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The Beef Angle

Drought Forces Cargill Beef Plant Closure

Citing a shrinking cattle supply, Cargill announced a multi-state drought in the Southwest forced the company to shut down a Texas beef plant.

Drought has claimed its latest victim, with Cargill announcing Jan. 17 that it would idle its Plainview, Texas beef processing facility at the close of business Friday, Feb. 1, 2013. Resulting "primarily from the tight cattle supply brought about by years of drought in Texas and the Southern Plains," the closure will affect roughly 2,000 workers.

"The decision to idle our Plainview beef processing plant was a difficult and painful one to make and was made only after we conducted an exhaustive analysis of the regional cattle supply and processing capacity situation in North America," said John Keating, president of Cargill Beef. "While idling a major beef plant is unfortunate because of the resulting layoff of good people, which impacts their families and the community, we were compelled to make a decision that would reduce the strain created on our beef business by the reduced cattle supply."

Keating noted that the U.S. beef herd is the smallest it has been since 1952, and that feed costs have increased significantly as a result of the multi-year drought in the region and further exacerbated by the widespread drought of 2012. Herd liquidations, he said, had severely and adversely contributed to the challenging business conditions facing beef processors as a whole.

Cargill operates beef processing plants in the region at Friona, Texas, Dodge City, Kan., and Fort Morgan, Colo. Those plants will receive cattle that were previously destined for processing at Planview. Other regional beef facilities at Fresno, Calif., Milwaukee, Wis., and Wyalusing, Pa., as well as beef plants in Schuyler Neb., and two in Canada, are not affected by the move.

"Given the over-capacity that exists with four major beef plants in the Texas panhandle and a dwindling supply of cattle in the region, idling Plainview will allow Cargill to operate its other beef plants in Texas, Colorado and Kansas more consistently on a five-day-per-week basis to meet our customers' requirements while helping us maintain our position in the U.S. beef sector," Keating said. "Over the past 10 years we've invested more than $766 million in our U.S. beef plants to ensure they remain the best in class in the industry."

The company said the shutdown would not preclude reopening at some point, and that measures would be taken to preserve the plant's infrastructure in case of just such an opportunity. However, Cargill does not expect the U.S. cattle herd to significantly increase in size for a number of years, creating demand for additional processing capacity.

"We were hoping the drought would break, pasturelands would be restored, cattle ranchers would retain heifers and the national herd trend of declining numbers over the past two years would be reversed," Keating concluded. "Unfortunately the drought has not broken, feed costs remain higher than historical averages and the herd continues to shrink."

While the industry has faced similar cycles in the past, he said this one is longer and more severe than those situations.

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