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Packers Face Uncertainty

A North

American view of the meat industry.

Steve Kay is publisher

and editor of Cattle Buyers Weekly

There’s not a word from the Canadian authorities on whether to allow XL Foods to buy Tyson’s Lakeside business. That’s unsettling at a time when the Canadian industry faces a myriad of challenges

U. S. and Canadian beef packers face an uncertain year. Their biggest concern is the economic crisis, its continued impact on beef demand and how quickly a recovery in consumer confidence will be. Both fed and non-fed packers face smaller numbers in 2009. This raises the issue of how to run plants efficiently without closing some. Then there’s uncertainty about the future of largest beef processor Tyson Fresh Meats and its Lakeside plant in Alberta and about fourth-largest U. S. packer National Beef. Add to their concerns the cost of mandatory country-of-origin of labelling (mCOOL) and it’s clear that packers face a tougher year than in 2008.

The Obama administration will by now have unveiled much of its economic stimulus package. The hope is this will stabilize the stock market and boost consumer confidence. That in turn should encourage Americans to start spending more, hopefully on beef. The second half of 2008 was notable for the way middle meat prices lagged relative to the rest of the beef cutout. Consumers traded down in their beef purchases, buying more ground beef and roasts and fewer steaks. Analysts’ consensus is that economic conditions might get worse before they get better. No one wants to predict the pace of recovery. So beef prices may continue to struggle.

Packers over the holidays and in January cut kills much more than expected because of soft beef demand. They are expected to do the same in February and March. They won’t operate much on Saturdays until May. This leaves the possibility of another plant closure. That’s maybe what JBS SA was mulling in January as a way of reaching a deal with the Justice Department to complete its acquisition of National Beef. Uncertainty about the deal isn’t positive for anyone in the industry.

Conjecture about Tyson Fresh Meats (beef and pork) arose when president and CEO Dick Bond departed abruptly on January 5. I can’t see Tyson selling its fresh meats business under current economic conditions. But Bond’s departure leaves a hole at the top of the world’s largest meat and poultry company, and it robs the meat industry of one of its top leaders. Meanwhile, there’s not a word from the Canadian authorities on whether to allow XL Foods to buy Tyson’s Lakeside business. That’s unsettling at a time when the Canadian industry faces a myriad of challenges.

Mexico delivered an unwelcome Christmas present to the U. S. industry by delisting 30 plants, mostly pork, that ship meat to Mexico. It quickly reinstated them but said it wants to ban the use of combos (bins that can hold 2,000 pounds of meat) for all imports. A ban would add to the cost of doing business with Mexico because of extra packaging and other costs. This might reduce exports yet neither the U. S. beef nor pork industries can afford any reductions to their most valuable export market.

Canada and Mexico aren’t happy about mCOOL and who can blame them. Imports of feeder cattle from Mexico and Canada dropped by 40 and 38 per cent respectively from July 15 to the end of last year. That’s a reaction to July 15 being the date from which all cattle imported into the U. S. must declare their country of origin. Packers have also been discounting imported cattle. Exports of Canadian cattle to the U. S. were up two per cent in 2008 versus 2007 because of a slight increase in feeder cattle exports and a surge in cow and bull exports. Total exports will likely be down 10 per cent in 2009. Ironically, that means fewer Canadian cattle fed and processed in the U. S. but more Canadian beef exports.

Cattle Buyers Weekly covers the North American meat and livestock industry. For subscription information, contact Steve Kay at P. O. Box 2533, Petaluma, CA 94953, or at 707-765-1725, or go to www.cattlebuyersweekly.com

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A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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