The economic impact of the Cargill decision ripples far beyond the feedyard gate.
“I wouldn’t want to own a house in Plainview, TX.” That was just one of many reactions to the news that Cargill will shutter its Plainview, TX, beef plant on Feb. 1.
According to Cargill, the decision was made based primarily on tight cattle numbers brought about by years of drought in Texas and other Southern Plains states. “The decision to idle our Plainview beef processing plant was a difficult and painful one to make and was made only after we conducted an exhaustive analysis of the regional cattle supply and processing capacity situation in North America,” says John Keating, Cargill Beef president.
“Increased feed costs resulting from the prolonged drought, combined with herd liquidation by cattle ranchers, are severely and adversely contributing to the challenging business conditions we face as an industry,” he says. “Our preference would have been not to idle a plant.”
Industry Outlook: Market Conditions Will Shrink U.S. Packing Sector
Ross Wilson, Texas Cattle Feeders Association (TCFA) president & CEO, says he’s concerned about the effect this closing will have on TCFA members who have supplied cattle to the Plainview Cargill plant.
“The plant has been an important market for cattle feeders, especially those on the High Plains. Anytime we lose packing plant capacity in our region, it means TCFA members could see increases in freight and other costs as cattle are redistributed to other packing facilities. However, as cattle are redistributed to the remaining packing facilities, those facilities should be able to operate more efficiently and reduce the overcapacity in the packing industry.
“Many of the reasons for the closing of this plant are the same reasons that we’ve seen decreases in cattle feeding numbers at many of our feedlots. While we have a more productive cowherd producing more pounds of beef per head, severe drought across the U.S., as well as other factors, have caused a decrease in the overall size of the U.S. cowherd and decreases in the feeder cattle supply, which heavily impact our members.
“Most importantly, we recognize the negative impact the closing will have on Cargill employees, their families and the Plainview community,” Wilson says.
Those impacts will be profound, according to Steve Amosson, Texas AgriLife Extension Service Extension economist in Amarillo. He estimates the annual payroll for the plant’s roughly 2,000 employees to be $60 million. “By the time you look at the indirect induced effects, we’re not talking 2,000 employees, we’re talking close to 3,000 people who are going to lose their jobs,” he says. “That accounts for more than 15% of the employment in Hale County” where Plainview is located.
Overall, Amosson says the total economic impact will be close to $1.1 billion. “And that’s 38% of all industry output in the county,” he says.
Keating says Cargill will help affected employees find jobs at other Cargill locations or with other companies, so the economic impacts will be softened somewhat. And he says they will mothball the plant in such a way that it could be reopened should the need for additional processing be necessary. “However, Cargill does not expect the U.S. cattle herd to significantly increase in size for a number of years,” he adds.
Amosson agrees. “It will be five to 10 years, if they ever reopen that plant again,” he says.
Industry At A Glance: Feedlot, Packing Overcapacity
The news came as a surprise to many in the area, although rumors of an infrastructure change have circulated for a while. Keating says that idling the Plainview plant will allow Cargill to operate its remaining beef plants in Friona, TX, Dodge City, KS, and Fort Morgan, CO, more consistently on a five-day-a-week basis, and that cattle that would have been processed in the Plainview plant will be redirected to the remaining three plants.
The Plainview plant has a capacity of around 4,000/day, which represents 16% of the capacity in the Texas Panhandle. In addition to Cargill’s Friona plant, two other fed cattle plants are located in the Texas Panhandle – Tyson in Amarillo and JBS-Swift in Cactus.
“We delayed the decision to idle Plainview as long as possible, due in part to our outstanding team and ongoing excellent support from the community. We were also 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,” Keating says.
“Unfortunately, the drought has not broken, feed costs remain higher than historical averages and the herd continues to shrink. The industry has experienced this cycle in the past, although this one is longer and more severe than most. Nevertheless, we are optimistic about the long-term prospects for U.S. beef demand from American and international consumers, and that the drought in Texas and the Southern Plains will become a memory.”