- Cargill announced it would close its cattle processing plant in Plainview, Texas due to limited cattle supplies from the drought-stricken Texas Panhandle region. The closure will eliminate 4% of total US beef packing capacity and impact 2000 employees. - In the short-term, reducing packing capacity will lower cattle demand and prices as supply and demand come back into balance. However, the closure is expected to tighten packing margins and squeeze feedlot margins in the long-run by reducing the overall US beef supply to better match consumer demand. - The closure will accelerate ongoing consolidation in the feedlot sector and reduce daily cattle slaughter, supporting higher beef prices in 2013 as projected US per capita beef supplies drop 3.

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Vol. 11, No. 13 / January 18, 2013
Market Comments
Live cattle futures collapsed in yesterday’s trading as
Cargill announced that it would sharply reduce packing capacity
in light of limited cattle supplies in the Texas Panhandle. Ac-
cording to the Cargill press release, their plant in Plainview Tex-
as will be idled following the results of “an exhaustive analysis of
the regional cattle supply and processing capacity situation in
North America...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.” The closure will affect 2000
employees at the Plainview facility. According to the Cargill web-
site, the facility had a processing capacity of 4650 cattle per day,
making it one of the larger plants operated by the company. Ac-
cording to data from “Cattle Buyers Weekly,” Cargill operated 8
plants in 2012, with a total daily capacity of a little over 30,000
cattle per day. Some of those cattle (about 14%) were non-fed cws
and bulls, however, so the total steer and heifer packing capacity
was a little over 26,000 head. According to the data available to
us, and this is for most but not all US beef packing plants, the TOP FED BEEF PACKERS, 2012
Cargill Plainview plant represented about 4% of the steer/heifer % OF DAILY STEER/HEFIER SLAUGHTER CAPACITY, HEAD
slaughter capacity. Cargill Plainview,
In the short term, the closing of the facility will 4,650 total
4%
reduce the demand for cattle and better align capacity Tyson, 28,950
with available supplies. Reduced demand for cattle means 26%
lower prices in the short term and that’s what futures traded yes-
terday in both the live and feeder cattle pit. Packers have strug-
gled with margins in recent months as extra capacity forced them
to aggressively compete for cattle even as beef prices languished. JBS USA
With about 4% of the capacity removed in short order, this will Cargill Other 26,000
21,500
provide packers with more leverage. The closing will be negative 23%
19%
for feedlots, which are already struggling with high feed costs and
record breakevens for animals they placed last fall. As a result,
feedlot demand for cattle will fall as well. Indeed, at the end of Other National Beef,
the trading session on Thursday, feeder cattle were down more on 16,750 14,000
the day than live cattle. Last year, we noted that higher beef 5% 13%
prices do not simply happen, they are the end result of a wrench-
Source: Cattle Buyers Weekly
ing process that will cause a lot of pain as the industry downsizes
in order to bring a margin back in the business. But the recent & Steiner Consulting Calculations
drop in live cattle prices does not change, in our view, the medi-
um and longer term outlook for cattle and beef prices. The clos- 2013. So far end users are not willing to pay more for beef be-
ing will likely squeeze feeder margins and it is likely that we may cause they do not have to. As we noted in our report yesterday,
see increased consolidation in that sector as well, a process that US beef prices last year languished because per capita supply
has already been underway. The closing of the plant will reduce availability in the US was down just 0.4% from the previous year,
the daily number of cattle coming to market, reducing the overall too small of a reduction to have a significant impact on beef pric-
beef supply, which is what most analysts already expected for es. For 2013, per capita supplies are expected to drop 3.5%.
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