The largest South American meat packer just gobbled up another struggling competitor. J&F ParticipaÇÕes S.A. of Sao Paulo, Brazil, parent company of JBS-Friboi, announced last month the purchase of Greeley, CO-based Swift & Co. J&F will reportedly pay $225 million in cash and assume about $1.16 billion of Swift debt to the international rival currently owned by HM Capital Partners LLC, Dallas, TX.
This is big news for the North American beef business. The total value of the deal is about $1.4 billion and makes Friboi arguably the most powerful force in the global beef business.
There's been speculation for more than a year that Swift would be sold, either whole or in parts. On Jan. 22, reports surfaced that HM Capital was seriously considering selling Swift after receiving “unsolicited inquiries.” In about March, not long after Friboi went public on the Sao Paulo Stock Exchange, word began circulating it might venture north.
Now that the deal's done, we can begin speculating about its impacts — and Friboi's plans for the future. Bottom line is it's hard to spot any flies in this ointment. U.S. cattlemen should welcome the competition for their cattle from an outfit with pockets as deep as J&F/Friboi.
This is a deal which defines global competitiveness. Friboi slaughters about 22,600 head of cattle/day in 21 plants across Brazil. And through relatively recent acquisitions, it has five plants in Argentina. Friboi and Swift say they'll have a capacity to slaughter 47,100 cattle/day. That would top Tyson's 37,100 and Cargill's 36,000, according to industry sources.
The acquisition also couples Swift Australia with the Brazilian giant. The Aussie arm has four beef plants with a 5,800 head/day capacity.
Historically, Australia and Brazil have been archenemies in marketing low-cost grassfed beef. The move gives Friboi more than a toehold in that part of the world and provides income from Pacific Rim beef markets that South American beef firms don't otherwise enjoy. Most of these countries have embargoed South American beef due to recurring bouts with foot-and-mouth disease (FMD).
Friboi's swoop into North America obviously keeps our other domestic meatpacking conglomerates, like Cargill, Smithfield and Tyson, from adding to their larders. And it breathes new air into Swift, a company that's reported only one profitable quarter since November 2004.
Declining supplies of fed cattle due in part to post-BSE suspensions of Canadian cattle imports, along with well-publicized labor strife, have led to short-shifting and periodic dark plants for Swift. Debt mounted as Swift was hit hard by the closure of critical Asian export markets for the past few years. With limited financial commitments from the parent company, overhauls to Swift's slaughter and packing infrastructure have long been swept aside.
If Swift spinoffs are in Friboi's plan, place your bets on it selling off the pork side of Swift — and focusing its resources on the beef side. Pork simply doesn't fit the Friboi business model. Plus, the pork units have been the bright spot on Swift's balance sheet — and could get some serious notice from cash buyers.
U.S. cattlemen might be eyeballing the Friboi/Swift buyout as a direct link for South American fresh beef imports to North American markets. There's no question that if/when NAFTA countries open to fresh beef from anywhere in either Brazil or Argentina, Friboi will have a ready-made pipeline north.
NAFTA countries currently ban uncooked beef imports from Brazil due to FMD concerns. Like it or not, given time, USDA will recognize at least regions of Brazil and Argentina as being free of FMD. Tariff rate quotas will help limit the type and amount of South American imports.
When those imports begin coming in, most of them will be in the form of beef trimmings needed to help satisfy America's still-expanding love affair with ground beef. The case can be made that as an ultra low-cost producer, Brazilian beef trimmings will simply replace product U.S. grinders import from other countries — further enhancing the value of higher-fat U.S. domestic trimmings.
Similarly, Friboi's strong presence in Europe and the Middle East means another pipeline across the Atlantic for American beef products to fill — again if/when those markets come open to the full array of U.S. beef products.
The beef business just got a lot more interesting with another big, strong, international fighter joining the global beef slugfest. Don't just sit there and wring your hands — take a deep breath, tie on the gloves, and jump into the fray.
Clint Peck is a former BEEF Senior Editor.