Live cattle futures
plunged their daily limit after Cargill revealed it was closing one of its beef
processing plants, after giving up on a rebound in US cattle numbers from 60-year
The agribusiness giant,
one of the world's biggest privately-owned companies, said that it would at the
start of next month close its Plainview, Texas site, which employs 2,000
decision to close the site, which processes some 4,500 animals a day, followed "an
exhaustive analysis" of North America's cattle supply and processing capacity, which
highlighted the threat to industry profits from a US herd which has shrunk to
its lowest since 1952, Cargill said.
The prospect of consolidated buying power weakened cattle futures, but sent shares in Tyson Foods, a major rival to Cargill in US meat, up 3.8% to $21.23, their highest finish since September 2007.
No revival for a while
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," said John Keating, president of
the decision to idle Plainview as long as possible. We were hoping the drought
would break, pasturelands would be restored, cattle ranchers would retain
heifers and the national herd trend of declining numbers over the past few
years would be reversed.
"Unfortunately, the drought has not broken, feed costs
remain higher than historical averages and the herd continues to shrink."
While Cargill that it was "optimistic about the long-term
prospects for US beef demand", and was to retain the Plainview site for a
potential reopening if US cattle numbers rebound, the group said that it "does
not expect the US cattle herd to significantly increase in size for a number of
More than other
The US cattle herd fell below 90m animals last year for the
first time since the 1950s, and down from a 1974 high of 132m head, according
to US Department of Agriculture data.
The Texas herd has shrunk
particularly fast, dented by drought last year and in 2011, besides the high
grain costs which affected the industry around 2007-08 as well.
numbers have gone down more than any other state," Ben Parks, at FCStone's
Kansa-based livestock division, said.
Being a distance from
the main Midwest corn-growing areas, "feed costs are perhaps 90 cents a bushel
over futures in Texas, compared with maybe 30 cents a bushel in Nebraska".
'Something was going to give'
Mr Parks added that
Cargill's announcement had caught markets unawares.
"It was not a surprise
that there was a closure at some point this year. But by Cargill, and today,
that was a surprise," Mr Parks told Agrimoney.com.
"We felt something
was going to give, but did not know where or when."
Live cattle futures
for February fell the 3.00-cents a pound maximum in Chicago before recovering
to close at 126.60 per pound, down 1.925 cents, or 1.5%, on the day.
Return to profit
Beef packer margins
on Thursday were some $37 per head in the red, according to HedgersEdge.com.
will enable it to send increase volumes handed by its Friona plant, less than
100 miles from Plainview, besides send extra volume to sites in Kansas and Colorado
Cargill last week reported a return to profit
at its animal protein operations, "compared with a loss last year when
processing margins in the US beef industry were sharply negative".
"Most of the meat
businesses benefited from improved volumes or margins in the current period,
even though results were tempered by higher raw material or livestock feeding
costs," the group said, as it unveiled a sharp recovery in group profits.