Press "Enter" to skip to content

Experts: Northern Beef Packers Not Viable; Failure Part of the Plan?

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.

Northern Beef Packers SWOT analysis, 2008 business plan
Northern Beef Packers SWOT analysis, 2008 business plan (click to embiggen)

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.


  1. Rick 2013.12.22

    It's my hunch, but I suspect EB-5 hanky panky on Rounds' other grand fiasco, Hyperion.

  2. Jerry 2013.12.22

    I wonder why the Egg Roll had such a hate for the Aberdeen folks that he would bankrupt the county and the city over this malfeasance? So how much did he make on the deal as there can be only one reason to do such a worthless project and that would be personal gain?

  3. Jim 2013.12.22

    Um...who is the Egg Roll?

  4. Mark 2013.12.22

    Wouldn't be interesting to read the entire business plan developed by Agrifoods Solutions International in 2008?

    It appears this company is privately held, came into existence in 2007, has two employees, and has as its principal, a donor to an industry-connected BEEF PAC.

    Obviously, there are a lot of questions about a lot of money and whether the due diligence was what it should have been.

  5. Jerry 2013.12.22

    That would be Mr. EB-5 himself, Rounds. Confucius say "Governor who thinks like head full of cabbage is egg roll". In the case of NBP, this would appear to be the case.

  6. PrairieLady 2013.12.22

    What comes to mind is build it and they will come.

  7. Roger Cornelius 2013.12.22

    I'm inclined to give Rounds/Daugaard just a little room on this, their advisers may have convinced them that this was a solid plan and they went for it, hoping it would work.

    It also appears that the company was under financed and in trouble from the get go, at which time the logical thing to do would be to cut their losses, they didn't do that.

    From the amounts of money skimmed from the top so early in the business, it also appears that someone at the top realized the mistake and decided to profit from the failure.

  8. Charlie Johnson 2013.12.22

    It may not started out as a scam but the latter stages certainly indicate that. Was it all about Koreans and /Chinese getting Visas? Was all about certainly individuals "skimming funds off the top? What is not mention often is the dozens of companies and hundreds of employees now stiffed in bankruptcy. Many of the these companies/individuals are now on the verge of financial ruin themselves. Where is the apology from Rounds and economic leaders in this state?

  9. Jerry 2013.12.22

    I wonder what NOem knows of all of this farce? She was assistant majority leader during all of this time yet her name and the other legislators are not spoken of, why is that?

  10. rollin potter 2013.12.22

    Cory, why does the brilliant minds at the board of regents allow the payment of salary to mr. keller of USD when the best he can say about NBP is that he "thinks" White Oak will have trouble getting a return on there investment?!!!!!
    They have already got that return!!!! The local hillbillie on the street corner could have gave them a better answere than that!!!!

  11. rollin potter 2013.12.22

    Hey Jerry, she will have to ask the person who answered all the questions on her correspondence course so she could a degree from SDSU!!!!!!

  12. Jerry 2013.12.22

    Mr. Potter, I was also thinking about Larry Rhoden and his position at the time of this corrupt business deal. As he was the majority leader at the time and a cattleman, he surely must have known this was going to be a flop, why would he and NOem allow it to go on? They could have put the brakes on in a democracy you would think. Come to think of it, NOem claims that she has some kind of ag savvy as well, interesting that they would not have any idea about how processing works. Ignorant and dumb are not a good combination in the cattle business.

  13. Roger Elgersma 2013.12.22

    When Daugaard agreed to try to get the South Dakota lienholders to lose their position so that a California investment company could get an almost new plant even cheaper, and the leinholders go broke, could be called intent to defraud the lien holders. He is a lawyer so he knows the reason lien holders get priority over investors and he tried to subvert that principle anyways.
    I am also curious how many cattle were slaughtered per day when it was open.

  14. Jerry 2013.12.22

    As a Juris Doctor of law, you would think that ole Denny would have known about lien holders unless he went to school under a correspondence course like others have. I wonder how NOem got her deal? Anyway, maybe Denny just forgot how that law thing is supposed to work or thought it did not apply to him and the egg roll. It is good to be the king.

  15. rollin potter 2013.12.22

    When john morrell closed there beef facilities in sioux falls with the stock yards across the street from them and south dakota pumping money into them to stay i would think any bimbo would know they could not start a new plant a few miles down the road from them!!!!!

