JBS USA to sell its U.S. cattle feeding operations
for the Greeley Tribune
JBS going public
JBS USA executives have an initial public offering in their plans for this year, which industry insiders have said would be the largest of 2017. The company, which filed for the IPO in December 2016, told Reuters it had no intention of suspending its $1 billion IPO, which was initially planned last month. Seeking Alpha, an investment research company, reported in December that JBS had a lot of long-term debt with which to contend, which was holding back profits. That debt in the first nine months of 2016 led to a net loss of $9.7 million, Seeking Alpha reported.
Greeley-based JBS USA plans to sell its massive cattle feeding operation that spans six states and Canada and supplies beef to its U.S. packing plants, a move the company says will reduce debt.
In plain English, that means JBS, the largest feeding operation and the largest meatpacker in the world, will unload Five Rivers Cattle Feeding, which has the feeding capacity of 980,000 animals. At $1,900 to $2,000 per head for the cattle on feed, that’s almost $2 billion worth of inventory.
“It is a big deal. They’re the largest cattle feeding company in the world. It’s a big deal,” said Steve Gabel, owner of Magnum Feedyard Co. in Wiggins, which competes with Five Rivers Cattle Feeding, and ultimately markets its fed cattle to JBS at its packing house in Greeley. “That’s huge money.”
Parent company JBS SA (South America) has been embroiled in a major bribery scandal involving politicians and company executives in Brazil and recently agreed to pay a $3.1 billion fine to settle the matter. Until now it has meant asset sales in South America, but few thought the company would sell off any of its U.S. assets. JBS SA’s board of directors approved the sale.
According to Reuters news service, the sale is part of a $1.8 billion divestment plan that put the company’s dairy, poultry and cattle feeding operations up for sale to cut debt in the wake of concerns about its financing costs. It’s a three-pronged approach of selling Five Rivers, a dairy company in Brazil and Moy Park in Northern Ireland, one of Britain’s top food companies, Reuters reported.
In a news release issued Tuesday, JBS stated it would sell its assets to “further sharpen the focus of the business on key strategic areas, protect core assets and allow the company to reduce net debt as it works on plans for future growth.
“Selling these assets is central to a strategy designed to reinforce JBS’ competitive advantage in the global food industry. The sale of feedyard assets will more closely align the JBS business model with key U.S. competitors and allow the company to concentrate its efforts on its core food and value-added products businesses.”
While the timing is linked to the Brazil scandal, the sale is a move Terry Fankhauser of Colorado Cattlemen’s Association interprets as strategic because it puts JBS USA’s portfolio in a better position for an initial public offering, which has been planned for this year.
Cattle feeding has been a struggling industry in the past decade, he said, but 2017 has seen it improve immensely.
“In looking at that asset base and its profitably in the past, there’s been some tough times,” Fankhauser said. “We’ve seen 2017 look really well in the cattle feeding sector. If you’re going to sell, you’ll probably want to sell when you’re in a better financial situation.”
JBS acquired Five Rivers in 2008 from Smithfield Foods and began an immediate $18 million renovation of its Kuner feedyard east of Greeley, which was complete in 2010. That same year, JBS also acquired a feedyard in Arizona, and in 2013, it acquired a feedyard in Alberta, Canada.
The sale affects the following Colorado feedyards: Kuner Feedlot, Gilcrest Feedlot in LaSalle, Colorado Beef in Lamar, and Yuma Feedlot in Yuma. Other feedyards include four in Texas, and one each in Idaho, Kansas, Oklahoma and Arizona. There also is a feedyard in Brooks, Alberta, Canada.
Gabel said the sale will take some pressure off of his operation, which fattens up to 25,000 head of cattle and sells directly to JBS, Cargill Meat Solutions, National Beef Packing Co. and Tyson.
The JBS release stated business will continue as usual, “including the purchasing of cattle and commodities.”
“JBS USA intends to continue agreements to purchase cattle from feedlots associated with Five Rivers Cattle Feeding operations,” the release stated.
Gabel said that is initially good news.
“We’re relieved to know that the packing plant will continue to operate and will be functional,” Gabel said, “because we merchandise an awful lot of market-ready cattle to JBS.
“On the other hand, obviously as nice as the JBS feedyard facilities are, they will at some point find a buyer, and when they do, that buyer will become competition for us in the feeder cattle or the calf market.”
Fankhauser worries any hiccup in feeding operations could spell doom, as few operations that have been shut down for periods of time get back to operational easily. With a looming Chinese market opening and a growing presence of U.S. beef in Europe, hiccups could be dangerous.
“We want to see the industry have the ability to grow because of that international and domestic demand being strong,” Fankhauser said.
Fankhauser said his membership would like to see the eventual buyer of the property take an interest and be engaged in the Colorado livestock industry, as has been the tradition. JBS Five Rivers has been intensely involved, he said.
“To have those feedlots with a direct tie to the packing plant, or ongoing marketing cattle into that plant, and having that pull-through, has been really good for the cow-calf sector in Colorado,” Fankhauser said. “Long-term, we want to see a partner in this state cattle feeding that will buy cattle from Colorado producers, do business with Colorado feed manufacturers and sell to JBS.”
Local operations, he explained, keep costs low, especially freight. Having to ship cattle long distances ultimately costs more for producers, making it harder to compete.
JBS officials did not answer questions related to their release.