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327469

Producers boost profits and avoid meatpackers with integrated livestock processing

Daryl Lies is a firm believer that if you’re going to complain about something, you better be prepared to find a solution to fix what’s bugging you. For years, the North Dakota producer marketed his livestock through traditional channels. Concerned that more than 80% of fed cattle are processed by four major packing companies, Lies wanted to find a way to become more integrated into a system that would let him avoid relying on an outside packer for a fair price.

“The last several years have been very difficult for our members in terms of profitability,” says Tanner Beymer, director of government affairs and market regulatory policy at National Cattlemen’s Beef Association. “A host of factors are contributing to that. Throughout the COVID-19 pandemic, when prices were depressed because of processing capacity, we started to have a lot of conversations about price discovery and market transparency.”

The past several decades, for the most part, have seen an excess of operational processing capacity. “Basically, there’s been more hooks to process cattle than there have been cattle to fill them,” Beymer says.

That began to shift around 2016, with about an even supply of hooks and cattle, according to “The Case for Capacity” report released by RaboResearch in September 2020. “The following year, there was a shortage of processing capacity, and we are still there today,” Beymer says, adding that the report notes the industry could accommodate another 5,000 to 6,000 hooks of daily processing capacity.

“While that may not sound like much, over the course of a year, it’s in the ballpark of 125 million to 150 million head of fed cattle,” he says. “When hooks are scarcer than cattle, it tends to depress prices and has a direct impact on a producer’s ability to have good leverage in some pricing negotiations.”

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In the last year, Daryl Lies has noticed customers prefer to buy specific cuts of meat rather than a half or whole cow.

Departing from Tradition

As the shift in capacity occurred, Lies started studying the processing business, looking for opportunities that would offer more control to the producer.

“I talked with around 20 producers to see if we could find some common interest and direction for creating a reliable source for processing our livestock while providing a consistent, uniform product to sell to consumers,” says Lies, who operates Full Flavor Farms with wife Kim and his daughter and son-in-law, Samantha and Skylar Rebel.

Several options were discussed. Should they build a new facility? If they build new, should they bring in more investors to spread the risk? Should they invest in an established business? Could they purchase an existing facility that would meet their needs?

“For what it cost to build new, it didn’t make sense to go that route. I was also concerned that if we brought in too many investors, the more ways from center we would get pulled with different ideas,” says Lies, who also serves as president of the North Dakota Farm Bureau. “We also looked at one or two businesses where we could make an investment, but we couldn’t agree on terms.”

While the best route seemed to be buying an existing facility, there weren’t any for sale at the time. Then in October 2020, the option to purchase a small-scale processing facility in New Salem, North Dakota, presented itself. Lies, along with five other North Dakota producers with similar goals, purchased Prairie West Meats for $400,000. The new owners changed the name to 6-in-1 Meats and became a federally inspected facility that processes beef and other species such as hogs and sheep.

“The facility itself was in really good shape, but there were a few things I wanted to upgrade on the slaughter floor,” says Spencer Wirt, manager at 6-in-1 Meats. A grant through the CARES Act has funded about 50% of the improvements made so far.

In addition to thinking about facility and equipment capacity, the new owners had to find the labor required to get a business like this off the ground. Wirt, who is a master meat cutter and has extensive knowledge of meat science, manages the team of two full-time and four part-time employees.

“If you ask any owner or manager of a small meat processing facility what their biggest challenge is, it’s not just finding labor but finding skilled labor,” Wirt says. “Many people think they know how to be a meat processor, but when it comes down to it, there is a lot more to it than people realize. It’s more than just picking up a knife and cutting a piece of meat. It’s a different skill set.”

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(left to right) Daryl Lies, Kim Lies, Skylar Rebel, Samantha Rebel, Stella Rebel, and Amber Lies.

Slow, Methodical Growth

About 50% of the business is providing slaughtering and processing services to the local community and surrounding area; the other half is dedicated to the 6-in-1 Meats owners’ animals.

“During the pandemic, it became very difficult to find open slots for your animals,” Wirt says. “Each of the producers is also trying to grow his own retail business. Some are just starting while others are a little further along. As an owner in this facility, it allows him to have a consistent source for harvesting, processing, and packaging his meat supply.”

Based on comfort level and expected market, each producer has a different level of ownership in the business. Their approach, Lies says, is slow and methodical.

“If you get ahead of your skis, you end up in a snowbank,” he says. “Providing a needed service to the community also allows us the chance to grow slowly.”

A facility like this is probably the simplest version of meat processing because payment depends on how much carcass weight can be processed, Wirt adds. “In order to cash flow, there is a certain amount of carcass we need to get through on a weekly basis,” he says.

Since launching in January 2021, 6-in-1 Meats has moved to processing about 12 head of cattle a week, a number that allows the operation to meet that goal. The owners also realize that on a per-pound basis, small-scale production can’t be done at the same competitive price level as a large-scale facility.

“There is a threshold of what people can pay,” Lies says. “We’re not the highest priced product, but we’re also not the cheapest product out there.”

The opportunity has enabled Lies to capture about 20% to 30% more dollars per head, and it allowed him to make room for his daughter and son-in-law to return to the farm.

Ultimately, it’s about differentiating your product. “The story of raised here, harvested here, and sold right back to you is a big deal,” Wirt says.

He is also helping the owners create value-added products such as a line of snack sticks, which have become very popular. Initially, the line processed about 250 pound sper month. Today, the facility processes around 1,500 pounds.

Lies admits the market is expanding a little faster than they had envisioned, and managing growth is becoming a challenge. “The local food movement was growing before COVID-19 hit, but it really grew after the onset of the pandemic, and it’s still growing,” he says. “We can produce way more snack sticks than we can bacon, because I haven’t figured out how to breed a hog that’s 90% bacon yet.”

Full Flavor Farms is also noticing trends in consumers’ purchasing habits. “In the last year, more people want to purchase specific cuts of meat rather than a half or whole cow,” he says. “They want to buy 10 pounds of hamburger, 5 pounds of rib eye, or a couple packages of bacon.”

It’s also about the connections they are making with consumers. “We can explain how our animals are locally raised and processed. Because of the relationships we have with our customers, it’s amazing how much misinformation you can correct. They appreciate our honesty, and it is why we have been able to grow our business,” Lies says. “At the end of the day, we knew where we wanted to go, so we took our destiny into our own hands.”

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