Sometimes, being correct is no fun at all. I recall a talk I gave several years ago in Hays, KS, on industry issues. The conversation got around to concerns about maintaining industry infrastructure in the face of a declining cow herd and we – the cattlemen in attendance, the scientists on hand, and I – all speculated as to when packers and feedyards would finally adjust to the reality of much smaller supplies and how well the industry as a whole would deal with that adjustment.
During that conversation, there was never any talk about “if.” It was all about “when.” It would appear that when is now.
All this comes back to me as I reflect on news we received late Friday afternoon last week and again Monday morning. Last Friday, a group of cattle feeders in the Imperial Valley of California issued a news release saying that they, along with local taxing and government entities, had offered a $9 million carrot in tax and utility breaks along with price discounts on cattle, to National Beef to keep its packing plant in Brawley, CA, open. The offer was on top of $15 million in cattle price discounts previously given to National on Jan. 1, 2013.
Monday, National Beef issued a statement saying in effect, thanks but no thanks. “We have considered all the alternatives but, unfortunately, the barriers to profitably operate the facility continue to exist,” National Beef CEO Tim Klein said in the statement.
“Even with the proposed incentive package, the declining supply of fed cattle available for the Brawley facility remains the key driver of our decision to close the plant,” the statement said. As such, National Beef will continue to operate the plant until its anticipated closing date of April 4.
With that announcement, Imperial Valley cattle feeders – in fact, everyone in that southeastern-most area of Southern California – were left pondering a bleak future. “That’s a really good question and that’s what everybody here is trying to figure out,” Bill Brandenberg, feedyard manager and spokesman for the Imperial Valley Cattle Feeders group, told me when I asked him what’s next.
For the immediate future, defined in this case as the next 90 days, Imperial Valley cattle feeders will start looking for new homes for many of the cattle they have on feed. They predominantly feed Holsteins, and since it’s more cost-effective to ship lighter cattle than heavier cattle, the younger calves will go first. “I expect quite a few of these cattle to be shipped to feedyards in the Texas Panhandle, Kansas, Colorado, or wherever people find a place to go with them to be finished,” Brandenberg says.
If it’s any consolation, which it isn’t, while I was right on the general trend that feedyard and packing capacity would inevitably have to contract, I was wrong on which packing plants would close. I thought cow plants would be the first to go. With Cargill’s closing of its Plainview, TX, plant last year, and National’s announcement about its Brawley plant, the first major victims of the beef industry’s nearly two-decades-long liquidation were both fed cattle plants.
You can’t fault Cargill or National. Both companies had to make hard decisions in light of some very tough economic realities. And here’s the thing – Brawley won’t be the last. The drawdown in industry infrastructure will continue. That’s a huge concern, because while a vacant feedyard can be fired back up again fairly easily, never in the 30-plus years that I’ve been an observer and participant in this business do I recall that once a beef packing plant went dark that it ever reopened or if it did, that it stayed open.
So, all of us in the business are left to ponder “what’s next?” For many of us, while certainly important and critical, that conversation will be held in the abstract. For Imperial Valley cattle feeders, it’s gut-wrenchingly real.
Brandenberg, who was part of the group that built the Brawley plant 12 years ago and then sold it to National, says the next closest beef plant is JBS Packerland in the central Arizona community of Tolleson. But there is more feeding capacity in Arizona and California than the plant can accommodate. With the loss of the Brawley plant, options become very limited for California cattle feeders.
“And it’s not just us as cattle feeders, but the entire economy of Imperial County,” he says. The county’s economic base is agriculture, and cattle, at 30%, are the largest segment of the ag economy. The area struggles socio-economically and the loss of the 1,300 jobs at the packing plant will be devastating. Then there are all the related jobs that will be affected. Brandenberg anticipates that by the time the economic fallout settles, job loss will be double the 1,300 packing plant jobs. He says that will raise the county’s already high unemployment rate by another 4-5%.
So the trucks will move in and calves will move out. That’s the immediate problem, Brandenberg says. “On a long-term basis, how many cattle are going to be left out here to feed after the dust settles? That’s the $64 question that nobody has an answer to.”
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