AN EARLY seasonal closure at JBS Australia’s most northerly beef processing plant may be an indicator of what lies ahead for the processing sector, now facing a dramatically smaller beef herd after two years of continental-scale drought.
JBS plans to conduct its last kill for the year at its 900 head-a-day Stuart plant near Townsville in North Queensland on Friday November 27, with the final boning shift for the year happening the following Monday, 30 November.
Any sort of significant rain event over the next fortnight in North Queensland could see that closure date brought forward even earlier, however.
Contrast this year with the 2014 season when the plant had its last boning shift on December 17. The last time the Townsville plant scheduled a seasonal closure this early was back in 2009, when the last kill was in the first week in December.
Beef Central predicted early seasonal plant closures this year, together with the prospect of prolonged summer seasonal layoffs at some plants, in this feature article published in August.
The simple reason for the early shut-down at Townsville is that the plant is literally running out of slaughter cattle. That’s happened for two main reasons.
The drought-driven reductions in the cattle herd is now obviously having a big bearing on the supply of slaughter stock to all Queensland processors, and JBS Townsville’s livestock catchment area has been no exception. The high rate of liquidation this year is reflected in a record throughput recorded by the plant, year-to-date.
Another obvious factor is the impact of live export. No processing plant in eastern Australia is more directly exposed to live export competition than JBS Townsville.
The Port of Townsville is on track to export around 300,000 head of cattle this year, having already shipped 270,000 head for the ten months to the end of October – primarily into Indonesia and Vietnam.
A re-invigorated Indonesian live export market, which has seen final quarter permits rise to 200,000 head, plus the rapid rise in demand for live cattle from Vietnam (+136pc in volume to 310,000 head for 2014-15) has only worsened that situation. Vietnam’s preference is also for heavier cattle, competing more directly for stock suitable for processing.
Port of Townsville’s turnover in live export cattle this year continues to expand. In calendar 2014 it was responsible for 247,000 head, following a dramatic rise from just 65,000 head in 2013.
It could be argued that a third factor in Townsville’s early closure this year is its heavy exposure to the US grinding beef market. The US export beef market has been in terrible shape over the past four to six weeks, with 90CL grinding meat falling more than A130c/kg since early October – now close to its lowest point in 15 months.
“The type of cattle we are killing in Townsville means there is a strong percentage that goes into a grinding carton, and heads off to the US,” JBS Northern Region Chief Operating Officer Anthony Pratt told Beef Central during discussions about the plant closure on Friday.
All these factors have left JBS with no alternative than to bring the plant’s 2015 season to a close.
It’s no secret that all processing sites in Central and North Queensland have been struggling for numbers over the past couple of months. Recent advances in grid prices in the region had had little or no effect in flushing-out more stock, suggesting that supply was now exhausted for the year, Mr Pratt said.
Given the trading losses being recorded by processors at present, it was only a matter of time before some tough decisions had to be made.
Neither Townsville, nor JBS’s other northern plant at Rockhampton have dropped weekday shifts up to this point. But there has been a noticeable decline in the daily tally at Townsville, where throughput has fallen from 903 head/day to 780 a day during the past three weeks, and reduced further to 660 a day from this current week.
The operating efficiency of a plant the size of Townsville starts to be seriously compromised when operating at 70pc utilisation, as it is from this week.
“It’s highly inefficient, but it allows us to keep the workforce on for the next three weeks,” Mr Pratt said. “But even if we could get close to breakeven, it still makes sense to run the plant through to normal shutdown time for the workforce and fixed-cost reasons. But this year, we simply can’t get the cattle,” he said.
JBS has not yet decided what happens at its Rockhampton plant for the remainder of this year. The company will continue to bid for whatever cattle are about in North Queensland after Townsville’s closure, for slaughter in Rockhampton, which may help to support the Central Queensland plant’s kill a little later into the year.
“Certainly we’re trying to sustain Rockhampton through to normal shutdown-time later in December, but it’s too early to call on that,” Mr Pratt said. “We’re already dropping regular Saturday shifts at the site, as of this week.”
While JBS currently has a ‘proposed’ recommencement date at Townsville for the 2016 season of January 18, that is obviously subject to cattle availability, and looks far from certain. Any sort of summer wet season across North Queensland during December-January would likely push that start date back, making a kill any time in January look unlikely.
Regardless of the summer weather patterns, 2016 is shaping as a very tough year for the plant’s operations, due to stock access.
Significant impact on jobs, community
One of the underlying impacts from the early closure at Townsville – and arguably, on the broader debate regarding live export versus processing – is the damaging effect on jobs and the local regional community.
JBS Stuart is one of the Townsville region’s largest private employers, with 585 staff on its books.
Once the plant shuts at the end of November, many staff may have 3-4 weeks of annual leave owing to them, but if the plant remains shut through to the end of January or later, as it could, many will come under financial hardship.
As JBS has pointed-out during producer forums over the past 12 months, the broader company’s annual wages bill Australia-wide is a figure approaching a billion dollars. Almost all of it filters into regional and rural parts of Australia.
It is impact like that which tend to get lost in the broader debate about the relative contributions of the live export and beef processing industries.