US grinder collapses under weight of LFTB

Jon Condon, 04/04/2012


The financial collapse this week of one of the largest grinders in the US has graphically illustrated just how parlous the state of the US beef processing industry is at present.

It may have been the ‘straw that broke the camel’s back’, but the Lean Finely Textured Beef crisis that is currently enveloping the US beef industry was blamed as one of the contributors to the Chapter 11 Bankruptcy filing by American Fresh Foods on Monday.

The sheer size of the AFA Foods business is almost beyond comprehension: it’s annual beef grinding operations are larger than Australia’s entire beef export to the US each year. The company is a major supplier to Burger King and other large national chains.

AFA, which processes more than 500 million pounds of ground-beef annually, is the latest casualty of the extracted lean beef product branded recently as "pink slime" as supermarkets and burger restaurants across the US phase out the product amid consumer sentiment.

AFA said ground-beef demand had dropped sharply in recent weeks, curbing a rebound in sales the company had been counting on. The company buys LFTB to blend with fresh and frozen beef trim in its grind to produce patties.

The controversy has "dramatically reduced the demand for all ground-beef products," AFA said in documents filed with the US Bankruptcy Court.

Under US Chapter 11 protection, the company is allowed to try to trade its way out of trouble or selling assets, while not have to immediately pay its creditors. Total debts are about US$56 million, and the creditors list referencing companies with claims of $500,000 is extensive.
It is unclear whether any Australian exporters are exposed, but New Zealand’s ANZCO export business, and JBS US division are listed among larger creditors.

AFA Foods's ground-beef output accounts for about 2pc of total US beef production, according to the US Department of Agriculture. The company's products are sold by national supermarket and food service chains like Wal-Mart, Burger King, Jack in the Box, Carl’s, Wendy's and Del Taco.

The popular opinion among Australian observers appears to be that LFTB was not the sole contributor to AFF’s woes, but it may have been the issue that tipped the company over the edge, and illustrates the tight margins currently being experienced in US processing.

In other references to LFTB fallout this week, US website claims that US packers are currently losing almost $100 a head as a result of the mass-rejection of LFTB by end-users (see earlier Beef Central stories).

US beef packer margins were already suffering from expensive cattle, but the recent lack of demand for LFTB was costing packers as much as $40/head, pushing already negative margins to a loss of close to $100/head, analysts told Meatingplace yesterday.

That compares to a loss of $60.80/head a week earlier $42.22 a month ago. In contrast, the same week a year ago US packers were earning $48.76 per head.

“The ‘pink slime’ thing has wreaked havoc on this industry,” one analyst told MeatingPlace.

“The question I have continued to pose is: How long are packers going to be able to maintain these losses? You’ve either got to pay less for the cattle or get more for the beef,” he said.


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