Tyson Foods has decided to close its Nebraska meat packing plant in January. That is a big distress signal for the industry, Wyoming cattle ranchers say, a red flare for trouble ahead, not just for meat packers but also for cattlemen.
What’s happening now is all about the price of cattle and the corresponding lack of supply.
Those two things are hammer and anvil. Caught between them is the nation’s beef processing capacity. That's about to get hammered thin, and it has serious implications for the long-term future of Wyoming’s cattle industry.
The Tyson Plant process around 5,000 cattle per day. Some of those cattle are “no doubt” from Wyoming, Crook County cattle rancher Tyler Lindholm told Cowboy State Daily.
“A lot of cow-calf operators sell into Nebraska,” he said. “And those calves are going to Nebraska feed lots, which depend upon that packing.”
The closure is set for January, Tyson announced Friday.
The immediate effect of that closure will be a scramble for all of the feed lots that were supplying cattle to the Tyson plant. They will all need to find a new packer to stay in business.
That part probably won’t be a huge, immediate problem, Lindholm said.
“Nebraska does have quite a few of them,” he said. “Sustainable Beef is there, the Smithfield folks are there so there’s quite a few opportunities,” he said.
Longer term, though, the closure is the beginning of a huge ripple effect for the industry, one that could create a chokehold on the future.
Those ripple effects start with cattle bids, which Laramie County cattle rancher and former National Cattlemen’s Beef Association president Mark Eisele said are likely to be pulled lower.
“Depending on who is buying those cattle, they may have to bid less to cover the transportation to other places,” he said.
More Centralization, More Imports
Lower bids for cattle to cover higher transportation costs, though, is just the beginning of a whole chain of cause and effect that’s ahead for the American cattle market.
“Really, what this amounts to is more centralization of packing facilities,” Lindholm said.
More centralization is exactly what most ranchers believe the American beef market doesn’t need more of. In fact, cattle ranchers have been complaining that the meat packing industry is too concentrated for decades.
“Congress needs to get off their duff and do something about this,” Lindholm said. "Our laws and our regulations centralize power around a select few and, as we’re moving along, what we’re finding is that it’s much cheaper, much like any other product, to have it manufactured, or in this case, packaged, in another country, because U.S. regulations are insane.”
The closure of packing facilities, amid continued high demand for beef, can’t help but push the industry toward more beef imports. But that doesn’t mean a cow crossing the border Lindholm added.
“It’s not a cow, it’s boxed beef,” he said. “So, what we’re really doing is, what we’re really pushing forward on is for our products to be slaughtered and packaged in another country.”
A country that isn’t likely to live up to the same standards American businesses have to meet for safety and for quality.
Fewer Packing Plants Mean Less Capacity
With cattle herds continuing to shrink and beef imports continuing to rise, this will mean less and less reason for cattle to grow up in Wyoming, Lindholm said.
“Over time, you’re going to see less and less reason to even have a (meat packing) plant at all,” he said. “And those jobs will all be exported, too, right across our borders.”
Returning to a healthier size of herd, meanwhile, faces its own set of headwinds. That could mean that plant closures right now, even if they were intended to be temporary, could become a new, lower baseline for domestic beef supplies, along with a correspondingly higher baseline for imported beef.
One of the headwinds is just the aging demographic among ranchers.
“We’ve got a lot of older producers who see good prices and they’re wanting out,” Eisele said. “But the expense — the capital to get in — for the land and the equipment, is so much higher, now. So young people aren’t getting in.”
On top of that, dry weather is punishing the industry right now, adding another layer of difficulty for even the boldest of new entrants.
“Some people are saying I can’t rebuild the herd and I’m not going to rebuild the herd,” Eisele said. “So, you end up with, we end up with both of those concerns, and it absolutely is a train wreck, because we don’t have enough producers.”
Lindholm expects the Tyson plant closure won’t be the last in the packing industry. With cattle supply at lows not seen since 1951, there’s just too much excess capacity in the packing plant industry right now.
Tyson Foods Chief Financial Officer Curt Calaway estimated Tyson Foods would lose between $400 to $600 million in operating income for its beef division, reflecting just how shallow beef supply is right now compared to packing capacity.
With that kind of disparity, Lindholm expects to see more packing plants shutter.
“(The closure of this plant) should be a flare for cattlemen across the country, and it should be a flare for consumers,” he said. “I mean, this is a huge signal that we’re in deeper water than we thought we were.”
DIRECT Versus PRIME
One potential ray of light that could help fight some of the trends crushing cattle ranchers right now are more ways for farmers and ranchers to sell their products across state lines, direct to consumers.
The DIRECT Act, which was recently reintroduced by U.S. Sen. Roger Marshall, R-Kansas, would amend the Meat Inspection Act and Poultry Products Inspection Act to allow a limited quantity of state-inspected beef to be sold over the internet direct to consumers.
The limits would be 300 pounds of beef, 100 pounds of pork, or 27.5 pounds of lamb for any one producer.
“If we get this state-inspected meat, that will help some of the local sales, some of the direct-to-consumer sales,” Eisele said. “That will mean some opportunities for smaller plants.”
To Lindholm, though, the DIRECT Act doesn’t go far enough to prevent the slow-moving train wreck he foresees coming.
“I mean, that’s a nice Band-Aid,” he said. “All the respect for Sen. Marshall. That’s a nice Band-Aid, but for Wyoming, we have a limited number of federally inspected facilities, just like we have a limited number of state-inspected facilities.”
The tiny quantities allowed by the bill, and the lack of inspection facilities mean the act isn’t meaningful enough to make a real difference, Lindholm believes. Instead, what he wants to see move forward is the PRIME Act, which would allow states to decide whether its custom slaughter facilities may retail their own meat.
“That could have a much bigger effect,” Lindholm said. “I mean, right now, the little town of Sundance, where I live in Crook County is one of the highest cattle-producing counties in the state. We’ve got beef on the hoof all around this town.”
Yet there isn’t one facility where local beef may be butchered for retail sale in the entire area.
“That’s crazy, isn’t it?” Lindholm said. “There’s only 7,000 people in this whole county, but I’ll bet there’s north of 100,000 beef. But you can’t get it butchered here. It’s insane. It’s crazy.”
Renée Jean can be reached at renee@cowboystatedaily.com.
