Last week privately held Cargill Inc. announced that it would close its beef processing plant in Plainview, Texas, due to a drop in the number of cattle available as a result of the continuing drought in Texas and the Southern Plains states. Cargill employs about 2,000 workers at the plant.
The company said the U.S. cattle herd is at its lowest level since 1952 and that increased feed costs due to the drought together with “herd liquidations” by ranchers are hammering the meat-packing industry. Cargill does not expect the U.S. cattle herd to grow again “for a number of years.”
Tyson Foods Inc. (NYSE: TSN) saw its shares jump on the news, up 5% since Cargill’s announcement. Smithfield Food Inc. (NYSE: SFD) rose 3.5% and Hormel Inc. is up nearly 2%.
Cattle prices, for both live cattle and feeders, have dropped sharply since the beginning of the year and Cargill’s announcement did nothing to lift prices for cattle.
So will consumers get a break? Maybe in the short term, but in the longer run, fewer cattle will mean higher prices. An interesting note here is that the cattle weights have been going up which means fewer are needed to derive the same amount of meat. If the U.S. economy continues its slow expansion, demand for beef is very likely to rise and with it prices for beef will rise too.
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