We almost had it all

By Richard Oswald

The old rule of thumb is that farmers live like paupers only to die as millionaires when heirs receive their estate. That’s because land grows in value over time, but the return it gives owners, modest, slow appreciation, is traditionally only about 5% per year.

Its a long story why, but because they owed money on their farm my parents were a little poorer in the early sixties than typical farmers their age. Corn prices weren’t very good and livestock wasn’t much better, so Dad went to town for a job while Mother did what she could at home by cooking, sewing clothes for the family and raising a garden.

For most farmers, optimistic youth is tempered by poor markets and bad weather. In other words, reality. Dad was conservative with his money. By the age of fifty, life had taught him to be cautious. He always told me to think before I spend–“make every penny count”.

Early in 1964 Dad developed a new attitude. Thats when he told Mother about something that would change their lives forever. Up north, a group of farmers and investors at Denison Iowa had built a packing plant calling it Iowa Beef Packers(10). Modern for its time, IBP created a new market for cattle. Big packers had gotten too powerful (6), too hard to deal with. Too greedy (4). If farmers couldn’t profit by selling to big packers, they would profit the same way the packers did by processing and selling beef. So the Iowans took the bull by the horns and became corporate buyers of their own cattle.

Cattle feeder-farmers here in Atchison County Missouri looked north to Denison as IBP stock became publicly traded. All of a sudden farmers had turned the tables on the big packers. Their investment was skyrocketing.

They were literally getting rich.

Dad told Mother that neighbors with business savvy were going to pool their money and do the same thing here. My folks talked it over and decided to invest. Money was never easy to come by at home, now things got even tighter because Dad borrowed every dime he could get his hands on. If the new venture called Missouri Beef Packers failed, my folks would lose everything–their investment, their home, and their farm–without any hope of ever getting any of it back.

Meetings were held. Interest was high. But still, many of our conservative neighbors remained skeptical that any off-farm investment could succeed beyond the standard 5%. Others saw opportunity. The work of finding a building site began, with transportation and water a major consideration. The project focused on a small dilapidated town on the river bottom west of Rock Port, called Phelps City. A Burlington Northern rail line divided the town from north to south while US Highway 136 quartered it east to west. An infinite aquifer lay just below.

One man was key to making the whole thing go. His name was Gene Frye (8). Gene knew the packing business inside out. He was ready to help. Locals called the plant “Kill and Chill” (1), because it would utilize the latest standard in beef slaughter; quick kill–about 1300 head per day–followed by cold blast coolers that chilled carcass beef fresh off the kill floor in minutes rather than hours. Frye built confidence in the plant by telling investors it would market every part of the animal from blood to hooves and hide–“everything but the moo” he said.

Real estate values at Phelps City were low because people were leaving town instead of moving in. Dad took on the job of helping acquire and clear the property and prepare it for construction. Some people welcomed the chance to sell while others resented the change. In the meantime locals including a lot of farm boys were coming to Dad to place their names on the hiring list once construction began (3). That’s when the guy who would be my father in law a few years later came to Rock Port.

Doyle Elliott returned from World War II in the Pacific and joined a construction crew. Before long he was building concrete grain elevators across Colorado, Nebraska, and Iowa. In the early sixties Gene Frye hired him to pour concrete for the plant in Denison. That’s about the same time Doyle started erecting prestressed concrete buildings. By the time Missouri Beef Packers started, he was an old hand. Gene asked him to come to Rock Port to get things going. Doyle did, and brought his family along. It was the summer of ’64, just 3 years after the IBP startup.

Top among the challenges of any brand new company is financing. Dad was one of the 13 original investors to allow his stock placed in escrow as a guarantee against startup costs of the fledgling corporation. Things went so well, escrowed stock was released before the end of the first year. Requirements were met that allowed MBP to be listed on the stock exchange. Dad subscribed to the Wall Street Journal so he could keep track of his investment every day.

MBP stock climbed higher. We got a taste of packer profits. But not long after the first MBP plant was built, the High Plains (5) began to dominate beef markets by becoming an economic center of activity for cattle feeding and corn production. Before long, uniform live cattle from Texas or New Mexico were being hauled to Missouri for slaughter. That’s when management at MBP decided it would be cheaper to build slaughter plants there than to ship fat cattle here.

