TAMPA, Fla. - The abrupt closure of Cargill Inc's beef processing plant in Plainview, Texas, this month could signal consolidation in the beef packing industry due to the cattle herd shrinking to the smallest in over 60 years, an industry leader said on Thursday.
"We are probably going to see some consolidation, economics will dictate that," said Scott George, incoming president of the National Cattlemen's Beef Association, told Reuters in an interview at the organization's annual gathering.
NCBA is the nation's largest cattle organization and many of its members have struggled the past few years as drought shriveled pastures, high prices for feed and fuel have increased cattle production costs, and a recession hurt beef sales.
Even with historically high cattle prices this past year of more than $125 per hundredweight, cattle producers have lost money. Many have responded by reducing their herds.
When agribusiness giant Cargill, one of the nation's largest beef processors, announced the closing of its Plainview beef plant it blamed the dwindling cattle herd and soaring feed costs following the worst drought in half a century.
The company also cited an over capacity in beef processing in the Texas Panhandle, where Cargill operated two of the four beef processing plants there.
"That (closure) has a domino effect because the feedlots that were supplying that plant are now faced with escalating costs to move their cattle to another harvest facility," said George.
An inventory report from the U.S. Department of Agriculture on Feb 1 showed that the U.S. cattle herd in 2012 shrunk for the sixth straight year, standing at 89.30 million head as of January 1, the smallest since 1952.
"We're seeing some shrinking but we're also seeing other people in areas that see an opportunity to raise a few cattle and that's a positive," said George.
Drought that lingered in the southwestern United States for more than three years spread to the Midwest last summer, spiking the price for corn at the Chicago Board of Trade to an all-time high of $8.43-3/4 per bushel and doubled the cost for hay.
"The overall assessment of the industry is that we're struggling, that's all there is to it. The drought is having a huge impact on us," said George, who raises cows and calves on his ranch in Cody, Wyoming.
"It's rather bleak but we've never seen such high prices for the cattle, so, there are opportunities out there if a guy has grass and moisture and can run cattle," said George adding that he remains "cautiously optimistic" that the country's beef sector would recover moving forward.
Profit margins, at least in the cattle feeding industry, could shift back to a profitable mode if weather improves, he said. Motivated by a potential turnaround, producers are being particularly creative in how they are maintaining their cattle in the hope of "riding out" another year, said George.
"Farmers and ranchers are eternal optimists; they always think it's going to be better next year. That's a good thing to have because otherwise you get discouraged, throw up their hands and walk away," he said.