JBS USA was able to get their 11 feedlots sold last week to a group of investors who are very familiar with the cattle and commodity business—Pinnacle Investment Group of Oklahoma City, with Arcadia Management and Ospraie Management. The Batista brothers, Wesley and Joesley, have liquidated all the assets they needed to satisfy their leniency pleas with the Brazilian government after they exposed widespread graft in the government following the Brazilian meatpacking “Operation Carwash” scandal last year.
There was quite a bit of speculation of how this deal was going to happen. Many thought they would sell the feedlots in pieces or to small groups of investors. Getting them sold in one unit was quite a trade. There aren’t many folks who could or would come along and buy all 11 feedlots. This shows us that these investors are very bullish on the future of the cattle and beef industry going forward.
We understand the deal was for the physical assets of the feedlots and supply contracts to supply JBS USA packing with finished cattle into the future. This was a $200 million deal; if they sold all the cattle inventory, the deal would certainly be over $1 billion. So, it looks as if J&F Investments, owned by the Batista family, will work through their cattle inventory over the next several months. Let’s hope these new owners have secured enough operating capital to keep business flowing as usual.
JBS came on the scene in early 2000, buying Swift Packing and portions of National Beef, and cobbled together the 11 feedlots in rapid fashion. They acquired most of the feedyards when they purchased those beef packing operations and hog operations, then later bought Pilgrim’s Pride chicken and added and subtracted operations along the way. They assembled a full diversified meat protein business in the U.S. over a five- to seven-year time frame. Then the Department of Justice (DOJ) came in under antitrust concerns, and they were forced to separate the feedlots, creating the Five Rivers feedlots under J&F Investments. They were told to divest a few feedlots and packing plants that the DOJ thought would give them too much strategic advantage or market control.
Folks tell us that this is strictly an investment situation by the three principal capital management companies. Pinnacle Asset Management, Ospraie Management and Acadia Management is in this somewhere. Several of these outfits are very familiar with cattle feeding and the commodities trading industries and have strong track records. Jordan Levi of Arcadia Management has served on several boards with Texas Cattle Feeders Association, and on the live cattle marketing committee for NCBA. He was also instrumental in developing the Fed Cattle Exchange with Superior Livestock Auction in response to price discovery issues in fed cattle markets; he’s no stranger to this business.
It appears the key to this deal was keeping the current Five Rivers management team together led by Mike Thoren, CEO of Five Rivers, and some 600 employees. As we all know the cattle feeding business is feast or famine, and the long-term financial returns are not all that high, I’m told.
Therefore, most of the major beef packers have divested themselves of their cattle feeding operations. First it was Cargill that sold four feedlots over the past two years. Tyson never really got into the cattle feeding business. Now JBS has turned the corner, and National Beef still has a few feedlots. They all claim that they can now free up operating capital to peruse more value-added endeavors aligned with the processing side of the business.
When the dust settles, I would expect to see business as usual. JBS has supply contracts with Five Rivers and Five Rivers will remain a strong buyer of feeder cattle. I wouldn’t expect to see any real market fluctuations related to this transaction.
This entire episode was caused by the Brazilian political/meat scandal that occurred last year when a political battle broke out between the Brazilian government and the Batista family. There was bribery, payoffs, political favors, inside trading—all the stuff you see in the movies. The Batista brothers were incarcerated and still are pending their ability to meet their leniency obligation to the Brazilian government of $3.2 billion. The Batistas have been selling assets from their meat empire all over the world to raise cash. They may be down, but I certainly would not consider them out of the global meat packing industry. — PETE CROW
