Costco plans chicken plant in Nebraska

(Dave Bedard photo)

Reuters — Costco Wholesale Corp. is considering building a poultry-processing plant in Nebraska, according to a local development council, a move that would give the retailer tighter control over its chicken supplies.

The facility, if built in Nebraska’s Dodge County, would create 1,100 jobs, work with local chicken farmers and invest $180 million in the region, the Greater Fremont Development Council said in a release dated Thursday (all figures US$).

Costco, the third-largest U.S. retailer, could not immediately be reached for comment.

The move would offer Costco greater control over its supply chain at a time when food safety rules are becoming tougher, while also allowing it to capture more of the profit margin and respond more quickly to consumer demands, Brett Hundley, an analyst at BB+T Capital Markets, said in a note to clients.

The Nebraska facility, to be run in partnership with Georgia-based Crider Foods, would be the first plant of its kind owned by Costco, Hundley said. The announcement likely contributed to a roughly one per cent fall in shares of Pilgrims Pride Corp., which produces chicken for Costco in Alabama, he said.

A Pilgrims spokesman declined to comment on any relationship with Costco. “The construction of one chicken plant is not going to affect our business,” he said.

The plant would be part of a push for increased livestock and poultry production in the U.S. Midwestern crop belt amid ample feed supplies and low prices. Prices for corn and soymeal, chicken’s primary diet, fell to multi-year lows in recent weeks, before rebounding.

Costco chose Dodge County, in eastern Nebraska, as a “preferred site” for the plant because of the area’s quality workforce, available land, farmers willing to raise chickens and proximity to suppliers, among other factors, the Greater Fremont Development Council said.

Costco plans to buy 300,000 bushels of corn and 3,000 tons of soybean meal per week from local providers, the council said.

Costco is one of the largest U.S. grocers and sells more than 80 million rotisserie chickens a year.

It was not immediately clear whether Costco’s recent pledges to phase out the sale of meat raised with “shared-use” antibiotics and chickens raised in cramped cages factored into its decision to erect a plant.

Both moves are part of industry-wide trends that are shaking up food supply chains.

Wal-Mart Stores last month also made a move to eliminate an intermediary supplier, when it announced plans for its own dairy processing plant in Indiana, marking its first foray into food processing in the U.S.

That announcement also had an immediate impact on shares of a supplier — specifically Dean Foods, the milk supplier to Wal-Marts in the proposed plant’s catchment area.

Reporting for Reuters by Nathan Layne and Michael Hirtzer in Chicago.

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