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Tyson to Rebuild Burned Kansas Plant; Loss Impacts Industry
USAgNet - 08/14/2019

Tyson Foods says it will rebuild its Holcomb, Kan., facility, which sustained major damage in a fire last week.

The company released a statement saying officials are still assessing the damage, so it's too early to establish a timeline, but work to clear damage has already begun.

"This is a difficult time for our team members and their families, and we want to ensure they're taken care of," said Steve Stouffer, group president of Tyson Fresh Meats in a media release. "Today, we will notify our full-time, active team members that they'll be paid weekly until production resumes."

Stouffer said the team members may be called on to work during this time to help with clean-up and other projects, but regardless of the hours worked, all full-time active employees are guaranteed pay.

The fire-damaged Kansas facility accounted for a bit more than 20 percent of Tyson's capacity, according to JPMorgan analyst Ken Goldman, who estimates the plant will be shut for months. The company said the plant would be down "indefinitely" after the fire which idled some 3,800 workers.

Tyson's stock price recovered from an early drop and was trading near unchanged around midday, after setting a record high last Friday. The stock has climbed more than 60 percent this year, partly based on strong demand for beef, the largest segment of Tyson's business in terms of sales.

"We will use other plants within our network to help keep our supply chain full," said Stouffer.

The plant processed about 6,000 cattle per day, representing around five percent of total industry capacity and a bit more than 20 percent of Tyson's capacity, JPMorgan analyst Ken Goldman told international media such as Al-Jazeera reporting on the story since it broke last week. Goldman estimated the plant will be shut for months and that the closure could hurt Tyson's fiscal 2019 earnings per share by as much as 50 cents.

Tyson's halt in slaughtering pushed Chicago Mercantile Exchange cattle futures down by their daily, exchange-imposed three-cent limit as traders expect cattle supplies may start to back up in feedlots. October cattle futures were down three cents at 103.750 cents per pound ($1.04 per 0.45kg).

Lower cattle prices could benefit other meat companies, which will see a larger supply while Tyson's plant is closed, said Dennis Smith, broker for Archer Financial Services. Tyson competes with packers such as Cargill and JBS USA.

"The packers are going to use the leverage to their full advantage, and they're going to lower the cash steer market," Smith told Al-Jazeera.

Tyson's beef business produced a record operating margin of 6.1 percent in the first nine months of its fiscal year, up from 5.8 percent a year earlier. The company projects margins will reach seven percent for the full year and be similar or higher in 2020 as supplies of cattle are ample.

In the quarter that ended June 29, the entire Tyson beef unit recorded sales of $4.2 billion. Data from the Kansas Department of Commerce shows that Tyson's Holcomb plant is the sixth largest employer in Kansas, only slightly smaller than Koch Industries in Wichita. Tyson Foods operates six plants in Kansas and employs more than 5,600 people. The company says its total economic impact in the state is more than $2.4 billion.

U.S. Senator Pat Roberts said of the company's announcement that it will rebuild its Finney County beef plant, "Thank you to the first responders for their quick and tireless work, as well as the support from local organizations and businesses to help get folks back on their feet following the devastating fire at the Tyson plant over the weekend. I have spoken with leaders at Tyson Foods regarding plans to rebuild the Holcomb facility, and I commend their commitment to the hardworking employees by ensuring they will receive pay during this time.

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