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Packing Industry Struggles Continue

Tyson announced the sale this week of its Canadian beef operations to XL Foods Inc. for $107 million in Canadian dollars. Tyson has already closed three other plants and slipped from No. 1 to No. 3 in terms of beef-slaughter capacity in the U.S. The stocks of meatpacking plants have been taking a severe hit, but Tyson stock rose on news of the sale.

Another packer in trouble appears to be Creekstone Farms. USDA's Grain Inspection, Packers and Stockyards Administration (GIPSA) announced two weeks ago its agreement with Creekstone that prohibits the firm from buying any livestock without paying for them immediately at the time of purchase. Creekstone also had to nearly double the size of its bond nearly $4.5 million.

GIPSA made the move after determining that, since January 2007 through the present, Creekstone had operated in a financial situation where total liabilities exceeded total assets. It’s important to note, however, that Creekstone hadn’t failed to pay for any cattle and was not charged with paying for cattle later than required.

Creekstone's location, its inability to run at full capacity given the overcapacity issues in the packing industry, along with the extremely difficult operating conditions for the packing industry, are all believed to be contributing to its financial woes. And speculation about Creekstone’s future has swirled for weeks.

But given its location, difficult economic environment for packers, and overall excess packing capacity, it’s difficult to envision who might step up to take over the Arkansas City plant if it were offered for sale.

JBS appears to be pretty well extended with its purchase (approval still pending) of Swift and National. Tyson is in full-scale retreat and is in a consolidation mode. Smithfield has abandoned its aspirations of getting into beef packing. And Excel showed very little interest the first time the plant was on the auction block.

Still, the Creekstone plant is one of the newest and most technologically advanced in the country. Thus, it has the potential to be one of the industry’s most efficient. Time will tell.