February 19, 2004
US 3rd Largest Beef Producer Swift Loses Sales to Tyson and Cargill
Swift & Co., the third largest beef producer in the United States, is losing $1.4 million a week in export sales to Mexico, which is instead purchasing from plants in Canada owned by Tyson Foods Inc. and Cargill Inc.
Swift was forced to halt 1 million pounds a week of shipments to buyers in Mexico, including after the discovery of mad cow disease in the United States.
Mexico was one of more than 40 nations to ban U.S. beef after a case of mad cow disease was discovered in Washington state in December.
"We need the borders to open up as quick as we can to get the industry back on its feet," said plant manager Dennis Sydow, who has cut back hours for 2,500 workers.
"Export markets are critical to us as a company and as a plant."
U.S. wholesale beef prices, which have dropped 15 percent since the Washington case of mad cow, may start falling further because of a domestic oversupply of cattle unless export markets open soon, John Simons, chief executive of Greeley, Colorado-based Swift, said in a telephone interview.
"It's too early to tell what's happening with beef but it doesn't look good" for U.S. exports, Simons said. "I don't care what order the markets open, so long as they open."
The Mexican ban hurt the town of Cactus, where the Swift slaughterhouse is the largest employer.
Swift cut back hours at the Cactus plant in October after the U.S. eased a ban on Canadian beef imports, which increased supplies and sent prices plunging. The U.S. had banned the meat after a lone case of mad cow was found in Canada last May.
Sales plunged further after the U.S. announced its own case of mad cow, which led to a ban by Mexico, the plant's biggest customer at 25 percent of sales. Before the ban, Mexico was the second-largest importer of U.S. beef behind Japan. The Cactus plant now runs four days a week instead of the normal six, reducing output by as much as 45 percent, Sydow said.
"I've never seen it like this in the industry," the 51-year- old Sydow said. "It's pretty dim out there."
Alberta slaughterhouses owned by Tyson's IBP unit and Cargill's Excel unit have "an unfair economic advantage" because they can buy cheap cattle in Canada that U.S. plants are barred from using, Sydow said.
The U.S. banned imports of live animals after Canada's mad cow case last year, leaving a glut that sent cattle prices in Canada to 35 cents to 40 cents a pound.
Cattle for April delivery in the U.S. fetched 72.825 cents a pound yesterday on the Chicago Board of Trade.
The Canadian beef now passes through Cactus in refrigerated trucks headed for Mexico.
To be sure, U.S. plants owned by Springdale, Arkansas-based Tyson and Wayzata, Minnesota-based Cargill, the nation's largest beef producers, have been hurt by the export bans. Tyson said last month its beef business had a loss in the fiscal quarter ended Dec. 27, including $61 million of pretax expenses related to mad cow disease.
Cargill's Canadian unit is operating its beef processing plant at High River, Alberta, at about 80 percent capacity, spokesman Rob Meijer said. The plant is able to slaughter about 4,000 head of cattle a day.
Some of that product is going to Mexico, which is allowing shipments of boneless beef from younger cattle from Canada, while maintaining a prohibition against the same cuts from the U.S.
"With the changes implemented under boneless beef, we've been able to get product into Mexico," Meijer said.
He declined to say what percentage of the plant's production is exported to Mexico. About 60 percent of total production heads for markets outside of Canada, he said.
In Cactus, slumping sales at the Swift plant have created "a lot of collateral damage" in the community, said Richard Schilling, owner of the Rocking T truck lines. He has laid off 17 of his 62 employees, including six drivers.
Schilling's drivers had made 10 trips a week hauling beef to the border, earning the company $2,000 a load. "That's really cut down on our revenue."
Union workers at the plant have had their hours cut to 32 hours a week from 40. The job pays $12 an hour on average, or about $28,000 a year. Carlos Ortega said he is happy to have his job at Swift.
"As bad as it is, hopefully this is as bad as it gets," Ortega said.