Plant closing stuns Siler City, Mocksville

Staff WriterJuly 30, 2011 

  • Rising commodity and fuel costs are causing poultry processors to rethink expansion plans in the state.

    In March, Sanderson Farms said it was delaying construction of a second poultry processing plant in North Carolina due in part to rising feed costs.

    The Mississippi company has been scouting sites in Nash County and elsewhere since last year.

    The $106 million plant was expected to employ up to 1,500 people. It would be capable of processing 1.2 million chickens served by restaurants and other food service companies.

    Sanderson already operates a similar chicken-processing complex in Kinston.

    Staff writer David Bracken

The Ukrainian owner of the North Carolina operations of chicken processor Townsend plans to close all the company's facilities by October and lay off more than a thousand workers in Siler City and Mocksville.

The move, which will also terminate contracts with about 200 chicken farmers in four counties, brings an abrupt end to an investment that was viewed as a lifeline for the state's poultry industry.

And it comes as North Carolina is struggling to bring down its unemployment rate, which rose to 9.9 percent in June, the first increase in more than a year, and the highest level since last fall.

"We've worked very hard trying to grow, trying to attract these companies and make them prosperous," said Charles Johnson, Siler City's mayor. "Of course, every city in the United States is looking for the same thing. We're just looking for somebody to come in and be our savior, I reckon."

Five months ago Ukrainian billionaire Oleg Bakhmatyuk appeared to be that savior when he paid $24.9 million to buy Townsend's North Carolina assets out of bankruptcy.

Officials with Omtron, the U.S. shell corporation created by Bakhmatyuk, expressed optimism that they could turn the operations around through cost-cutting and by ramping up exports of dark meat, which fetches a higher price outside the United States.

But this week Bakhmatyuk, 36, pulled the plug.

"He just decided to shut it down and take his losses and go on," said David Purtle, a former Tyson Foods executive who was hired to be Omtron's CEO. "He just didn't like the environment in this country and the lack of discipline that the poultry industry had."

The U.S. poultry industry has been resisting calls to reduce production levels, something that many believe is necessary in order to put it on firmer financial footing.

The decision to shut down surprised Purtle, who said he has never spoken to Bakhmatyuk personally and instead dealt with the billionaire's representatives. Bakhmatyuk visited the United States for the first time in November.

Since acquiring Townsends' assets in late February, Omtron has invested more than $7 million upgrading the Siler City plant.

The strategy, outlined by a Bakhmatyuk adviser in March, was to use the existing relationships of Bakhmatyuk's holding company, Agroholding Avangard, Ukraine's leading egg producer, to help Omtron export dark meat to markets in Eastern Europe, North Africa and the Middle East.

The adviser, George Kikvadze, said Omtron was interested in additional acquisitions in the United States.

Most thought the ambitious strategy would be given more time to succeed. Omtron laid off 145 employees in Siler City in May, but it also reiterated its determination to make the operations competitive.

Indeed, up until Thursday, Siler City officials were expecting Omtron to apply for incentives to cover the cost of gas lines to its facilities.

"Everybody is as surprised as we are," Mayor Johnson said. "It filters down to everything. We sell about $5 million of water a year to them. That's a big loss to our city government."

The company employs about 550 people in and around Siler City, where it has two feed mills and a hatchery. It employs another 476 people in Mocksville.

Omtron said in a letter to state officials Friday that the Mocksville plant would be shut down by Oct. 4. The Siler City facilities are expected to close around the same time.

Townsends has contracts with chicken farmers in Chatham, Moore, Randolph and Harnett counties. Those farmers borrowed large sums of money to build chicken houses with the expectation that their contracts with Townsend would allow them to pay off the debt over years.

In May, Omtron boasted that by maintaining all of its contracts with farmers it was injecting more than $35 million into the state's economy.

"These farmers probably still owe anywhere from $250,000 to $400,000," said Dan Campeau, a poultry agent with the N.C. Cooperative Extension Service who is based in Pittsboro. "Those monies would still have to be paid back to their lending institutions before they could own them outright."

If no buyer steps in to take over Townsend, farmers will have few places to turn.

The U.S. poultry industry is struggling. The cost of corn, the main ingredient in chicken feed, has doubled over the last year, while chicken prices have remained weak.

Campeau said the entire cost structure of the poultry industry is based on corn being priced at $3 to $5 a bushel. It's now near $7 a bushel.

"When it starts getting above $5 a bushel with corn they really can't make money," he said. "They're just treading water."

And corn prices are expected to go even higher given the drought conditions the Midwest and the federal government's subsidizing of farmers to grow corn for ethanol.

Pilgrim's Pride, the world's second-largest chicken producer, reported a $128 million loss for the second quarter Friday and said it would close a plant in Dallas.

Given all the challenges facing the industry, Campeau said he wasn't surprised that Bakhmatyuk called it quits.

"If we have another year or two like this it's going to drive everybody out of business and most of our business is probably going to go south to Mexico or South America," he said.

david.bracken@newsobserver.com or 919-829-4548

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