Beef Plant Closes Despite High Demand
On Friday, June 12, JBS (an international meat processing conglomerate) announced it was closing its beef processing plant located in Souderton, Pa., right outside Philadelphia in
August.
I and a group of Rockbridge cattle producers had the opportunity to tour this impressive facility just over a year ago. We toured a modern, well-run slaughter facility with some 1,700 employees harvesting 2,000 head of cattle per day purchased from cattle operations in eastern and southern states.
One of the most impressive aspects of the tour was hearing the plant’s statistics that indicated high worker satisfaction and retention as well as meeting a number of the workers who voluntarily spoke of how much they enjoyed their work for JBS at the plant.
JBS is an international conglomerate based in Brazil and it is the largest beef processing company in the world with beef processing plants scattered across the United States but concentrated in the Corn Belt and Great Plains.
This facility closure is yet another example of our national food system’s unrelenting drive to efficiency as defined by economies of scale.
Beef processing is extremely capital intensive where the market rewards processors with profits of hundreds of dollars per head when cattle supplies are sufficient but the processor may lose hundreds of dollars per animal when supplies are tight and cattle prices are high.
Such has been the case for the past two years with exceptionally high cattle prices and beef processors losing money on every animal they process. This explains in part why at a time of limited beef supplies and high demand for the product, this extremely large company is losing so much money they are making operational decisions to intentionally limit the number of cattle that can be processed per week and ultimately bring the price of cattle down and restore profit margin.
Many Virginia cattle are slaughtered at the JBS Souderton beef plant. The route of these animals from Virginia to Souderton is usually indirect as they most often leave the state as 700-pound calves to be grown by cattle feeding operations in Pennsylvania, Ohio or Michigan before being sold to JBS Souderton as 1,400-pound finished beeves.
What does the closure of the beef plant in Souderton, Pa., mean for Rockbridge? It means cattle buyers will not be able to offer as high a price for our feeder calves (because of the additional cost of moving the cattle further and ultimately competing for fewer available spaces at fewer processing plants).
It also brings up a phrase we have heard about different sectors of our economy in recent years: “demand destruction.” In this case it means the high price of beef in the retail meat case is likely to remain high as the beef processors attempt to restore a profit margin per head by offering fewer locations where the cattle can be processed and lower the price they pay for slaughter cattle.
An additional implication for Rockbridge could be opportunities for some local beef producers to capture profits by marketing beef locally to consumers directly.
In years past I have not been encouraging to local cattle producers who wanted to direct market beef. The complications of having cattle locally processed and coordinating arrangements with customers demands a great deal of time and communication. However, the retail price reality in the conventional grocery meat case may signal a longer-term competitive position for locally processed and marketed beef.
