The big news this week in the cattle industry was the announcement that JBS is divesting itself of its Five Rivers feedyards. The $1.8 billion divestiture includes major holdings in other food companies, as well. In fact, Five Rivers is a small portion of the total.
The Five Rivers feedyards have a one-time capacity of just under a million head in the U.S. with interests in Canada as well. JBS has invested heavily in the yards over the last few years, turning them into state-of-the-art facilities from an animal welfare and environmental quality standpoint. In addition, the management team at Five Rivers is regarded as one of the best in the industry as well.
It is expected that the Five Rivers yards will also come with special marketing arrangements or guarantees and understandably will be some of the most sought-after feedyards in the industry. Obviously, some of its inherent advantages come from its ability to take advantage of its size and geographic diversity, but it’s difficult to imagine there’s a player in the cattle feeding industry large enough to purchase Five Rivers in its entirety.
The initial reaction in the feeder cattle market was, as expected, quite negative, given that the impact of losing Five Rivers in the feeder cattle market would be devastating to prices. But the market quickly rebounded as it became clear that Five Rivers would remain in the market and operate at normal capacity until sold. The sale of the feedyards, whether in whole or separately, is expected to happen relatively quickly—measured in months, not years.
Of course, the record leniency fine rendered against JBS in the Brazilian bribery scandal has rocked the world’s largest protein producer with a lot of speculation about whether or not it would affect its packer operations in the U.S. The good news is that doesn’t appear to be the case. Instead, JBS appears to be refocusing on its core competencies as the company shores up its cash positions and strives to overcome the fines levied as a result of the scandal in Brazil.
The positive in this situation is that it serves as a wakeup call to the industry on just how much we depend on the packing industry. The mandatory country of origin labeling fiasco cost the industry millions of dollars last fall as the effects of decreased packing capacity became obvious. Losing a major packer, even for a few days or weeks, would be devastating to the markets and the industry.
I’m not one to shed a lot of tears for the stocker, feeder, packing, wholesale or retail segments of our industry, but I truly do appreciate what they do for us. The reality is that the packers are the one segment of our business where there isn’t a waiting line of prospective suitors to take over if someone sells out. The labor situation, burdensome regulations and a myriad of other major concerns make the packing business one of the toughest in the industry.
Always, when we confront the reality of how fragile and how dependent we are upon the packing segment and how much inefficiency and additional transactions occur in the beef business compared to our competitors in the protein business, it sends shockwaves throughout the industry. We are not gaining in terms of efficiency but rather losing ground.
What saves us is simply our product. Almost anyone who can afford it prefers it. It simply tastes better.
The reality is that the industry is unlikely to be able to replicate the efficiency gains of our competitors, so our hope continues to rest on one key factor – maintaining and growing beef demand.
Despite that simple and irrefutable fact—that demand is the key to profitability, sustainability, and survivability of our industry—there remains a commodity mindset that justifies not putting the customer as the top priority, and the industry has been unable to overcome its segmented and silo mentality to adequately fund its demand-building needs.
Perhaps the situation at JBS will remind us that our future, while bright, has to be fought for and protected.
The opinions of Troy Marshall are not necessarily those of beefmagazine.com and the Penton Agriculture Group.