Meat + Poultry - April 2009 - 28

CUTTING BACK

red in early February when boxed beef
prices fell, even though packers bought
cattle cheaper.

Packers are already implementing several ways to improve their margins
without relying on the price spread
between live cattle and boxed beef.
Many are considering running only
ﬁve days per week and not operating at all on Saturdays, except occasionally this spring and summer. Reduced kills though can be difﬁcult to
achieve. Packers face labor-contract
issues involving guaranteed hours to
workers. They might have to short
regular customers. In particular, reductions increase overheads on a perhead basis.
Weak demand at home and abroad
have already forced beef packers to run
reduced hours. Cattle slaughter from
January 1 to March 10 (46 days) was
down 1.9 percent from the same period last year, with fed steer and heifer
slaughter down about 4 percent. Yet
it did little to stabilize wholesale fed
beef prices so deeper production cuts
appeared necessary before spring demand began to kick in. Hog slaughter
was down 1.5 percent, which analysts
said was not enough to boost wholesale pork prices.
In addition, beef and pork processors will have to deal with smaller
numbers for the next several years.
The national cattle herd might shrink
in 2009 by another 1.5 million head,
after declining 1.544 million in 2008.
Canadian cattle numbers are declining
as well, and mandatory country-of-origin labeling has made it more difﬁcult
to import Canadian and Mexican cattle
and Canadian hogs into the U.S.
Imports in the ﬁrst two months of
the year were down dramatically. Cattle
imports were down 37.5 percent while
hog imports were down 48 percent.
Feeder cattle imports to February 28
totaled 64,017 head, versus 122,129
head for the year earlier period, according to USDA data. Steer and heifer slaughter imports totaled 99,299
28

MEAT&POULTRY

April 2009

Photo courtesy of Cargill Meat Solutions

Ways to improve margins

"Weak demand at home and abroad have already
forced beef packers to run reduced hours."
head versus 163,631 head. Slaughter
cow imports totaled 31,540 head versus 26,166 head. Both feeder pig and
slaughter barrow and gilt imports declined sharply. Feeder pig imports totaled 835,559 head versus 1,371,580
head. Barrow and gilt imports totaled
109,010 head versus 538,347 head.
All this might force a plant closure
or two. The cattle and hogs won't be
available in North America to sustain
the amount of capacity the industry
still has, say analysts. Packers will have
to cut ﬁ xed costs as much as possible. They will have to return to running "bare bones" operations without
compromising food safety and product quality. JBS showed after it bought
Swift & Company in July 2007 that it
is possible to save a lot of money. It
reduced cattle processing costs from
$212 to $168 per head in the ﬁ rst
year alone. But such cost cutting often means the elimination of salaried
staff and has an effect on suppliers to
the industry, say observers.
Packers will also need to ﬁnd new
ways to improve meat yields and not
give anything away. For example, one
packer with a very large ground-beef
operation has started using a European
fat-detector machine. It measures the

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fat content of ground beef so accurately that, after being stalled, it saved the
packer $75,000 a day at one plant. The
plant was giving away too much lean
(meat) in its grind. The machine paid
for itself in less than two weeks.
Packers are also looking at ways to
reduce their exposure to commodity
market ﬂuctuations. They are starting
to employ computerized-pricing systems that do everything from calculating how to price meat at the start
of the week to helping determine at
what level to run plants.
Beef packers are also considering
more supply programs with cattle feeders to gain a more consistent ﬂow of
cattle and to improve the overall quality of their raw material. A key element
of National Beef Packing's success is its
relationship with majority owner U.S.
Premium Beef, whose members provided National with 19 percent of its
cattle in ﬁscal 2008. National has other
key suppliers who provide high-quality cattle. Just 25 suppliers, excluding
USPB members, supplied 42 percent
of all its cattle in 2008.

Future concerns
Given the somewhat bleak outlook
for the next 12 months, concerns

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Meat + Poultry - April 2009

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