Introduction of the Butcher Block Act in the U.S. House of Representatives last week pleased the National Cattlemen’s Beef Association (NCBA). The bipartisan legislation would establish a stand-alone loan program through the Department of Agriculture to help processors expand capacity, improve marketing options for cattle producers and encourage competitive markets and pricing for live cattle.
“When there’s not enough capacity to process the current supply of live cattle, our producers lose leverage in the market. Expanding capacity is an essential component of the multifaceted effort to increase the opportunities for profitability for cattle producers, and we’ve been hearing for months that the two biggest obstacles standing in the way of that are lack of capital and lack of labor,” said NCBA President Jerry Bohn. “The Butcher Block Act addresses both of those hurdles, and would go a long way to alleviating the bottleneck that is depressing live cattle prices for our farmers and ranchers.”
NCBA notes the supply of live cattle and the demand for U.S. beef are both strong, but a lack of processing capacity or “hook space” has stifled producer profitability and created unsustainable market dynamics. The urgency of this need for more hook space has been underscored by recent “black swan” market events, like the COVID-19 pandemic and the 2019 fire at a Tyson Foods plant in Holcomb, Kansas.
A recent study by Rabobank found that under the current dynamics of supply and demand, the industry could economically accommodate an additional 5,700 hooks per day of processing capacity, or processing roughly 1.5 million additional head per year. However, access to capital is a major barrier. The average start-up cost for a beef processing facility is roughly $100,000 per hook, which means that someone trying to open a modest 25-hear-per-day facility has to secure $2.5 million in financing.