Beef Buzz News
Jim Robb Says Plainview Packing Plant Closure Indicative of Industrywide Realignment
Thu, 24 Jan 2013 15:27:48 CST
Jim Robb speaks with Ron Hays about realignment in the U.S. beef industry.
When Cargill announced it was closing its beef processing plant in Plainview, Texas, cattle markets across the board, predictably, took big hits. Jim Robb, director of the Livestock Marketing Information Center, says the reaction may have been a bit too severe.
"It could be a bit of an overreaction although the futures market was at a strong premium to the cash market. This plant represented about four percent of capacity in the United States. That's a very significant portion of the U.S. slaughter capacity. Clearly, they were not running at those levels, but nor are any of our other beef slaughtering plants. We've had fully 24 months of very difficult packer returns and this has really come to bare. Four percent may not sound like a lot of adjustment in slaughter capacity, but that's very significant. We're probably talking next year about a four to five percent year-to-year decline in total slaughter. Some of that will be a decline in cow slaughter. So this is a major adjustment."
"The packing business is very much one of being able to operate at a high level of throughput in terms of numbers of animals being processed drives the economics of the industry. And, after 24 months or so of very dismal returns, these are the types of adjustments that had been anticipated, but they did come as a bit of a shock. I think that me lead to a little bit of an over adjustment in the marketplace."
"I'm a little bit concerned by the softening in the wholesale beef market which really shouldn't have happened because of the plant closure. That underlying wholesale beef market is, maybe, a bit of a longer term concern."
Some industry analysts are wondering if the shuttering of the Plainview plant presages a geographical shift in the cattle business. Robb says he thinks it does.
"I think this really is indicative, this plant closing. This is a major, large plant in the Southern Plains. In the deep Southern Plains is where we're going to have the tightest feeder cattle supplies, especially as we see fewer and fewer Mexican feeder cattle and a smaller U.S. calf crop. So, I think, in the deep Southern Plains this is very indicative of also the excess capacity in the cattle feeding business, which we also have clear across the United States. There are some cattle feeding operations which have certainly slowed down their feedlot placements and some that have downsized their actual feeding capacity in the last couple of years. But there may need to be more of that also as we just have smaller and smaller cattle numbers and we really have excess infrastructure on both the cattle feeding side and the packing side."
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