Jim Long President – CEO Genesus Inc. firstname.lastname@example.org
JBS Swift Purchases Cargill Pork
July 06, 2015The big news last week was the purchase of Cargill Pork by JBS Swift. JBS Swift’s move continues its relentless growth in the US meat protein sector. JBS, a Brazilian based behemoth lead by the Bautista family has in the last few years purchased Swift (Swine – Cattle), Pilgrim Pride (Chicken), and now Cargill Pork (subject to regulatory approval). It appears to us JBS with these purchases plus others is moving to a target of Global leader in beef, chicken, and pork. The US now has ownership groups JBS Swift (Brazil), Smithfield Foods (Chinese), and Tyson Foods (USA). These very large organisations focused on meat protein have different ownership origin and different cultures. We expect a continual battle for market share, retail space, brand support, and creation. This is and will be a Big Boy battle. JBS Swift has negotiated the purchase of Cargill Pork for $1.45 billion. This includes two swine plants (Ottumwa, Iowa, and Beardstown, Illinois), which last year processed 93 million hogs. Numerous feed mills and hog production system, which we believe, is about 135,000 sows. With the purchase, JBS Swift will have a combined daily capacity to process hogs of approximately 82,000. Smithfield Foods will remain the largest packer at about 110,000 per day capacity, with Tyson and JBS Swift approximately the same size. JBS Swift with the purchase of Cargill’s hog operations now vaults into being one of the major players in US hog production. Cargill’s sale of the pork division we suspect is part of a move to focus on two areas. They are global leaders in Grain Trade and Feed Nutrition. Cargill is the largest privately owned corporation in the world, and has had the means to stay in the pork business as long as it wanted. The pork division selling for $1.45 billion is a lot of money in our world, but in Cargill with, we suspect 10’s of billions in assets, it was not a major price. Cargill obviously didn’t see Cargill Pork as part of a long-term strategy and took the prudent course to move on. Cargill sold from strength. For hog producers, the JBS Swift purchase of Cargill is good. JBS Swift is signalling by paying $1.45 billion that they believe in US pork and the swine production industry. It’s a big commitment and faith in the future.
Chinese Ministry of Agriculture – April
|Breeding Herd||50.46||46.86||39.8||-10.6 million|
|Market Inventory||444.37||428.52||387||-57 million|
- In April, China data indicates liquidation was still in full swing. We expect in May further sow herd liquidation.
- China has surplus corn in inventory – 57 million less market hogs will need less corn and soybean meal – what is the market effect? What would US corn usage be if the US hog industry essentially disappeared? That’s the market hog decrease in China. Corn is $10.50 a bushel in China.
- In mid-April, the market hog price in China was 86₵ USD liveweight per pound. Last week, 10 weeks later it was $1.17 US live weight a pound. An increase of 31₵ a pound or $75 per head on a 250 pound hog. Obviously, China’s hog supply is decreasing rapidly.
- The US market hog price live weight is 57₵ per pound – China $1.17 per pound. That’s about a 70₵ Our farmer arithmetic – that’s $175 US per head difference (250 lb.) – Canadian dollars $220 per head.
- We believe in capitalism. A $175 per head difference on a rising Chinese market gives Chinese pork importers great incentive to import pork. The China market is down 2 million head a week. We see no reason that at some point US – Canada packers won’t be able to move 100,000 equivalent extra carcasses to China. That is a market changer.
- Smithfield harvests 500,000 plus per week, they are Chinese owned. They will have market access, distribution channels and incentive to chase the $175 per head difference. They will lead the exports, but a rising tide lifts all boats.
- The China factor is coming maybe not soon enough for many, but the numbers don’t lie. The boat is rising.
Categorised in: Pork Commentary
This post was written by Genesus