken ground and is expected to open in late 2024. Sustainable Beef expects to process 1500 head per day and up to 400,000 head per year when fully operational. Neither company disclosed how much Walmart’s stake is worth. But it is expected to be sizeable.

A big bonus for both Walmart and Sustainable Beef is that Walmart will buy most of the beef produced by the plant, which will go to Walmart stores in the central US, says Walmart senior vp Tyler Lehr.

Having Walmart as a reliable customer will be a huge plus, says Sustainable Beef CEO David Briggs. However, the supply side will be much harder, says observers.

The new plant will have to outbid major packers JBS, Tyson and Cargill. With fed cattle supplies even tighter in 2024-2025 than they are today, such a battle will only benefit cattle feeders in the region.






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