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JBS Prepares For Expected Packer Ban Legislation

The big news this week was that JBS restructured to shed its ownership stake in cattle in Five Rivers feedyards. Five Rivers was also restructured, essentially becoming a custom feedyard operation overnight.

The new entity that will own the cattle and guarantee both Five Rivers and JBS a certain number of cattle is J&F Oklahoma. J&F has acquired approximately $800 million in operating credit and apparently will shoulder the risk and reap the benefits from the cattle-feeding side of the business.

At first blush, this may be nothing more than JBS preparing for what it feels is coming legislatively regarding the packer ban, which would limit ownership and control of cattle by packers. And, that may be all it actually is – a way of avoiding future problems that integration might present.

Others, however, view the JBS move as a more monumental shift in outlook toward cattle feeding and the cattle-feeding model. They hypothesize that Five Rivers’ philosophy will shift away from economies of scale and capacity utilization to some extent.

In today's environment that was probably somewhat inevitable; after all, 20% feedlot over-capacity and models that maximized profits when one was running at or over capacity led to a lot of competition and a lot of cattle-feeding losses.

The more cynical view points to the fact that the new entity is only committed to providing 85% of Five Rivers’ needs. That could lead to the largest cattle feeder in the country taking on 15-18% less cattle than in the past.

I think JBS was motivated by a combination of all these.

On a similar note, Tyson announced some personnel shifts and promotions designed to help them position themselves in this new environment. The firm created a new executive vice president of corporate affairs position aimed at expanding the company's role in the business community and helping to communicate Tyson's message to those in government who regulate and influence our business.

The big corporations are adding muscle to their lobbying efforts because they understand the regulatory environment is going to shift dramatically. Thus, profits won’t be determined as much by what happens on Main Street as by what happens in the halls of Congress.

Perhaps producers should take careful note here. As the rest of the world is preparing for a this new business environment, the production side of our business seems to be moving in the opposite direction, with state and national organizations and even the checkoff, being far more likely to slash budgets than expand efforts.