JBS to beef up production from grass-fed Brazil herd

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JBS SA, the world's biggest meat company, is betting on Brazil's grass-fed beef industry to win global market share as high grain prices squeeze production in other countries.

In the coming months, the family-run company will open six additional slaughterhouses that will increase its beef production capacity in Brazil by 15 percent, Chief Executive Wesley Batista said on Wednesday.

The company slaughters nearly 12 million of the 40 million head of cattle that Brazil kills annually.

Analysts expect Brazil's grass-fed beef industry to gain market share as other global beef producers, such as the United States, Europe and Australia, reduce the reproductive potential of their herds due to high feed costs after the recent drought in the United States farm belt.

The six additional plants will increase processing capacity by 1.2 million head of cattle by July 2013, head of investor relations Jerry O'Callaghan said on a conference call to discuss the company's third-quarter earnings.

As the plants reach full production toward the end of 2013, they will be able to process up to 2 million head a year. Three of the plants will be new and three inactive ones, acquired with JBS's takeover of rival meatpacker Independencia, will be reopened.

In April, JBS snapped up Independencia, once one of Brazil's biggest meatpackers, at a cut-rate price while it was in bankruptcy -- a victim of the 2008 financial crisis.

"This expansion will cost very little. They are units that we already have and are going to direct to the local and foreign markets," Batista said during a conference call with analysts.

JBS posted a quarterly profit of 367 million reais ($178 million) late on Tuesday, recovering from a quarterly loss of 68 million reais a year earlier thanks to its strong beef business in Brazil.

Batista said the company was quickly reducing its leverage, or debt to earnings, with the improving reproductive cycle of the Brazilian cattle herd and a weaker Brazilian real against the dollar.

"The cost of raising an animal in the United States is twice the cost of raising an animal in Brazil. So, they are reducing the size of their herd," Batista said, adding that the outlook for Brazilian beef production was extremely positive.

Batista said he expects a favorable cycle for the company's Brazil operations until 2015 as the number of cattle available for slaughter grows. The country has the world's biggest commercial herd of more than 200 million head.

"Business in Brazil is more attractive than abroad. We are increasing production in the place that offers the best returns," Batista said.

Company shares rose 3 percent in early trade on Wednesday in Sao Paulo, but later fell back to close down 3 percent, in line with the Bovespa index .BVSP as stocks reacted to generalized strikes in Europe and weaker Brazilian economic data.

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Texas  |  November, 15, 2012 at 10:27 AM

Cattle Feeders: it is not a surprise. Corn Farmers: surprise! Public: your steak may be imported. Support American Farms and Ranches- Food is security.

Kentucky  |  November, 15, 2012 at 12:11 PM

Interesting take. "Your steak may be imported." Isn't it already, or does Canada not count? I guess in security terms Canada is safe and Brazil is not. Does this also apply to oil? But I digress.... Of course, the chance of Canada cutting off beef supply to the U.S. and causing a shortage seems pretty remote. Is Brazil a greater danger? At the moment (and for many decades) there is virtually no fresh or frozen beef imported from Brazil due to foot and mouth. I doubt that's going to change any time soon. And what about all those other food items, esp. this time of year, coming from Mexico, Chile, South Africa, etc.? Let's be realistic; we live in a globalized world and we will always be importing food, including beef. As for competition, though, Asia and the Middle East is another story, though with the exception of Japan, Korea, and Taiwan the U.S. supplies limited beef to Asia (and has Australia to compete with as well). On the other hand, what about local? But that's another discussion....

Tennessee  |  November, 15, 2012 at 02:49 PM

I think the real lesson here is that north American farmers need to learn to manage their grass so as to reduce their input costs. With proper management a ranch could pay a living wage and draw young people back from the cities. Now that's a revolution!

November, 17, 2012 at 06:18 AM

There is only so much grass, and land, and water.

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