Aberdeen beef plant may make a go of it

Farm Forum

What the next step is for an idled beef plant on the south side of Aberdeen remains unclear, but the finalization of the bankruptcy sale of the former Northern Beef Packers to White Oak Financial Advisors has settled two matters.

• One is the plant has a different name, New Angus.

• The other is that it has paid more than a million dollars in delinquent property taxes to Brown County.

The back taxes were paid last week after the sale closed, said Duane Sutton, chairman of the Brown County Commission.

Sheila Enderson, county treasurer, said San Francisco-based White Oak paid $1,090,859 to cover the last half of 2012 property taxes that were due last fall. That total includes interest, she said. With that money, Enderson and Sutton said, the county will make payments to tax increment finance bondholders that were due in December.

At the onset of the Northern Beef Packers project, Brown County voters approved a tax increment finance district to help fund construction of the plant. With a TIF, a portion of the property taxes generated by new development is used to pay for certain improvements on that property for a period up to 20 years.

The county has not been and will never be liable to make TIF payments to bondholders, Sutton said. That money has to come from extra money collected as a result of the TIF.

Sutton said that, based on the county’s interactions with White Oak officials, he expects New Angus will eventually be a beef processing plant. But White Oak officials haven’t offered many details, he said.

Aberdeen Mayor Mike Levsen echoed those comments. City officials have the impression the plant will process cattle, he said, but it probably doesn’t serve White Oak’s interest to divulge its plans right now.

The name New Angus certainly implies a type of cattle business. And a press release issued on White Oak’s behalf by the Sioux Falls ad agency Fresh Produce says White Oak is evaluating strategic options and “remains confident in the facility’s future as an operating plant.”

What type of plant, though, is not specified in the release, which has left some onlookers curious. For now, White Oak officials aren’t offering further comment.

A security worker answering a phone call to the plant on April 4 did so by using “New Angus,” then transferred the call to a worker who deferred comment to the new owners.

Debating the issue

While local officials believe, based on conversations with White Oak representatives, that the plant will eventually open and process cattle, some involved in the industry aren’t as sure.

John Nalivka, owner of Oregon-based Sterling Marketing, an agricultural economic research firm, says he tends to be cynical about the plant’s future.

“Maybe they’ve got a plan, and they just don’t want to tell anybody,” he said.

Some folks in the ag industry see packing plants as a pot of gold at the end of a rainbow, he said. With high volume, the plants can generate a lot of revenue. But a new plant has high fixed costs that involve paying for the plant — including making sure it is built to be in compliance with air, water and food safety regulatory standards — and high variable costs with cattle prices being at record levels. And, Nalivka said, that can make it hard to compete with established packers who can increase the price they offer for cattle.

Beyond that, he said, the nation’s cattle herd is at its lowest level since the early 1950s.

“We have less than 88 million head of cattle in the country today, and we probably have somewhere in the neighborhood of 15 percent excess packing capacity,” Nalivka said.

Todd Wilkinson, vice president of the South Dakota Cattlemen’s Association, said the number of cattle in the Dakotas is holding strong. Wilkinson, of De Smet, is co-owner of Redstone Feeders, an 8,000-head feedlot.

“The cow-calf sector is looking for some really good years in the next four, five years,” he said.

He said he’s optimistic New Angus will get up and running as a slaughtering plant. It’s a state-of-the-art facility, and that seems the most logical use for it, he said.

The owners of the plant are, apparently, reaching out to cattle feeders and gauging their interest in taking cattle to the plant, Wilkinson said. He said he’d certainly be interested in hauling his cattle to the New Angus.

Steve Kay, editor of Cattle Buyers Weekly, just doesn’t see how that will ever be an option. If cow-calf operators thought raising and fattening calves and sending them to a packing plant in Aberdeen was a good idea, they would be expanding their herds, not reducing them. But even in South Dakota, he said, the number of beef cattle is decreasing. At the start of the year, it was at 1.635 million, he said, citing U.S. Department of Agriculture statistics.

“Those numbers are actually down 53,000 from the year before,” he said.

He and Nalivka agree that herd numbers have been hindered by drought conditions across the county in recent years. And a recession in 2008-09 hurt, too, Nalivka said. Some producers liquidated their herds in those years.

“The buyback today is significantly higher,” he said. “It’ll cost you twice as much today to buy back in as when you sold them in 2008.”

To Kay, the plant is simply in the wrong place and was built at the wrong time.

“Three of the four major packers have a presence just to the south in Nebraska,” said Kay, pointing out there are two more regional packers in Omaha. “The plant has no near-term future. It’s not going to operate successfully as a cattle slaughter plant. The new owners’ only logical step is to mothball the plant and eventually try and find another use for it.”

Perhaps, he said, it could operate as a small, specialty operation. But that would require finding a market. And he doesn’t think there’s a particular demand for, say, South Dakota-branded beef.

And running a plant at a fraction of its capacity is no way to make a profit, Nalivka said.

Plans called for Northern Beef to slaughter 1,500 head of cattle a day. If that is a plant’s capacity, it would have to process 1,300 to 1,400 head a day to have a chance at being profitable, Nalivka said.

Dennis Hellwig of Aberdeen, whose family owns Hub City Livestock Auction, was the original general partner of Northern Beef Packers in the early going before a second management group took over. He said he knows the sale of the plant to White Oak is finalized, but declined further comment.

Kevin Larson, co-owner of Aberdeen Livestock Sales, just can’t see New Angus opening. Like Kay and Nalivka, he cites lower cattle numbers. He said packers he’s visited with are talking about closing existing plants, not opening new ones.

“It should have been built 20 years ago (when fat cattle numbers were high),” Larson said.

Larson concedes that his belief that the plant would never slaughter cattle was wrong. Northern Beef was open for several months beginning in September 2012, but never got anywhere near full capacity. But, he said, that was more akin to a test run than proof that the plant can work. Plus, he’s heard concerns about how the plant was built.

Northern Beef’s plans for a successful packing plant certainly weren’t the only ones to have failed, Nalivka said. It’s just the latest in a long line. White Oak/New Angus could have deep pockets, staying power and a solid business plan. Those would be helpful steps, but Nalivka’s still not convinced.

Perhaps, Kay said, if beef herd numbers turned around in the next few years, the plant would have a glimmer of hope. But, he said, it’s tough to be successful in the beef processing business. Instead, he said, it’s a lot easier to turn $10 million into $1 million, a lesson some folks involved with bankrupt Northern Beef have already learned.

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• Since Northern Beef Packers closed, laid off the bulk of its workers and declared bankruptcy last summer, a skeleton crew has provided maintenance and security.

• White Oak offered the top bid for the plant at a Dec. 5 bankruptcy auction in Sioux Falls. It totaled $44.35 million, which included $39.5 million in credit and $4.85 million in cash. White Oak lent Northern Beef $35 million in fall 2012, the basis for its credit bid.

• During bankruptcy proceedings, White Oak created New Angus, a company established to oversee and operate the plant. According to documents filed in the case, White Oak transferred a $66.45 million claim against Northern Beef Packers to New Angus. In other words, New Angus has been substituted for White Oak in the case and now holds the claim in the event there are further proceedings.

• As of Friday afternoon, neither White Oak nor New Angus had filed any paperwork with the state corporate database maintained by the secretary of state’s office.