* US cattle herd smallest in 60 years
* Drought, high feed costs forced herd liquidation
* Cargill's action lifts shares of rival Tyson-analyst
By Theopolis Waters and Christine Stebbins
CHICAGO, Jan 17 U.S. agribusiness giant Cargill
Inc, and one of the nation's largest beef processors,
said on Thursday it will close its Plainview, Texas, beef plant
on Feb. 1 in reaction to the smallest U.S. cattle supply in more
than 60 years.
"The U.S. cattle herd is at its lowest level since 1952.
Increased feed costs resulting from the prolonged drought,
combined with herd liquidations by cattle ranchers, are severely
and adversely contributing to the challenging business
conditions we face as an industry," John Keating, president of
Cargill Beef, said in a statement.
The company also cited an over capacity in beef processing
in the Texas Panhandle, where Cargill operates two of the four
beef processing plants there.
Shares of rival beef producer Tyson Foods Inc rose
on Thursday as one less beef plant should benefit the industry.
"Industry capacity utilization rates in beef packing have
been deteriorating in recent years thanks to fewer available
cattle. With a big plant out of commission, capacity utilization
rates should rise and packers should gain some leverage," JP
Morgan analyst Ken Goldman said in an email.
The U.S. cattle as of January 1, 2012, was 90.8 million
head, down 2 percent from 2011, and the smallest since 88.1
million in 1952. USDA will release its U.S. cattle herd size as
of January 1, 2013, on February 1.
WRITING ON THE WALL
Meat industry analysts and economists have speculated for
months that the smaller cattle herd, due to three years of
severe dryness in top cattle states of Texas and Oklahoma, would
force at least one packing plant to close this year.
Cattle previously sent to the Plainview plant, which
processes about 4,500 head per day, will be diverted to
Cargill's beef plants in at Friona, Texas; Dodge City, Kansas,
and Fort Morgan, Colorado.
"That will more consistently provide a 40-hour paycheck for
15,000 people in our beef business. We intend to maintain our
position in the marketplace," Cargill spokesman Michael Martin
said in response to an e-mail request.
The company's regional beef facilities at Fresno,
California; Milwaukee, Wisconsin; and Wyalusing, Pennsylvania,
as well as its beef plant in Schuyler, Nebraska, and two beef
plants in Canada are not affected, Cargill said.
"We are retaining the Plainview plant and property with the
hope that someday there will be a need for additional processing
capacity in the region, but we do not foresee that happening for
a number of years," Martin said in the statement.
Cargill plans to layoff some of the plant's 2,000 employees
with others filling positions at other company locations or with
The smaller cattle herd has had beef processors competing
for cattle and paying historically high prices for them. While
beef prices have increased, they were still not high enough to
offset the cost of the cattle, analysts said.
"It's simply that packer margins have been in the red pretty
consistently since early last summer," said Dan Vaught, an
economist with Doane Advisory Services in St. Louis, Mo.
"The industry was waiting on someone to blink, and it turns
out to be Cargill," he said.
HedgersEdge.com, a Colorado-based livestock market advisory
firm, put the average beef packer margin for Thursday at a
negative $36.95 per head, compared with a negative $46.90 on
Wednesday and a negative $66.75 on Jan. 10.
Shares in Tyson Foods Inc were up 3.8 percent at
$21.23 in afternoon trading on the New York Stock Exchange.
FUTURES PRICES PLUNGE
Word of the Cargill plant closing dropped Chicago Mercantile
Exchange live cattle futures by their 3-cent daily price
limit before partially recovering.
CME cattle futures for February delivery closed at
126.600 cents per lb, down 1.925 cents, or 1.5 percent.
Initial market reaction was tied to sentiment that there
would not be a market for all of the cattle that are shipped to
the Plainview, Texas plant, said chief stratigist Rich Nelson
with Allendale Inc in McHenry, Ill.
But, some of that bearishness was mitigated by Cargill
saying the cattle would go to its other plants in the area.
Also, investors speculated that packers may become more
aggressive about buying cattle as their margins improve, said
In response to whether another packing plant would close,
Doane's Vaught said it would depend in part on the efficiency of
the plant and availability of cattle supplies.
"I don't think you'll see any more close in the near future,
simply because the packers will now compete on a new footing for
supplies based on the diminished industry capacity," he said.