A marriage between a producers’ co-operative and a large-scale beef processor is poised to overturn the way beef is produced and sold in the United States.
The co-operative, U.S. Premium Beef, has signed an agreement to buy 50 percent of Farmland National Beef Packing Co. based in Kansas City, Missouri.
With packing plants in Dodge City and Liberal, Kansas, Farmland National is the fourth largest beef processor in the U.S. It kills eight percent of the U.S. fed cattle.
“We think we can enhance their ability to market branded product and value-added products by bringing better quality beef to their plant,” said Bill Miller, beef marketing officer for U.S. Premium Beef.
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The co-operative includes players from 11 states, although membership numbers are confidential.
With the deal, the U.S. Premium Beef program is on the edge of becoming the first widespread packing program to offer quality incentives. Producers promise to deliver cattle according to the number of shares they bought in the co-operative last year. In return they will be paid on a grid system that rewards better quality beef.
Premium for quality
For instance, blemish free hides and higher grading beef will be rewarded.
“Producers recognize the industry is changing and we all need to change with it and figure out what we can do to improve the quality of beef. This is a system that will pay you to do that,” said Miller.
The co-operative has set up a plan that offers individual carcass identification and direct feedback to producers on carcass merit at no additional charge to members.
The partnership is the first large-scale beef processing operation owned by producers. Farmland Industries is owned by livestock producers directly, some smaller producer co-operatives and the remaining 50 percent by U.S. Premium Beef.
Shares for sale
Money to buy the partnership is being raised by an offering of 1.2 million shares at $55 each to U.S. Premium Beef members. A minimum of 100 shares must be purchased by the Oct. 31 closing date.
Once the deal is settled, U.S. Premium Beef will move its offices to Kansas City from Manhattan, Kansas.
National Farmland’s brand names and the retail customer data base are included in the deal.
Shareholders will receive a patronage payment once a year based on 50 percent of the profits from Farmland National Beef. They should also receive higher paycheques for delivering better quality livestock.
With four years of record profits from Farmland, the beef co-operative feels it can go up against major packers like IBP or Excel Beef owned by Cargill Inc.
The co-operative has held off on recommending certain feedyards that offer specific feeding and health care regimens.
“In time we will have a set of recommended production guidelines that we want our members to follow, but if it doesn’t make economic sense for them to do that, they won’t,” said Miller.
U.S. Premium Beef formed July 1, 1996 with producer membership representing 850,000 head of cattle.
Farmland National Beef Packing processes and sells fresh beef, boxed beef and byproducts. It sells beef under established labels that includes Farmland Black Angus Beef.
