UPDATE 2-Tyson cuts beef production due to cattle shortage

(Adds comment from Tyson Foods, paragraph 6)

Aug 14 (Reuters) - Tyson Foods Inc on Friday said it is permanently ceasing beef production at its plant in Denison, Iowa, effective immediately, as cattle ranchers work to rebuild shrunken herds following the severe Midwestern drought.

The move by Tyson, the biggest U.S. meat processor, will affect 400 employees at the plant, which will continue by-product rendering operations with about 20 workers.

Such closures are becoming more common since fewer cattle are available for slaughter due to several years of drought that hurt feed crops and forced ranchers to trim their herds.

“The cattle supply is tight and there’s an excess of beef production capacity in the region,” Steve Stouffer, president of Tyson Fresh Meats, said in a statement.

Tyson’s Denison plant has a daily estimated slaughter capacity of about 2,000 head of cattle over a five-day work week, which represent 2 percent of U.S. steer and heifer slaughter capacity, according to industry experts.

“While we won’t share what percentage of our total production comes from Denison, we can tell you it’s our smallest beef plant,” Gary Mickelson, a spokesman for the company said.

Animals that will no longer be processed at the plant likely will be transferred to Tyson’s other nearby locations, including the newly expanded facility in Dakota City, Nebraska. That plant has an estimated daily kill capacity of 6,000 head, the experts said.

Last year, the U.S. cattle herd sank to its lowest level since 1951 at roughly 89 million head based on the government’s Jan. 1 inventory report.

The U.S. Department of Agriculture’s semi-annual cattle report confirmed a turnaround in U.S. cattle herd size. As of July 1 it stood at 98.4 million head, up 2 percent from a year ago, thanks to cheaper feed and healthy grazing pastures.

The 400 affected Denison plant workers will have opportunities to apply for jobs at other Tyson plants, the company said.

Cargill Inc, one of the country’s largest beef processors, on July 30 announced the closure of its Milwaukee, Wisconsin, beef-processing plant due to cattle shortages.

Shares of Tyson closed up 0.5 percent at $42.50 on the News York Stock Exchange. (Reporting by Ramkumar Iyer and Ankush Sharma in Bengaluru, Theopolis Waters in Chicago and Lisa Baertlein in Los Angeles; Editing by Sriraj Kalluvila and Bernards Orr)