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February 3, 2008
Tyson Foods' decision to shut down the processing floor at its Emporia plant is the latest sign in what has been a long period of challenging conditions for the beef processing industry.
While strong prices for both feeder cattle and fed cattle are good news to ranchers and feedlot operators, the rising costs of energy and feed are squeezing margins for feedlots.
A short supply of cattle, challenges in the export markets and higher transportation and energy costs have made times tough for packers.
Because difficult times are expected to continue in 2008, industry experts say they were not shocked by Tyson's decision to close its operation at Emporia, a move that cost the community 1,500 jobs.
"It absolutely did not surprise me," said Steve Kay, editor of Cattle Buyer's Weekly, an industry trade publication. "This is the fourth U.S. plant closing in the last 10 years.
"The industry is under-supplied with cattle for packing capacity and that puts a lot of pressure on processors to cut back or shut down their least efficient plants."
Kay said more tough decisions are ahead for beef processors and cattle feeders about whether to close plants or feedlots.
Tyson's closing announcement cited a lack of cattle in eastern Kansas as feeding operations have moved to the western part of the state.
Mark Klein is a spokesman for Wichita-based Cargill Meat Solutions, which operates five U.S. packing plants, including one in Dodge City. He said Cargill's operations are located near feed yards and have been consistently upgraded to the latest in technology.
And while the Cargill plants are operating at close to full hours, Klein said that is more a function of tight labor supplies than volume of cattle.
"We have not been running at full capacity for several months," Klein said. "But we haven't cut plant hours because we're short of workers."
He said Cargill has continued to focus on developing programs that help its customers manage their meat case, including handling market promotions for customers.
Several factors have contributed to short supplies of cattle, he said. A near-decade-long drought in the Great Plains that caused ranchers to liquidate herds is one factor. Market factors -- including limited export opportunities, especially to Asian countries -- have discouraged the build-up of herds.
Figures released Friday by the National Agricultural Statistics Service, an agency of the U.S. Department of Agriculture, showed that the U.S. herd decreased by 300,000 head from Jan. 1, 2007 to Jan. 1, 2008.
The number of beef calves that had calved by Jan. 1 was down 338,000 from 2007 and the number of heifers 500 pounds and over held back for beef calf replacement was down 207,000 -- an indication that herds will continue to shrink.
Around the world, beef herds have also gotten smaller, Kay said.
Herds are flat to declining in Brazil and Argentina, a reflection of government policy on exports and a switch from pasture to grain production. Australia's herd has been trimmed by severe drought.
The reductions in supply are being felt across the industry, said Tom Leffler, an analyst with Leffler Commodities in Augusta.
"There is an excess of packing capacity and an excess of capacity in feedyards," Leffler said. "In fact there are a lot of feedyards sitting empty and feedyards for sale."
He said the closing of the Emporia plant will have an impact on producers in the area.
"It will really hit the finishing industry in the region," he said. "I think there are a lot of people who will just get out of the business of finishing cattle."
Leffler said the industry downcycle has hit particularly hard at Tyson, which is a relative newcomer to the beef industry.
"In poultry, which is where Tyson is most experienced, you can adjust production pretty fast because the cycle is short," he said. "In beef, it's a lot harder to adjust. A rancher making a decision on breeding or selling a heifer has more than three years to wait before that calf would be harvested."
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