story by Kim Souza
ksouza@thecitywire.com
Tyson Foods CEO Donnie Smith told the media during the Aug. 3 earnings call that it planned to stand by its beef division, despite the lack of fed cattle driving beef prices higher and processing margins lower. On Friday, (Aug. 14) the meat giant announced plans to close its last remaining slaughter-only plant located in Denison, Iowa, which will eliminate roughly 400 jobs.
“This was a very difficult decision because it affects the lives of our people, their families and a community that has supported this plant for more than 50 years,” said Steve Stouffer, president of Tyson Fresh Meats. “However, the realities of the beef business have changed and we must continue to change with it to remain successful.
He explained that tight cattle supply in this region along with excess beef production capacity made it difficult to secure cattle.
“We believe the move to cease beef operations at Denison will put the rest of our beef business in a better position for future success,” Stouffer said in the release.
Earlier this year Tyson Food announced a $47 million addition in its Lexington, Neb., plant which was designed to take on the slaughter capacity in the Dennison plant. There were some murmurings at that time about a possible closure of the Dennison plant, which was the flagship for IBP’s entry into beef processing some 55 years ago, according to Steve Kay, publisher of Cattle Buyers Weekly.
Kay said the facility has sentimental value but business is business and given that it’s a slaughter-only facility, fed cattle are trucked into the plant and the carcasses trucked back out to a processing facility which takes added time and costs more money.
Effective today, Tyson said it will permanently cease beef operations at its plant in Denison, Iowa, to better align its overall production capacity with current cattle supplies. The by-product rendering system at the Denison plant will continue operations. It will process by-products from other Tyson locations and will employ approximately 20 people.
The 400 workers affected by the end of beef production at Denison are being given an opportunity to apply for jobs at other Tyson locations. In fact, the company is offering financial incentives to hourly workers who qualify for production openings at the company’s Lexington, beef plant.
Even though they will no longer be on the job, eligible displaced workers will receive 60 days of pay, as required by the Worker Adjustment and Retraining Notification (WARN) Act. The company will invite state workforce officials to the plant so they can tell affected workers what type of unemployment benefits and retraining opportunities are available.
Analysts peppered Smith with questions on the beef segment during the Aug. 3 earnings call. Smith did not mention a single word of this closing at that time. In fact, he said the company felt as if the challenges in its beef segment would be temporary.
Kay said the only surprise to him was that it took Tyson this long to close the plant. A rival beef packer opened in Dennison in November 2014 with a, 1,100 cattle per-day slaughter capacity. Kay said there just aren’t enough cattle to go around for the number of packers in this immediate area, and Tyson expanded its own Lexington plant.
Kay said packers like Tyson Foods are still several quarters away from better operating margins.
“Early this year I forecast that 2015 would be the toughest year beef packers have seen in quite a long time. Fed cattle supplies are expected to remain tight until sometime later next year and margins won’t recover until cattle numbers rise. The annualized 2.5% operating margin Tyson has enjoyed historically may look more like 1% for some time to come,” Kay told The City Wire.