Brazil - JBS face cattle shortage at US plant 11 Apr 2010
Shrinking cattle supplies in Canada and the U.S. Northwest could leave the JBS-USA packing plant in Hyrum, Utah, vulnerable to closure, a Canadian meat market analyst said on Friday.
The plant is one of three in the U.S. Northwest that rely on cattle from the Canadian provinces of Alberta and Saskatchewan to supplement U.S. supplies, along with Tyson Foods' (TSN.N) plant in Pasco, Washington, and AB Foods' facility in Yakima, Washington.
JBS's plant is the most vulnerable of the three to closure because of its great distance from Alberta and other major U.S. feeding regions and because it recently scaled back production, said a report on the issue by Kevin Grier, senior market analyst at the George Morris Center in Guelph, Ontario.
"It's something (Canadian) producers need to keep on their radar and plan for," Grier said. "Clearly it's a negative -- another one."
A JBS official said the company is "committed" to the Utah plant.
"JBS has not moved away from any of our beef plants," said JBS spokesman Chandler Keys.
Losing a U.S. plant would not only reduce demand for Alberta cattle by a single bidder but would also free up all of the closed plant's domestic supplies, likely making the U.S. Northwest self-sufficient for cattle, Grier said.
The loss of demand from that region could factor into further downsizing of the Canadian herd, he added.
Cattle supplies in the top cattle-producing province of Alberta have been shrinking due to a series of factors, including low prices, drought and a high Canadian dollar that makes exports less attractive.
Supplies in the U.S. Northwest are also shrinking as part of a long-term U.S. industry decline due to low prices and changing demographics.
U.S. bidders provide an important floor price for Alberta cattle and competition for Canadian beef plants owned by Cargill Inc [CARG.UL] and XL Foods.
"It would have a huge impact" to lose a U.S. plant, said Tony Saretsky, owner of Cantriex Livestock in Ponoka, Alberta, who exports cattle to the United States. "We're dependent on those packers to level the playing field as far as the overall pricing in Canada."
Closure of a U.S. packer is a possibility but JBS's investment several years ago in the Utah plant may make it a less-likely candidate, Saretsky said.
Tight supplies and unfavorable U.S. weather have helped Chicago live cattle futures LCc1 rise 10 percent in 2010 to more than 94 U.S. cents per lb.
In 2009, nearly 351,000 fed cattle were shipped to the United States from Alberta and Saskatchewan, making up 15 percent of the two provinces' marketings, according to Statistics Canada. Each of the three Northwest plants relies on Alberta cattle for 15-40 percent of their kill, Grier said.
The U.S. country-of-origin meat labeling law has resulted in higher processing costs of Canadian cattle for U.S. packers and less livestock exported to the United States, but the plants remain active buyers in Canada, Grier said.
Shrinking herds will also likely lead to a reduction in capacity of Alberta and Saskatchewan feedlots, which are being used at just over half of capacity, he said. (Additional reporting by Bob Burgdorfer in Chicago, editing by Rene Pastor and Jim Marshall)