NASHVILLE, Tenn., Feb 6 (Reuters) - Up to three more U.S. beef packing plants could close in the next two years as the industry grapples with surplus packing capacity while ranchers try to rebuild the country’s smallest herd in 63 years, a leading cattle analyst said on Thursday.
“To go from liquidation to expansion over the next two years, which we strongly feel we’re in the process of doing, you’re going to pull between 2 million and 2-1/2 million cattle out of the harvest mix by 2015 compared to 2013,” Kevin Good, a senior analyst with closely followed CattleFax, told Reuters on the sidelines of cattle industry’s annual meeting here.
“Given that decline, there is the risk that one to three packing plants could go in the next 12 to 24 months, depending on their size,” he said.
Good did not specify which plants would likely fail but warned that cow processing facilities are at greatest risk due to fewer cows being culled - resulting in a smaller supply for slaughter.
Beef cow numbers in the United States have declined 16 out of the past 18 years, according to Good. Since the year 2000, slaughter or harvest rates for steers and heifers have decreased about 1 percent per year, he said.
The U.S. beef industry has been struggling in recent years with high feed costs, coupled with drought and reduced consumer demand for beef.
As the industry moves through 2014 to 2015, the slaughter rate for steers and heifers will drop 2 percent to 3 percent as more heifers are being held back to replenish the herd, said Good, who projected cow slaughter rates would fall 8 percent to 10 percent a year in 2014 and 2015.
Last Friday, the U.S. Department of Agriculture’s annual cattle inventory report showed the total number of cattle in the United States as of Jan. 1 at 98 percent of where it was a year earlier, or 87.730 million head. It was the smallest herd since 1951 and down 2 percent from 89.3 million head a year ago. Analysts had forecast a 1.4 percent decrease.
In response to Friday’s report, analysts said the data suggests that feed costs remained high in the first half of 2013 as historic drought in 2012 lingered, discouraging producers from retaining heifers. They believe ranchers held back more breeding stock as corn and hay costs came down in the second half of 2013.
Recently, National Beef Packing Co announced the last day of operation on April 4 for its Brawley, California beef processing plant. The company cited tight supplies for the decision to close the facility, which has a slaughter capacity of about 2,000 head of cattle per day.
California, the nation’s top dairy cow and 18th-ranked beef cow producer, is suffering through historic drought, the remnant of a prolonged dry spell that shriveled crops and grazing pasture in the central and southwestern United States.
Scarce supplies and costly feed at the time prompted Cargill Inc to shutter its Plainview, Texas, beef plant early last year, with plans to close,” feedlot in Lockney, Texas in the summer of 2014.
Good indicated the expected drop in the number of beef processing plants would mean a lot more cattle for the facilities that are left.
“Feedyards and packing segment are both going to have a pretty tough time in the next year or two as far as just overcapacity,” Good said. “The bright side is, as we look three to four years down the road, as we start to expand, then at some point there will be a few more cattle.”