SD packing plant files for chapter 11
On July 19, Northern Beef Packers filed bankruptcy paperwork reporting between 200 and 999 creditors. They estimate their assets at $50 to $100 million and debts at $10 to $50 million according to news reports. Court documents say that Northern estimates there will be no funds for unsecured creditors after any exempt property is excluded and administrative expenses are paid.
The plant laid off about one-fourth of its 420 workers in April and it was reported last week that paychecks to current employees would be delayed.
According to an official statement, the business reorganization is intended to provide additional time and interim working capital to allow Northern Beef to complete its restructuring initiatives. To facilitate this, the Company has negotiated a debtor-in-possession (DIP) financing facility with a group of secured lenders and other interested parties. Once approved by the court, the DIP financing, along with cash generated from any ongoing business operations will be used to pay operating expenses.
Groundwork began over seven years ago on the top-of-the-line processing facility that would make even the most hardened of meat processing folks drool, said Herman Schumacher, Herried, S.D., cattle feeder.
But he worries that, even if they get back on their feet as hoped, some of the plant’s challenges will continue in the form of predatory pricing by the bigger packing companies. “We as sellers have been in a one-price-fits-all situation.” He said that often “substandard cattle” in the south will sell for as much as or more than the better cattle in the north just because of packer-owned cattle and packer-contracted cattle. “This plant was always on a cash basis, not contracts.” Schumacher said, adding that the challenges of the power and control of the big three meatpackers. “When I go to Walmart I see that 80 percent of all animal protein which includes beef, pork and poultry has a Tyson label on it.”
But Schumacher believes this business can rise above the challenges posed and beat the odds. The plant “had the blessing” of cattle-working guru Temple Grandin. Thus far Northern has boasted far above-average grading percentages during their short processing tenure. “Since their opening day, (October 2012) their choice grading has been above 85 percent where industry standard is 63 percent. Prime is almost twelve percent while industry standard is three,” Schumacher said.
The former owner of Herried Livestock Market is a co-owner of LDL Cattle Company, a commercial feedyard near Ipswich, S.D., where he feeds a significant number of cattle today. Schumacher sold finished cattle to Northern and believes in the future of the meat processing plant because of its above average cleanliness and technology as well as the proximity to superior cattle. “They have all the bells and whistles. They’ve gone above and beyond to prevent any food-borne illnesses with multiple rinses with a cleaning solution,” he said, commenting that e-coli is one of the beef industry’s biggest enemies and must be controlled at any packing plant. Schumacher added that Northern has the ability to trace cattle from the time the animal is unloaded until it is delivered to the customer, and they even have sensors on each carcass to monitor the temperature and can individually chill any one carcass more than the others if needed.
Financing for the project has come largely in the form of the EB-5 program, according to plant spokesman A.J. Munger. Businessmen and women from across the globe basically “buy” U.S. residency by investing $500,000 in a U.S. company that will provide U.S. jobs. But if the company folds, the investors have to go home – to South Korea in this case. Munger explained that when the plant needed additional funding in 2009, they turned to Asian investors interested in participating through the EB-5 program, along with other significant Korean investors.
Munger said the 420,000 square foot facility has processed as many as 500 head in a day and has the potential to handle 1,500 head per day. He added that most of the steers and heifers were sourced from feeders in northeastern South Dakota.
Most of the beef was being shipped to metro areas through a couple of different distributors, Munger said. “A lot is going to high end distributors,” he said, adding that the plant doesn’t “cut steaks” but they box and ship cuts like the entire ribeye, loin, etc.
Herried, S.D., cattle producer Bob Thullner is dismayed with the lack of funding and support for the plant, saying it is an economic opportunity for the entire state, especially with the help of some national administrative and legislative fixes like the implementation of country of origin labeling and stronger enforcement of the Grain Inspection and Packers and Stockyards Act. Plus, he added, “You are helping the entire state of South Dakota by supporting its biggest industry – the cattle business. We can help producers and feeders save on trucking and sell cattle that are source-identified.”
The Campbell County producer was frustrated a decade ago, however, with the state’s financing choices, saying that in the early 2000s, he and a group of independent producers had entered into final discussions with the state regarding financing for a smaller packing plant that would have processed about 150 head per day. “It came to the point that an outside investor was going to build a plant in the state and the governor and ag department thought they had something going with them, and just kind of let us drop.”
Thullner is disappointed that then-governor Rounds, while promoting his own dream of a S.D. certified beef label which never materialized, didn’t work with the industry to grow a packing plant supported by local producers. Instead Rounds forged ahead with a project funded by east coast investors.
Former Governor and senate hopeful Mike Rounds has faith that the packing company will make a turnaround, providing marketing opportunities for local producers and feeders. “I don’t think there’s any part of the ag industry that hasn’t gone through tough times,” he said, comparing the beef processing industry to turkey and ethanol.
Regarding the possibility that the plant could get swallowed up by one of the large meat processing companies, Rounds said, “Long-term businesses do change ownership.” The Pierre, S.D., man commented that consumers want to know the origin of their beef and said the plant offers this capability through carcass tracking. Rounds added that while he didn’t recall how much the state had invested in either the plant or the S.D. certified beef project under his governorship, (about $3.4 million according to the S.D. Department of Economic Development) both were “valid concepts.”
Thullner, however worries the plant will be purchased and maybe later operated by a large packing company, adding to the industry’s consolidation challenges. “The biggest question from customers is always ‘can you give us enough supply?’” said Thullner. “We have three packers doing 85 percent of the beef now. Everything is captive supply. I think the legislators have to take a better look at long-term investments and what they really want to happen in rural South Dakota.”
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