STE. ROSE DU LAC, Man. – Members of Rancher’s Choice Beef Co-op Ltd. have decided to move ahead with their $11-$12 million plans to buy a hog processing plant in Winnipeg and convert it into a slaughter facility for cull cattle.
During a meeting in Ste. Rose du Lac on Feb. 5, co-op members were told that cattle producers will need to come up with $3.5 million to buy the Best Brands plant. They want to do that by the end of March.
Rancher’s Choice president David Reykdal emphasized the need to get the project going as early as possible because there is still no sign that Canadian live cattle exports to the United States will resume soon. With limited beef packing capacity in Manitoba, producers are worried about the market prospects for their culls.
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“We have to get going today,” Reykdal said. “We can’t wait two years.”
Producers were told that if they commit $3.5 million, the province will put in $2.5 million. The rest would be borrowed.
The co-op plans to raise the producers’ share by selling 35,000 shares. Each $100 share would assure farmers the right to deliver one cull cow or bull to the plant annually.
Some producers wondered whether it would be wiser to build a new facility equipped to also slaughter finished cattle rather than buying the Best Brands plant. That sentiment arose after they learned the Best Brands plant was appraised at no more than $2.2 million but the owner is asking for $6 million.
“If we have to put up $6 million for a plant, build new,” suggested Dave Andres, a producer from Ethelbert, Man.
Reykdal said it would likely take at least two years to build a new plant and could cost double what it would take to convert the Best Brands plant. He also noted that competitors in other provinces wanting to build slaughter facilities for cull cattle could gain an edge if the Manitoba project is delayed.
“I think we have to take this one step at a time,” he said. “Let’s get over this hurdle first.”
Producers also wanted assurances that reliable markets exist for the boneless beef that the co-op would produce.
Reykdal said potential markets exist in southern Ontario, where boneless beef is sold to food processors at a wholesale price of $1 per pound.
The meat is then further processed into products such as hamburger. Although Rey-kdal said buyers are interested in the meat Rancher’s Choice would produce, they won’t commit to purchase agreements until the plant is operational.
Al Handford, a consultant with the pro-vince’s industry, economic development and mines department, estimated the plant’s potential income to be close to $1.8 million a year before depreciation and interest, assuming it would buy cull cows for 20 cents a pound and sell boneless beef for $1 a lb. and hides for $45 each.
However, he acknowledged the packing industry is highly competitive, and a five cent per lb. change in the cost to buy cull cattle could have a big effect on profitability.
“It doesn’t take much to change the bottom line in a hurry.”
As a co-op, it would be able to pay dividends to members in profitable years.
The co-op is tentatively considering providing members with class A shares, which would giving them voting rights, while the province would have class B shares, with no vote or direct say in the plant’s operations.
Ed Van Hulle, a cattle producer from Woodlands, Man., was the first to buy shares after producers at the Ste. Rose meeting decided to pursue buying the Best Brands plant. Van Hulle, who wrote a $1,000 cheque, seemed confident the venture would go ahead.
“I’m sure they’ll raise $1 million today and the rest will dribble in,” he said.
Reykdal said the province’s $2.5 million investment would be neither a gift nor a grant, but an equity position in the venture. He also said there would be potential for the co-op to gradually buy that equity back in the future.
