JBS isn't like any other U.S. beef packer. For starters, it's Brazilian and is owned and run by a family, the Batistas. Also, the family has a long history of being cattle producers. Founder Joe Sobrinho Batista runs one of the country's largest cow-calf operations and JBS is a major cattle feeder in Brazil. Moreover, JBS has backed up its talk of growing its U.S. beef business by actual results in its first year of operations.

So when JBS USA CEO Wesley Batista (the middle of three sons who run JBS SA) spoke to cattlemen's groups this spring and summer, producers began to realize a different type of owner was now in charge of the former Swift and Company. While most people reserved judgment about JBS's proposed acquisitions of National Beef Packing, the Smithfield Beef Group and Five Rivers Ranch Cattle Feeding, at least some of their concerns dissipated.

Justice Department review

The acquisitions ($1.535 billion in cash, stock and debt) are expected to be finalized in October. Assuming the U.S. Justice Department does not require JBS to make any divestitures, JBS will have the capacity to slaughter 42,000 cattle/day in the U.S., giving it a 30% share of industry capacity. Meanwhile, Cargill Meat Solutions at 29,000 head/day will have 20.6%, and Tyson Fresh Meats at 28,700 head/day will have 20.4%.

JBS will also become the industry's largest cattle feeder through Five Rivers. More concern arose over this part of the deal than any other aspect.

But Five Rivers already markets 60% of its cattle to JBS (900,000 out of 1.5 million head marketed annually). Even if Five Rivers sent all its cattle to JBS, they would make up only 14% of the combined slaughter of JBS Swift, National and Smithfield. Marketings are unlikely to reach this percentage because JBS says Five Rivers will still feed customer cattle and allow them and company-owed cattle to go to the highest bidder.

Batista's willingness to talk with producers has been partly self-serving, as JBS knew there would be strong opposition to its acquisitions. But he was delivering a similar message to producers from the day he took charge of Swift in July 2007. Batista reiterated that message when this author sat down with him recently at JBS's Greeley, CO, headquarters.

“Our main message to producers is to work together and build the business and create new markets,” Batista says. “That's the message I've been giving producers since I was 19 years old. I feel very good about all these meetings because, with some exceptions, people have understood this message.”

JBS has been working in two ways to strengthen its supply lines with cattle feeders, Batista says. “First, Swift Beef is very competitive now. We are about $50 better off in per-head plant costs. So we can be much more competitive in cattle procurement and beef sales. We can be more aggressive in the live-cattle market.”

JBS disclosed the plant cost improvement in its second-quarter 2008 financial results, saying that U.S. total beef-processing costs on June 30 were $164/head, vs. $212 a year earlier. That, say analysts, makes the former Swift Beef more competitive than at any time in the past 10 years.

“We're also working to improve our direct relationships with producers,” Batista says. “We packers need to hear from our cattle suppliers to discuss our business. We want to open more doors with them to discuss how we can together strengthen the U.S. beef business. Because many times in the past, producers worked in one direction and the industry went in another.”

JBS has been doing this kind of producer outreach forever, Batista says. “My father was a cattle producer first and not just a packer. He still has a large cow-calf business in Brazil, with many thousands of cows, and JBS has feedlots. So we know the producer's life. In meetings with producers, I say: ‘We are an industry that disassembles your cattle. If I were a producer, I would not want my product not to have value added to it.’

“I also tell them we need to work to stimulate demand for beef, to reopen markets and open new markets and add value through brands and new products. I tell them the U.S. has 300 million people. If we add 1 lb./person of beef consumption, that's 300 million more pounds sold. We tell them about sharing efficiencies. At the end of the day, that will benefit the whole industry.”

Building more efficiency

JBS in the past year has concentrated a lot of energy on operations, and on reducing costs, to be more efficient, Batista says. “This is good for the whole packing industry because we have made Swift much more competitive and we have stimulated change for everybody. This is very important for producers and consumers because everyone pays for inefficiencies.”

Asked how JBS will use the Five Rivers cattle-feeding operation, Batista says Five Rivers will continue to be an aggressive buyer of feeder cattle.

“JBS would also like to use Five Rivers to produce more cattle for its premium beef programs. And we want to grow these programs. We are doing the same in Australia in relation to having beef with more marbling to go to Japan.”

A big portion of beef will continue to be a commodity, Batista says. But JBS is working to expand its premium programs. It already produces Certified Angus Beef® and Swift has three main brand lines: Swift Premium, 1855 and Swift Angus Select. It has doubled the volume of and improved the margin on these lines over the past year, he says. He also notes that National Beef has very recognized value-added and branded-beef programs. It sells an important portion of its product under those programs, he says.

Batista is bullish about export prospects for U.S. beef. He expects to see sales to South Korea come back stronger and more quickly than many think. That's because per-capita consumption will pick up fairly quickly, he says. Also, the negative perception of U.S. beef portrayed in the protests did not reach the vast majority of Koreans. Most people there like U.S. beef, its quality and its price, he says.

As for other markets, JBS is sending a reasonable volume of U.S. beef to Russia and to some Middle East countries. It is also shipping beef and pork to former Soviet Union countries. After being a market mostly for livers, Russia is taking a lot of muscle cuts, including top sides, all the round cuts and knuckles, he says. There is the potential to sell middle meats there as well.

“JBS is already the biggest protein supplier in Russia. With Inalca (JBS's Italian beef business), we are building a big cold storage facility and hamburger patty plant to supply McDonald's in Russia.” It will use the cold storage to handle JBS beef from all over the world, he says.

Batista says JBS's biggest challenge when it took over Swift was “to put it in the direction that we believe in, that is to manage the company in a very professional and organized way, in a simple way, with a very dynamic, lean and hands-on structure.

“Our business is a details business so you have to look at every cost,” he says. “For example, Swift's structure had nine layers from the CEO down to managers. We now have four.”

The result is Swift is not the worst beef company in the U.S. any more, says Batista. “We are very competitive now and the numbers prove we made a significant improvement. We increased the competition in the market, which is opposite to some people's concerns, and we will continue to do so with our acquisitions. We are not buying these companies and putting $3.5 billion into this market to not run these plants at full capacity,” he says.

Steve Kay is a contributing editor to BEEF magazine, and editor and publisher of Cattle Buyers Weekly (www.cattlebuyersweekly.com).