  16. Sid 2013.12.22

    Bankruptcy is the best way to keep investors from looking for their money. Especially when they have invested in an entity which used their money to make a bad loan. Do not think Ponzi, think Mel Brooks' "The Producers" and it all fits.

  17. Jana 2013.12.22

    South Dakota Certified Beef was nothing more than eye candy for Rounds.

    Northern Beef was just a political pawn in the tragic game that drug people into the SDCB game.

  18. Rorschach 2013.12.22

    I hope these Chinese and Korean investors get answers in their lawsuit to how all of the shells were set up to defraud them and skim the money "off the top". Somebody ended up with that $152 million (minus the $40 million +/- the purchasing group has into it). It sure wasn't the production employees, nor the EB-5 investors, nor some of the contractors. Somebody made a boatload of money in this shell game. Joop will probably never have to work again, but if he does, then pay attention who he goes to work for.

  19. interested party 2013.12.22

    Brendan Johnson: call your solar system.

  20. Jerry 2013.12.22

    When I hear supposed smart people say that this fiasco "could work", it is sad. I wonder what ranchers are saying about this rip-off? Denny and the egg roll seem to be untouched by this, are ranchers that far out of the loop that they think this deal was in their interests? This dog was never intended to hunt, it was just all bark.

  21. David Newquist 2013.12.22

    A good example of what we old news dogs called vulture journalism The scavengers claw around for tidbits on which to feast. Where were they during the time the plant was planned for Huron to join the turkey processing plant in utilizing the town's waste water treatment facilities, or when it scammed a number of people and organizations out of money in Flandreau, or during the many setbacks it experienced in Aberdeen? Now what passes for wisdom and authoritative knowledge is out there in abundance. Except that it ignores what beef producers understood. The beef packing industry has consolidated to the point that four companies control 85 percent of the market. Producers understood that a new packer would have to compete in that market, and that meant serving an emerging market that ate less beef but of healthier quality. []

    The folks sought out and cited by Ellis are all devotees of the MBA theory of beef production, which is perfectly happy with the Big Four monopoly and the industrial, anti-biotic and hormone fed beef its factories are set up to process. Buy cheap, keep processing costs down, tickle the investors greedy bone, and everybody is happy. Except knowledgeable consumers.

    Nobody said that NBP was not a risky venture. Its demise was brought about by people who posed as entrepreneurs and diddled around with finances, and the plans for getting beef from regional producers to the tables of quality-seeking consumers got lost under the financing schemes. No one was out there building the market and distribution system that NBP needed.

    Of course, the plan was a bad idea according to the conventional status quo of the current beef industry, which needs the kind of lesson that the Japanese taught American auto-makers in making cars that are safer, more fuel efficient, and more reliable. There was little news coverage of NBP, especially the strange and secretive involvement of government agencies, state and local, or the assurances by the economic development that this was a great value-added plan for the state and Brown County,

    The real story here is not about beef production; it's about the financial finagle that was so disastrous to so many people in so many ways.

  22. Roger Cornelius 2013.12.22

    One of the many components of this conspiracy are the number of people involved in it.

    Is their Republican arrogance so powerful that they felt it could not be discovered?

  23. toclayco 2013.12.23

    When you have an Attorney-General more concerned with sweeping the misdeeds of his fellow party members under the rug than actually conducting legitimate investigations of serious misconduct, this is what you get.
    South Dakotans, by and large, are happy to have bad news just go away, with any flimsy excuse for dismissal sufficient to their needs. It's why we are so comfortable with a one-party state and fundamentalist religion. No tough choices to make. And we can continue to embrace the myth that we are the last state with any virtue (hear that North Dakota? Get a life!)

  24. John Tsitrian 2013.12.23

    Mr. Newquist, FWIW, here's what I wrote about SD Certified Beef in a 2006 column that appeared in the Rapid City Journal. Some of us were indeed questioning the viability of that particular program. Note my use of the word "overhype": "I do believe that Rounds is overstating - or maybe I should say overhyping - the success of the South Dakota Certified Beef program, which has been a disappointment from my vantage point, given that a mere 90 producers have signed up for it so far.

    Last week, I called both Albertson's and the west-side Safeway to find out about its availability, and the managers at both meat departments knew nothing about it nor knew of any plans for stocking it. A follow-up call to the South Dakota Stockgrowers Association office in Rapid City got no results, either, with a nice lady there asking me to call her back if I found some for sale around here.

