Jonathan Ellis dedicates a few inches of this morning's Sioux Falls paper to telling us that the business plan for Northern Beef Packers never made sense and never will. Mike Keller, dean of the USD business school, thinks bankruptcy auction winner White Oak Global Advisors will have trouble getting a return on its investment:
“They’ve got a real problem now,” said Mike Keller, the dean of the Beacom School of Business at the University of South Dakota. “If they can’t find a buyer who is willing to start it up and run it, then you’ve got to think that it was a bad idea from the get-go” [Jonathan Ellis, "Aberdeen Beef Plant Defies Trend, Maybe Wisdom," that Sioux Falls paper, 2013.12.22].
Other experts assess NBP more harshly:
Steve Kay, publisher of the industry newsletter Cattle Buyers Weekly, said the new plant, which opened last year, didn’t make sense given trends in the beef market.
“The plant should never have been built,” Kay said. “Even five years ago, it was obvious the U.S. national cattle herd was declining and that numbers in South Dakota were not increasing” [Ellis, 2012.12.22].
Cattle market analyst Kevin Good says NBP's business plan never made sense, especially not now, when cattle numbers are the lowest they've been since 1952:
That means the U.S. has more slaughter capacity than it needs.
“We could very well see another big packing plant close its doors,” Good said.
Backers of the Northern Beef plant were “flying in the face” of those realities, Good said [Ellis, 2012.12.22].
Local officials continue to talk up the plant, but Kay says White Oak's new purchase doesn't stand a chance as a beef plant.
“I would tell (White Oak) to find some extraordinarily novel way to turn it into a cinema complex, because it doesn’t have a future as a beef processor,” Kay said.
Contrary to reports that the $115 million facility is ready for full production, Kay said the plant still needs millions of dollars of equipment, including upgrades to its refrigerator units and improvements to its wastewater treatment system [Ellis, 2012.12.22].
Kay also adds fuel to suspicions that NBP could have been a scheme to make a lot of money disappear into something other than beef production:
“I find it inconceivable that they ended up spending more than $100 million for a 1,500-a-day plant,” he said. “It was just a ghastly overrun of costs” [Ellis, 2012.12.22].
Correction, Mr. Kay: Northern Beef Packers made $152 million disappear into a now-defunct beef-packing plant.
A confidential business plan produced by Agrifoods Solutions International for Northern Beef Packers in 2008 looked at those risks and other wekaness and concluded, in all caps, "CLEARLY, NORTHERN BEEF PACKERS IS POISED FOR SUCCESS!" That 2008 business plan cites a "technologically advanced, mid-sized, regional packing plant in Kansas" built in 2002 as a model. But that plant, now the Creekstone Farms Premium Beef plant in Arkansas City, went bankrupt after less than a year in operation and was sold for a fraction of its $94 million start-up cost.
One would think that if the Rounds Administration had been listening to any of these experts, they never would have thrown millions of dollars from the state and many millions more from foreign EB-5 visa investors into such an unwise business plan. But maybe that was the plan all along.