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Published November 02, 2010, 09:13 AM

North Dakota Natural Beef L.L.C. working to cover payments owed to suppliers

FARGO, N.D. — A handful of beef producers who are two or three weeks late in receiving payment for animals from North Dakota Natural Beef L.L.C. in Fargo have been counseled to fill out paperwork to make sure they are eligible for compensation under federal Packers and Stockyards Administration rules.

By: Mikkel Pates,

FARGO, N.D. — A handful of beef producers who are two or three weeks late in receiving payment for animals from North Dakota Natural Beef L.L.C. in Fargo have been counseled to fill out paperwork to make sure they are eligible for compensation under federal Packers and Stockyards Administration rules.

Doug Goehring, North Dakota agriculture commissioner, says the beef company has assured his department that it is “expediting this process” and that there is enough inventory and receivables to cover these payments. “We are not quite sure why they haven’t yet,” Goehring says.

North Dakota Natural Beef L.L.C. temporarily has had to cut back hours but is making no layoffs after it “resigned” a large customer, a company official says.

Dieter Pape, president and chief executive officer of the Fargo-based beef processing company, says he expects to replace a lost customer soon, probably with an even larger customer.

The federal Grain Inspection, Packers and Stockyards Administration regulates beef sales and requires payment with 48 hours of delivery, Pape says.

“At that point you’re behind, unless you have a signed contract with an individual,” Pape says.

Some of the four are two to three weeks behind in payments. The company has more a dozen producers, many of whom have received all payments on time.

On Oct 22, Goehring issued a statement telling any producer involved with the company about a GIPSA meeting Oct. 27 in Fargo. Goehring says the company voluntarily had stopped buying beef as of Oct. 1 after inquiries from federal and state officials.

Jade Friesz, a Packers and Stockyards Administration agent based in Flasher, N.D., declines to comment on an active investigation — how many producers are involved, how much money, or anything else. He referred Agweek to his regional supervisor, who was not immediately available for comment.

Beef, Bison separate

Pape emphasizes that the business technically is separate from the North American Bison Cooperative, though the two entities have contractual relationships.

Since 1992, the North American Bison Cooperative has been one of the state’s signature farmer-owned value-added “new generation” cooperatives. The co-op quietly established a separate limited liability company of the same name on Dec. 29, 2009.

The beef company is owned by 35 individuals and businesses, including the North Dakota Farmers Union, the North American Bison Cooperative, some Bergum family members in the Arthur, N.D., area and Sather families in South Dakota.

Pape also is CEO for NABC, which owns the kill plant in New Rockford, N.D.

NABC does harvesting for the beef entity and the separate bison co-op. The bison co-op has its meat processed at the beef company’s processing facility in Fargo. The beef plant is in north Fargo, near North Dakota State University, which has some of its meat science faculty housed in the facility.

Pape says the New Rockford facility had been killing 120 head of beef a week for the former customer, which accounted for more than two-thirds of the company’s 160- to 180-head beef harvested in a week.

Pape, who works from St. Cloud, Minn., says the Fargo beef company is not entirely unusual for a start-up company to experience “ups and downs.” Pape says the current down is because of his company “resigning” this large customer, which was added in the second quarter of 2010.

“We got to the point where the increases in our price of cattle couldn’t be passed on,” Pape says.

Further, the company, which he declines to name, instituted a new “audit” program that would require a $200,000 up-front investment by the beef company.

“That would have depleted margins,” Pape said. “We made a decision internally that you can’t do business with a company when you can’t make money.”

Too expensive to audit?

He says the customer is requiring similar audit practices for its other protein sources, such as pork and poultry, to the customer “a step above what everybody else has.”

“It’s fairly complex,” Pape says of the customer’s requested audit process. “In the cattle business, you have the cow-calf, the background (feeder) and the finishing feedlot, and all have to maintain records on the cattle that go to this customer’s production.”

In all, North Dakota Natural Beef had 85 suppliers that needed the required auditing and computerized record-keeping.

Asked what led to the problems, Goehring says the beef company had told his department that a significant customer was behind in paying North Dakota Natural Beef, but he did not say which customer that was or whether it was the same one that had required the auditing and was resigned.

Pape says the smaller companies North Dakota Natural Beef works with as suppliers — “what this company envisioned as being their staple for supply” — can’t get the same economies of scale as large beef suppliers like Tyson and JBS.

“From the drop (non-meat products) they can generate $120 to $130 while we’re only able to generate $70,” Pape says. “The differential makes the difference between being able to make money, and not.”

Feasibility studies

At about the time North Dakota Natural Beef was formed, another company — Dakota Beef Cooperative — had done feasibility studies on a 30,000 animal per year “natural” beef kill plant, and found that it wasn’t feasible unless the company linked with an existing company.

One primary negative was the cost of shipping the offal to Long Prairie, Minn., and the Farmers Union Marketing and Processing Association rendering plant.

It isn’t clear whether investors in North Dakota Natural Beef knew about the feasibility studies or had come to different conclusions.

Pape has been credited with turning around the bison harvest facility since coming on board in 2004 and taking it in and out of Chapter 11 reorganization. The NABC and partners launched the beef company in 2007.

Looking toward brighter days, Pape says his beef company has done test-harvesting and processing for an East Coast potential customer that has $700 million in beef sales.

Another potential customer in the Midwest that markets $100 million in beef a year is looking for a custom-processing outlet and is considering North Dakota Natural Beef.

“Either one of those are large enough to bring us to a break-even,” Pape says.

Pape says he hasn’t talked with officials of FK Partners for more than six months. FK Partners is a South Korean marketing company that has talked about building a kill plant in North Dakota.

“We’ve talked to a number of Korean companies along with FK Partners, but nothing materializes,” Pape says. “They all paint a great picture, but nothing ever happens.”

The beef company has “flexed” back hours but hasn’t had to lay off any of its 85 employees. If either of the new customers comes on board, the beef company will need to hire additional staff beyond current levels

Pape says the processing company is doing up to 160,000 pounds of custom-grind beef business a week and portioning size business.

“We’re doing some value-added steaks on the bison side. We’ve introduced a marinated steak and a cube steak that’s been picked up by the military and Wal-Mart,” he says.

Meanwhile, Pape is steering the bison cooperative through separate, unrelated challenges.

“The bison industry as a whole has gotten to a point where demand exceeds supply,” Pape says.

The pricing for bison for producers today is $3.30 per pound in “hot, hanging weight” and is $2.35 per pound for cull animals — cows or bulls.

A year ago, the prime animals were going for $2.35 a pound. “The producer is an enviable position,” Pape says. “But now, the calf prices are jumping up this fall, to compensate.”

Two weeks ago, the NABC harvested more bison in a week — over 200 head — than any other previous week to date, Pape says.

“We’re lucky we have a great producer group,” he says.

Some 80 producer supplied bison to the plant last year.