Doyle went to Texas to help build two new MBP plants in Friona and Plainview. By 1974 the will to create a prosperous farm community here in Atchison County had been replaced by the need to make a local investment succeed. MBP merged (2) with Kansas Beef Industries to form MBPXL. My parents attended the stockholder meeting on the merger. They came home talking about wealthy people they saw there, men dressed in suits and ties, women in fur coats and jewels. Kansas Beef was definitely owned by people different from us. There was concern that the Department of Justice might not allow the merger. Representatives from both companies traveled to Washington DC where they met with government officials including a rumored trip to the White House.

The merger was approved.
In the meantime IBP had been purchased by Occidental Petroleum (2). They were working to gain access to lucrative east coast markets. MBPXL pursued a similar course. Need for capital led to merger discussions with ConAgra. But then Cargill offered more money. The downside to that was Cargill was not publicly owned at the time. A merger with ConAgra would have consisted of a simple stock swap. A deal with Cargill meant selling out.

Cargill won the bidding and shareholders received letters saying that if they didn’t tender their stock it would be deemed worthless by the closing date. Dad sent in his stock and received a check, but he was unhappy because his capital gain in MBP would be locked in with taxes due. Regardless of that, life for my parents had changed dramatically. They no longer worried much about money, paid off the mortgage, and took long cross country trips. Dad continued to work by helping me out on the farm or doing odd jobs for friends. Thanks to his successful local investment he worked because he wanted to, not because he had to.

When I sold it, my own small original investment in MBP was worth about twelve times what I put in. It became a downpayment on a farm. Local towns and school districts swelled with children of families that relied on MBP for their living. Main street businesses like car dealerships, clothing, and grocery stores thrived. Cargill’s new meat unit, XL, ceased killing operations at Phelps City and made that facility into a breaking operation where carcass beef was reduced to vacuum packed individual cuts or hamburger.

But all good things must end (7), and the seeming miracle that briefly enriched our community with jobs, profits, and a local tax revenue bonanza ran its course. It didnt stop with us. After IBP and MBP, other small start ups like Illini Beef (11) and American Beef (12), were sold or went broke. Most investors never got their money back.

Union workers (9) at Phelps City tried to renew their contract. XL warned them not to strike. But when offers from management weren’t enough to keep up with the inflationary Eighties, workers walked off the job. Cargill closed the plant permanently going so far as to make the buildings worthless to developers by gutting them of all machinery, electrical wiring, and plumbing. Thats when MBP ceased to exist for the people and community who birthed it.

Now the little northwest Missouri startup is one of the biggest packers in the world. But it no longer belongs to us. Cattle numbers across Missouri, one of the three largest cattle producing states in the Union, are falling. Its the same way here in Atchison County where livestock numbers and family farms are less than ever. The profits our meat packing company earns go to someone else along with the jobs. It even competes against us by feeding its own cattle, creating a vertically integrated market for beef with less opportunity than we had in 1964, when a few farmers tried to take it back from the big packers.

For a little while they really did.

We almost had it all.

(1) Review of Kill and Chill: Restructuring Canada’s Beef
Commodity Chain by Ian MacLachlan

(2) LIMITING CAPTIVE SUPPLY ARRANGEMENTS IN
LIVESTOCK PRODUCTION

(3) Obituary: William B. “Hoppy” Schmidt, 63, of Watson, Mo.
(4) 90 Years of Beef Packing From Carcass to case Ready
(5) Stalls, William D.
(6) Beefpacker Concentration
(7) Letter from Langdon: Will ‘Stimulus’ Starve Small Towns?
(8) Encyclopedia of American Business History – Gene Frye Beef Packer
(9) The decline of unionism in America’s meatpacking industry.
(10) IBP, Inc.
(11) Day in history for July 23, 2005
(12) 548 F.2d 246: In the Matter of American Beef Packers, Inc., Debtor.northwestern National Bank and Northwestern National Bank Asagent for Northwest Agricultural Credit Company, Appellants, v. American Beef Packers, Inc., Appellee


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