Beef Packing Capacity Expansion

As New Beef Packers Continue to Build, Cattle Herd Continues to Shrink

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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The Upper Iowa Beef plant processes about 470 cattle a day and sends most of its beef to retailers on the East Coast as well as 11 Asian countries. While packers are processing fewer cattle nationally, projects under construction would add up to 6,900 head of daily capacity. (DTN photo by Chris Clayton)

OMAHA (DTN) -- Ed Greiman, general manager of Upper Iowa Beef, was ecstatic this week when U.S. Agriculture Secretary Tom Vilsack visited his 470-head-a-day cattle packing plant in Lime Springs, Iowa.

USDA is providing Upper Iowa Beef $8.8 million to help the plant add more carcass coolers and freezer space, add more cattle pens and -- perhaps most importantly -- upgrade the facility's wastewater capacity. Currently, the city of Lime Springs cannot handle the packing plant's full wastewater needs.

"Those dollars are going to be really important for us to be able to have more jobs and be able to buy more cattle from producers," Greiman said.

Also excited about the investment was Bob Noble, a cattle feeder near Riceville, Iowa, and president of the Iowa Cattlemen's Association. Noble said the group has frequently encouraged ways to incentivize more processing capacity in the state. Noble said that now less than 25% of Iowa's fed cattle are processed in the state. The figure could be lower given other cattle that may come from other states to be processed in Iowa as well.

"That's alarming to me as a cattle feeder and as an economic development person here in Iowa," Noble said.

The USDA funds will help Iowa cattle producers and the local workforce as well, Noble said. He noted the impact of just having multiple buyers for cattle changes the dynamics for producers.

"They don't have to be big. Just having a new buyer competing for the cattle -- he may not buy them, but the one that does takes away from existing cattle buyers and increases competition. It's extremely helpful to the local market. Four hundred head a day is enough to make a big difference."

But competition for fed cattle on a national level is a lot more complicated with a smaller cow herd while a spate of smaller and mid-sized players continue to push to build out more beef meatpacking capacity. Three packing plant projects now under construction in Missouri, Nebraska and Texas plan to add capacity for up to 6,900 head of cattle. That amounts to nearly 6% of the daily average slaughter nationally.

Those plant projects include:

-- American Food Group: Near Wright City, Missouri -- just west of St. Louis -- American Food Group, based in Green Bay, Wisconsin, continues construction on its $800 million plant that is expected to process 2,400 head a day. That plant is scheduled to begin processing in January 2025. Just below the "Big Four" packers, American Food Group is already the fifth-largest beef packer in the U.S.

-- Sustainable Beef: On the edge of North Platte, Nebraska, the Sustainable Beef project has been undergoing construction all summer and could be processing cattle in 2025. Sustainable Beef has backing from Walmart, which is building a separate case-ready plant in Kansas to handle meat from the North Platte plant. At full capacity, Sustainable Beef expects to process 1,500 head a day.

-- Producer Owned Beef: Near Amarillo, Texas, the group of cattle feeders that came together to form Producer Owned Beef has been working on a $670 million plant that has largely been in the dirt-work stage, but construction was set to begin at the end of September. Representatives from Producer Owned Beef did not respond to DTN, but the Amarillo plant is expected to process at least 3,000 head a day and has pegged an opening date in 2026.

Along with those projects already underway, a proposed project on the Iowa-Nebraska border, Cattlemen's Heritage Beef, still has plans to build a $450 million packing plant south of Council Bluffs, Iowa, which would process up to 2,000 head a day. That project received a $25 million USDA grant in June.

Upper Iowa Beef's Greiman told DTN he's looking ahead at the prospect of all these larger packers starting to come online over the next couple of years.

"In the next two years, we also know that we're probably going to be short about 6,000 head a day. So, it's going to be interesting, right? That's one of my biggest fears as a young plant, a smaller plant. What do I have to do to survive? And that's where we talk about quality, we talk about sustainability. That's some of the things we will be working on."

Greiman said he thinks the first quarter of 2024 will be a challenge for cattle buyers. Profitability has gotten harder for packers as cattle producers are reaping the rewards of a tight supply.

"Luckily in Iowa, we have enough cattle," he said. "So, right now, our cattle supply has been good, but we know the cow herd's the smallest it's ever been. We're going to have some troubles going forward. We're seeing some really good profits in the fed cattle side, and the cow-calf guys are doing awfully well right now."

Factoring in one fewer day of slaughter, September daily slaughter for fed steers and heifers was down at least 5% from last year. While a new Cattle on Feed report comes out Oct. 20, USDA has consistently shown feedyard numbers down 2%-3% from a year ago.

"That's a big decline," said David Anderson, a livestock economist at Texas A&M University. "So, we've got fewer cattle, fewer cattle on feed, we've got fewer cows, and we're likely going to have fewer cows in January 2024 than we had in 2023."

A more long-term concern was USDA's report in July showing 29.4 million beef cows, the smallest number since USDA began reporting the data in 1971. The beef cow numbers have dropped for five straight years.

Once cattle producers start looking at herd expansion, Anderson said, that will take more heifers out of the feedyards and slaughter as well. "So, it's a real problem," he said.

The supply chain problems that peaked during COVID-19 and the income returns that packers were seeing fired up people about building more packing plants. The Biden administration also agreed to spend $1 billion to spur more packing capacity.

Anderson pointed to some past cattle cycles, though, in looking ahead.

"What usually happens is that by the time you can get a new plant built, the opportunity is long gone, and we're in the part of the cycle with fewer cattle numbers and tighter margins," he said. "And it just doesn't work. I know we're in a time when there is more interest out there in buying local and having small, local plants and things like that, but it is still really hard to look at the economics of tighter margins, fewer cattle and having to compete harder for that smaller set of cattle. I think that's why we're going to see some of these plants that have been in the news never open or never break ground."

Typically, the second or third owner of a packing plant is the one that makes it work, and often that ends up with a nameplate that includes one of the Big Four packing companies. Still, Anderson said the infusion of dollars into several regional facilities is needed in the cattle industry.

"There's probably a need for newer, more up-to-date buildings and plants that can take new technology, that are more efficient and built for the size that cattle are today," Anderson said. "That's a long-term investment strategy. The fruits of that come out in the future, but you still have to be resilient enough to survive."

While the numbers might look ominous for cattle supplies, Greiman has been in the cattle business long enough to know new black swans will arrive and bring down fed cattle prices in the process.

"I don't know what this event will be, but there will be an event that will hit the cattle price," he said. "It happened last time in 2015 when we thought we were going to go to the moon."

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Chris Clayton