AFF Sentinel Vol.5#9

The Batista family evidently thinks that now is the time.

After bringing their brand of international marketing and processing from Brazil and Argentina to Swift's beef business, their family packing company, JBS, is buying National and Smithfield. Taking advantage of a weak dollar and a Brazilian real that has appreciated 25 percent, they are quickly assembling U.S. market share.

Wesley Batista, one of the brothers and CEO of the family's JBS USA, spoke to the International Markets committee at the Cattle Industry convention in Reno recently. The family's father started the business with a tiny plant in Brazil in the 1950s, slaughtering a single animal/day. The family company - now involving brothers and sisters - slaughters over 20,000 head/day (23 plants) in Brazil and another 5-6,000 (6 plants) in Argentina -- nine million in South America.

Combining the numbers two, four and five beef packers in America will make it the largest U.S. packer and the top global capacity of 79,000 head/day.
Batista told the committee the key to the packing business is operating on an international basis.

"The best way to get value from the carcass is selling the right cuts in the right country," Batista said. "Every country has cuts that it values more, cuts that it recognizes. We must sell all the cuts the right way to get the most value for the money."

JBS is optimistic about exports. China and Russia are increasing consumption. Last year Brazil shipped 400,000 tons of beef to Russia alone.

JBS Swift's Chandler Keys emphasized the company wanted to be in position to pay more for cattle - the U.S. just needs to get more export markets open so they can.
Batista was asked about the flap between Brazil and the EU. It is a complicated issue, he said. Brazil had made some changes in its processing system and the EU had only, at that time, approved 300 of 2,500 Brazilian farms for export. Batista was confident things would be remedied in two-three months.

Asked about processing costs, he said U.S. costs are double Brazil's. Other questions involved JBS' market share in Brazil (15-20 percent), finished cattle prices in Brazil ($75-80/cwt.) and the most profitable country to sell to (Russia). JBS sold 100,000 tons to Russia last year.

Brazilian beef is different: 85 percent of it is grass fed. Grain feeding has increased over the last five years, mainly as a 90-day way to use crop residues. Slaughter cattle average three years old.

In a release, Batista indicated particular interest in National because of its emphasis on value-added beef and exporting to Japan. Because National is a much-smaller number four packer, with about 10 percent of the Big Four's total slaughter capacity, neither its acquisition or Smithfield is expected to raise federal anti-trust concerns.
Paradoxically, R-CALF is decrying the purchases, yet National is the packer provisions in the pending Farm Bill would make illegal by disallowing cattlemen to own packers. The radicals oppose visionary cattlemen participating in higher margin sectors beyond cattle production -- then oppose them cashing out their successful share ventures as an investment or in case they are declared illegal.

JBS will float a private stock placement of around $1.5 billion to help finance the acquisitions. Such an infusion of capital will help three former packers struggling to survive after years of mostly heavy losses. Excess industry capacity still looms, however.

JBS certainly comes from a different viewpoint. Rather than a U.S. packer striving to expand exports, JBS is a multi-country processor routinely used to global marketing, learning about operating here. Sources within JBS Swift expect JBS' global experience and international contacts to pay off in new sales channels and increased total carcass values. Plus, experience counts when trade difficulties arise, as being able to get on a plane and having the clout to get in and see the right people can pay dividends.
Since Brazil has been exporting to the EU, everyone would like to see JBS find a way to reopen that market to U.S. beef, after two decades of drought. It will be interesting to see what the industry can learn from JBS and what JBS learns about operating here. It is a different way of boosting U.S. export expertise than many expected. But that's the free market. Possible solutions and new ideas might come from anywhere.