    It's probably too early to call the program a dud, but so far, I'd say it hasn't lived up to its publicity and hype. Of the producer number, Rounds notes that there are "more coming on line all the time" but fails to tell us how many more and at what rate."

  25. Loren 2013.12.23

    David Newquist, you must have an MBA. That was an excellent explanation of of just about any business in the U.S. these days.

  26. Lanny V Stricherz 2013.12.23

    David Newquist, You wrote, "Nobody said that NBP was not a risky venture. Its demise was brought about by people who posed as entrepreneurs and diddled around with finances, and the plans for getting beef from regional producers to the tables of quality-seeking consumers got lost under the financing schemes. No one was out there building the market and distribution system that NBP needed.'

    And that is exactly why the State of South Dakota, under the guise of the Governor's office should not be involved in economic development. It just blows me away that the same folks, who constantly bitch about the government doing for the folks who might need some help from the government, will turn around and think it is okay for the government to do for business.

    The first poster on this issue, Rick, had it exactly right, "It's my hunch, but I suspect EB-5 hanky panky on Rounds' other grand fiasco, Hyperion." Yes and on many other issues, such as the two coal burners at Selby and Big Stone, the failed DM&E plan, the ten CAFO dairy farms run by Europeans, two of which went bankrupt, and which employed illegal immigrants.

    And to make matters worse, neither of the Governors or their same party legislatures would lift one finger to help in the one sure fire economic development source that our neighbors were/are taking advantage of, windpower. At the same time that the US Senator of their same party, Thune, could see the advantages of windpower potential, by initiating measures to guarantee extension of time for the TIF financing of the industry, these governors and and their administrations ignored it and continued to pursue coal.

  27. Roger Elgersma 2013.12.23

    Everyone thinks theirs is best. In Texas grocery stores they advertise that they have grass fed beef. That was a shock to a Midwesterner who thought that corn fed beef was best.
    South Dakota was historically a cow calf rancher type of beef industry who shipped the calves out. The feed lots are where the supply of cattle come from for a packing plant. But now the last years the corn crop has increased significantly in South Dakota. We could do feed lots here better than we did before. That is a long route to supply the packing plant but worth investigating. Filling the consumers demand is still more important that filling our perception of it. If I lived in New York, would I care which state the beef came from. Quality yes, origin not much difference.

  28. interested party 2013.12.23

    "Taxing meat as an attempt to discourage consumers to buy it could be an effective way to reduce methane emissions from livestock, according to a new study."

  29. Nick Nemec 2013.12.23

    Roger has a point on origin verses quality. Consumers want quality, origin is merely a curiosity. Thia applies to the vast majority of products.

  30. Les 2013.12.23

    Interesting comments, but this comment has been foremost in my mind since the auction.
    From Rollin Potter """"Cory, why does the brilliant minds at the board of regents allow the payment of salary to mr. keller of USD when the best he can say about NBP is that he "thinks" White Oak will have trouble getting a return on there investment?!!!!!
    They have already got that return!!!! The local hillbillie on the street corner could have gave them a better answere than that!!!!"""""
    White Oak appears to have gotten NBP for the Green Bay Packers opening bid after deducting the money that went offshore. So one creditor gets to deduct their capital even if it appears fraudulent and the other 110Mil capital from other creditors goes away as in bankruptcy. Sorry folks, nothin to see here, from your local hillbilly on the street corner. Brrr it's cold outside, Santa..speaking of Santa, his sled is darn sure lighter after offloading the White Oak gift of the year.

  31. Paco 2013.12.23

    I once had a great Literature Professor named Newquist. Northern State may have been a College at the time. Anyway my friends(workers in the hot side of production) say NBP processed over 300 head a day for a short while.

  32. Jim 2013.12.23

    300 per day. I heard that too, and that it didn't go very well. Either poor techniques and/or training resulted in excess waste. Did anything go right with this place?

  33. caheidelberger Post author | 2013.12.24

    One source has contended that if NBP had built just enough plant to process 300 head a day, it would have had the cash flow to sustain itself and expand capacity over time.

    By overbuilding from the start, it seems the only thing that went right was $152 million right into somebody's pockets.

Comments are closed.