Kay's Korner

Mar 29, 2013

JBS keeps on growing

Wesley Batista sure is the eternal optimist. I guess you have to be when you’re running the world’s largest beef company, with operations from the Americas to Australia. But this might also allow the CEO of JBS SA to have a unique perspective about global beef demand, about which he is bullish.

Batista’s optimism, and that of his family, transformed JBS from being a mid-sized beef processor in Brazil to being the world’s largest meat and poultry company. The company now harvests every commercial species of animal, including goats. Its global revenue in 2012 was 76 billion reais (roughly $38 billion), up 22.5 percent from the year before.

JBS in the last six years added pork, lamb and chicken to its protein portfolio. But it remains at heart a beef company. It keeps expanding this business despite reduced cattle numbers in the U.S. JBS expects to process 12 percent more cattle globally in 2013 than last year. This will reflect larger kills in Brazil and Australia, plus the addition of the former XL Foods’ beef plant in Brooks, AB.

JBS already processes far more cattle than second largest global processor Cargill.

JBS processed 16.359 million head in 2012, up 8.4 percent from 2011. Nearly all this increase came in its Mercosul (South America) unit. Its slaughter total increased 17.9 percent to 7.96 million head. JBS’ USA Beef unit, which included Australia last year and now also Canada, processed 8.399 million head, up 0.8 percent from 2011. JBS globally will process 2 million more cattle in 2013 versus 2012, says Batista. Eighty percent of JBS’ increased processing capacity in Brazil was incorporated into JBS’ 2012 fourth quarter. JBS has two more plants there to reopen and it expects to be able to run all its Brazilian plants at an efficient level by the middle of this year, he says.

JBS provides a wealth of information about its beef and other operations in its quarterly financial results. This information reveals how JBS has much more market penetration globally than anyone else. JBS’ exports of all proteins (beef, pork, chicken and sheep meat) totaled $9.83 billion in value in 2012. Mexico was its largest export market, taking 14.6 percent of total value. Then came China/Hong Kong/Vietnam with 14 percent, Japan with 11 percent and Africa/Middle East with 10.3 percent.

Last year’s 8.4 percent increase in the global number of cattle it slaughtered meant JBS sold 7.8 percent more beef. Volume sold totaled 8.259 million metric tons (mt), versus 7.664 million mt in 2011. Of the total, JBS sold 6.185 million in domestic markets (up 8 percent from 2011) and 2.074 million mt in export markets (up 7 percent). JBS data also reveal the value of beef exports. JBS’ average selling price for beef from its USA Beef unit in 2012 was $3.65 per kilo on the domestic market, up 4.8 percent from 2011, and $4.20 per kg on the export market, up 8.5 percent. Volume on the domestic market at 3.546 million mt was up 4.3 percent but export volume at 1.08 million mt was down 9.3 percent.

JBS’ 2010 entry into chicken processing in the U.S. and now in Brazil has positioned it well for an expected increase in global chicken consumption over the next nine years. JBS cites projections from the United Nations’ Food and Agriculture Organization (FAO) that show a 21-year growth in global beef, pork and chicken production. Beef production will increase from 60 million mt in 2000 to 76 million mt in 2021, says FAO. Pork will increase from 90 million mt to 126 million mt and chicken will increase from 70 million mt to 127 million mt.

More than 80 percent of the overall consumption growth in proteins is coming in emerging markets, says JBS’ Jerry O’Callaghan. Overall food surpluses exist primarily in North and South America and Australia, where JBS has most of its operations, he says. Food deficits exist primarily in the Middle East and Africa, Asia and Eastern Europe.

JBS USA Beef had a profitable 2012 fourth quarter and full year, although earnings and margins (2.1 percent for the quarter and 1.3 percent for the year) were well below those in 2011. JBS expects its U.S. beef business to improve from the second quarter on, says Batista. Some changes in the marketplace will help, such as the closure of Cargill’s Plainview, TX, plant on Feb. 1 and Japan’s relaxation of its age restriction on U.S. beef. In the meantime, JBS in the U.S. has reduced some operating hours at its plants to better balance supply and demand and to improve margins, he says.

Always the optimist, Batista still believes that industry operating margins of 3-5 percent are still a reasonable target. JBS has been improving its global business month by month in many ways. This includes reducing costs and selling more value-added products, he says. That’s surely a recipe for anyone in business to follow. — Steve Kay