Thread: NE: Is a giant packer a healthy idea?: Beef producers split

Even though this article doesn't say anything directly about illegal immigration, I think that it is pertinent as the five major meat packing firms in about 13 states serve as a magnet for illegal immigration pushing into these states. We need to keep an eye on what they are doing!

Published Sunday | April 20, 2008
Is a giant packer a healthy idea?: Beef producers split on unprecedented merger
BY BILL HORD
WORLD-HERALD BUREAU
http://www.omaha.com/index.php?u_page=1 ... d=10314744

LINCOLN — Cattlemen throughout the United States are concerned about the implications of a supersized merger of packing companies.

JBS Swift & Co.'s proposed acquisition of National Beef Packing and Smithfield Beef Group would create a packer that surpasses Tyson in size.Less than a year after buying Swift & Co., Brazilian-owned JBS (now JBS Swift & Co.) announced last month its intentions to acquire National Beef Packing and Smithfield Beef Group. At the same time, it is purchasing Tasman Group, a packing company in Australia.

The agriculture industry is divided, with dozens of populist groups opposing the merger and other mainline livestock associations and individuals seeing potential for marketing gains through a vast international network.

The purchase of the fourth-largest and fifth-largest U.S. beef packers by the third-largest would move JBS Swift ahead of Cargill and Tyson as No. 1 in U.S. meatpacking.

The sheer size of the purchases — $970 million for National and $765 million for Smithfield — stunned the industry.

In the end, JBS Swift would be slaughtering 30 percent of the nation's cattle, compared with 20.6 percent for Cargill and 20.5 percent for Tyson, according to Cattle Buyers Weekly, a marketing and business news publication covering the beef industry.

Leaders of a national campaign against the merger are encouraging cattlemen to meet confidentially with U.S. Justice Department investigators to testify in opposition.

"This could be the turning point for the chickenization of the cattle industry in America," said Michael Stumo, legal counsel for the Organization for Competitive Markets, a think tank dedicated to competition in livestock marketing.

As the number of competing packing companies is reduced, Stumo foresees a beef industry where all cattle are raised under contracts with packers, similar to the chicken industry, rather than sold through a bidding process.

"We'll look back in 10 years and say, 'Why did we not block this acquisition?'" Stumo said.

But some feedlot owners say that the purchase injects new capital into a packing industry that needs to remain strong for the cattle industry to do well.

"If meatpacking was a lucrative business, ConAgra wouldn't have got out," said Jason Anderson, an Arapahoe, Neb., feedlot owner. "Not many people want to be in that business."

Major national and state cattle trade associations, including the Nebraska Cattlemen, the National Cattlemen's Beef Association and the Kansas Livestock Association, have not come out against the JBS Swift acquisition.

But they have urged the Justice Department to thoroughly investigate the competition implications of combining three of the five largest beef packers into one.

"The Justice Department's task is to determine whether the acquisition is likely to substantially affect competition in the beef packing industry," Stumo said.

Stumo believes the merger would seriously weaken competition that helps cattle feeders get better prices. In some cases, he said, cattle producers who regularly have three competing bids from the big five would have only two.

"OCM has heard from many feeders who will be harmed by this merger," Stumo said. "Some will lose a buyer directly. All feeders risk lower prices and less market access."

Stumo said some cattlemen are reluctant to express their concerns to the Justice Department. "They fear packer retribution," he said.

Some cattle producers contacted by The World-Herald declined to comment on the possible impact of the merger.

Behind the scenes, the industry has been abuzz.

"A lot of people in the industry are talking about it right now," said Todd Domer of the Kansas Livestock Association.

After meeting with JBS Swift owner Wesley Batista in March, members of the Kansas association were encouraged about possible positive impacts of the Brazilian family's growing role in the beef industry.

"They learned that the Batista family has some different ideas that could be better for the producer," Domer said. "He talked a lot about building value for beef."

The JBS company in Brazil became the largest worldwide beef packer when it purchased Swift and Co. last year, even though it remained No. 3 in the United States behind Cargill and Tyson.

Batista's strategy includes freezing high-quality beef cuts — such as tenderloins — so that they can be sold when demand is high and the market price is at a peak. He also plans to expand the use of canning and cubing of beef.

"Our members are obviously concerned about the merger," Domer said, "but they can obviously see the good side."

Concerns about competition center on the loss of competitive bidders when feedlots sell fattened cattle for slaughter.

The biggest impact might be felt in western Kansas, where National Beef's plants at Liberal and Dodge City might compete for cattle with JBS Swift's plant at Greeley, Colo.

"If you were a feedlot that was regularly getting bids from JBS Swift and National, those two just went to one," said John Lawrence, a livestock economist at Iowa State University.

In western Kansas, competition could still come from a Cargill plant at Dodge City or a Tyson plant at Holcomb.

For that reason, "the competition would remain pretty fierce," said Steve Kay of Petaluma, Calif., publisher of Cattle Buyer's Weekly.

"We are going to have very strong companies with multinational operations hitting the U.S. beef processing industry," Kay said. "I think that is a benefit to all in the U.S. beef industry going forward."

Kay said JBS Swift has an international network in beef trading that is unparalleled.

"They sell in countries that others have scarcely heard of," Kay said. "Now, U.S. beef will be sold in more countries than possibly could be imagined until now."

Mostly, the packing plants that would merge under the JBS Swift umbrella are scattered, said Kevin Good, a senior market analyst for CattleFax, a cattle marketing information service in Englewood, Colo.

"The areas that would have a geographical overlap are not many," Good said. "To analyze the impact of this might take a few years, actually."

But the implications of such a large merger on the beef industry are not clear, said ISU's Lawrence.

"What this does say is there is certainly reason for scrutiny," Lawrence said. "There needs to be an ongoing monitoring. There is the opportunity for things to go astray."

More profits at the corporate level do not mean more profits at the production level, just ask a pig farmer.

Just fishing. Where is Tyson's protein dollar?

Just another cast into the pond. Does the NAIS (National Animal Identification System) play a role in the greater scheme of events?

Who will control the protein market? Speculators?

Private ownership is not subjected to speculation provided there is other competitors in the market. Corporate ownership is placed into the world marketplace for speculators to try and realize the greatest return on investment (dollars not sweat) without physical work being performed by the investor. Thus a Brazilian investor and many others from around the world could control the price of protein despite supply and demand economics. Freeze and can more meat when prices are low and hold that from the market til prices shift. Then play the market on the way up and shift the dollars to play on the way down. Speculators take profits on investment capital (no physical work production) thus prices at the consumer level pay for the speculators, while the producer must be held in check in order to maximize profits at the capital level.

My knowledge of economics at any level are wanting. However I was facinated recently by the supply and demand of Uranium and its pricing. Lesson learned by watching that market, manipulation rules the roost.

Support your private farmers. Join a coop.