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Beef packers struggle for supply numbers

Beef packers on both sides of the border are struggling to buy cattle to run their plants efficiently

Few producers shed a tear when they hear of beef packers’ struggles. U.S. producers for years riled against packer consolidation, captive supply and any other perceived evil they thought packers perpetrated on the industry. Canadian producers remember only too well the large profits packers made after BSE crushed live cattle prices across the country.

I watched this vilification of the packing industry with sadness, because it was clear that producers ignored two fundamentals: that supply and demand determine prices, not any behaviour by packers; that the evolving industry has led to more alliances and marketing agreements between cattle feeders and packers.

Many producers also ignored a third truth, that a vibrant, profitable packing industry is vital for the well-being of the entire industry. An inefficient beef-packing sector could not keep up with its pork and chicken counterparts to provide consumers with high-quality, affordable beef. Nor could it be able to invest the hundreds of millions of dollars necessary to satisfy increased government regulations and food safety standards.

Dozens of U.S. beef plants, notably cow plants, went out of business after USDA in 1996 declared E. coli O157:H7 an adulterant in food. These plants didn’t have the resources to invest in equipment and staff required to pass the new E. coli testing standards.

Some might decry the increased ownership of plants across North America by the multinationals (Cargill, JBS and Tyson). But they made decisions to invest in the industry on both sides of the border that others were unwilling to. Ironically, Tyson retreated from Canada and the Brooks, Alta. plant looked in jeopardy until JBS stepped in. One can be assured that Cargill and JBS will remain in Canada for a long time. Each has the vast resources spread across many businesses to not have to depend on the fortunes of a few plants in Canada.

JBS in fact reported that its operations in Canada improved during the fourth quarter versus a year earlier. Because of the strength of its Australian operations, it reported EBITDA (earnings before interest, taxation, depreciation and amortization) of US$325 million, up 78 per cent on the previous year. It had EBITDA in its U.S. Canadian and Australian beef operations for all of 2014 of $916 million versus $376 million in 2013.

Beef packers though are currently struggling on both sides of the border to buy cattle to run their plants efficiently. Alberta’s two largest plants, at Brooks and High River, have on occasion reduced production to four days per week. U.S. fed cattle plants have at times this year run the equivalent of four days at 100 per cent of capacity.

The entire U.S. beef-packing industry currently has 66 plants, ranging in maximum daily slaughter capacity from 6,000 head down to 40 head per day. They have a combined daily capacity of 127,105 head. This is down from the November 2012 peak of 74 plants and 138,855 head of daily capacity. Steer and heifer slaughter capacity is 102,560 head per day or 512,800 per week. This is without including Saturdays.

U.S. steer and heifer slaughter the first eights weeks of 2015 totalled 3.433 million head, down 3.5 per cent on the same period last year. The weekly average was 429,000 head. Capacity utilization thus was 83.7 per cent. It dropped as low as 80 per cent the week ended February 21 and did not pick up in March as beef demand remained weak and cattle remained in tight hands. Market-ready numbers of fed cattle will pick up seasonally as the spring grilling season gets closer. But this might still be a month away. That’s a long time in the life of a packer.

About the author

Contributor

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

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