For Cargill, it was simply an offer the company couldn’t refuse.
WASHINGTON, July 8, 2015 – Last week, JBS and Cargill announced in a joint release that JBS’ USA pork division would purchase Cargill’s U.S.-based pork assets in a $1.45 billion deal. The move increases the reach of JBS S.A., a Brazilian company that is already the largest meat processing company in the world, in the U.S. through their JBS USA arm. JBS’ U.S. holdings have been increasing since 2007 when it acquired beef and pork processor Swift & Co. and the beef business of Smithfield Foods the following year. The company is also the majority owner of poultry producer Pilgrim’s Pride.
When asked for the “why” behind the sale, Cargill spokesman Mike Martin said in an email to Agri-Pulse the company wasn’t necessarily looking to get out of the pork business, but “JBS recently approached us with an offer we had to consider.” He said Cargill “remains committed to our animal protein businesses,” which include beef, eggs, turkey, and chicken both in the U.S. and abroad and that Cargill is “currently looking at several potential specific opportunities.”
The deal is subject to Justice Department review, but in an interview with Agri-Pulse, Steve Meyer, vice president of pork analysis with Express Markets Inc. Analytics, said he would be surprised if the review process resulted in any required divestitures due to issues such as a regional monopoly.
“I don’t think (the deal) means a lot in terms of competition. Those plants still have to run, they still have to buy hogs and there are other players in most of that territory,” Meyer said, pointing to overlap in many areas with Tyson Foods’ pork unit and Smithfield’s Farmland.
“One of the problems there is, okay, you require (JBS) to sell the plant, they sell it to another competitor and you’ve kind of got the same problem, so I don’t think (federal regulators) will and I don’t think there’s any reason that they would require them to divest.”
Meyer said that for the most part, he doesn’t think the pork industry will notice much of a change after the purchase is finalized. In an interview with Agri-Pulse, Glynn Tonsor, with the Kansas State University Department of Agricultural Economics, agreed, saying there was still “significant and substantial competition for hogs.”
“You’ve still got other companies that are not JBS and Cargill that are still there competing,” Tonsor said. “It’s not like we went from two companies to one.”
The deal means there will be some slight shuffling in the ranking of the top U.S. hog producers. Based on slaughter capacity, Smithfield will remain on top, but the newly combined JBS and Cargill company – previously third and fourth, respectively – will overtake Tyson for the number-two spot.
Tonsor pointed out that JBS is getting several facets of the production system ranging from breeding stock to processing, which he said will help the company as the hog population continues to grow.
“The pork processing segment is positioned likely to do quite well in, say, 2016 as the pork industry expands and we have a limited number of processing slots available – and we have more and more pigs – that tends to work well for packer margins,” Tonsor said. “Maybe JBS saw that as something advantageous to buy into; maybe Cargill saw that as a reason to sell while the positive outlook in the short term is there.”
All things, considered, Meyer said he was surprised Cargill was opting to sell its pork business, but he thought the company got a “pretty good price for the assets we’re talking about.” He said that ease of access to the North American supply chain was likely a huge factor in the purchase, but JBS still has to abide by American food safety standards.
“(JBS will) still have to play by our rules. Those plants and all that production is located in the United States and that’s the reason they’re buying it,” Meyer said. “Those (plants) are going to stay here, they’re going to operate them efficiently, they’re going to continue to employ Americans, they’re going to use American hogs in these things.”
Martin said it will be “a number of months in the future” before the regulatory review of the deal is complete. As part of the deal, JBS will be acquiring all of Cargill’s breeding stock and honoring existing production contracts.
What did JBS buy in the $1.45 billion deal?
· Two processing plants (in Iowa and Illinois) that processed a combined 9.3 million hogs in 2014.
· Five feed mills (two in Missouri, one each in Arkansas, Iowa, and Texas).
· Four hog farms (two in Arkansas, one each in Oklahoma and Texas).
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