Opportunity for Brazil in Russia’s ban on US, Australian beef

Jon Condon, 19/08/2014

BRAZIL will benefit from Russia’s decision to suspend beef imports from the US and Australia, JBS told shareholders during its recent financial briefing covering the company’s second quarter.


Wesley Batista

JBS chief executive Wesley Batista said that Moscow’s decision a fortnight ago to approve 90 Brazilian plants for meat export to Russia – while curtailing imports from the likes of Australia, the European Union and the US – was beneficial for the company’s operations in Brazil.

“Russia opened all the pork plants, chicken and beef. We believe we can increase sales by between $600m-800m a year in Russia through our South American operations,” Mr Batista said.

That would represent a substantial increase to exports to Russia, which in the April-to-June quarter amounted to about $250m for the Brazil-based group as a whole, Europe’s website reported.

In fact, Mr Batista said that there would be little offset to the boost to South American volumes from countries affected by the sanctions, which Moscow aimed at countries which have imposed financial sanctions on Russia over claims of it destabilising eastern Ukraine.

The sanctions would have few repercussions for JBS’s operations in Australia, which exports little product to Russia, while the group’s North American business historically only ships very small volumes of meat to Russia too.

“We don’t see any impact in our business in North America or in Australia,” he said, terming Russia’s move “very positive for JBS overall.”

The impact of Russia’s move would be felt more in Europe, which exported much more volume, especially in pork, to Russia than North America, but a region to which JBS has little exposure.

The comments followed the group’s release of results for the April-to-June quarter showing an unexpected 25pc slump in net income to R$254.3m, despite a jump of 32pc in earnings. See Beef Central’s earlier report here.

“The beef business in North America, definitely was the most challenged business in our whole company last quarter,” Mr Batista told financial analysts.

However, with US meatpackers closing five plants in the last 18 months or so, “that definitely is going to help to balance the supply and the US industry capacity to be much more balanced,” he said.

The plant closures took almost 8000 head per day out of the US market, which would be a key factor in helping balance the US industry to deliver better margins and better results.

“We don’t believe that any of the closed plants are viable to return,” Mr Batista said.

“We’re going to have a quarter in the beef division that is notably better from the point of view of margin and profitability.”

“Not only that, export is growing overall, so we are seeing a strong demand in China. So we believe we’ll see less beef available in the US, and this also helps the sale price,” Mr Batista said.

Growth in the coming years for the global JBS company, the world’s largest beef and poultry processor, is expected to come primarily from poultry and processed foods, and less from beef operations worldwide, he told analysts.

Since December, JBS has leased or acquired eight Brazilian companies involved in poultry, in an effort to gain market share against Brazil’s largest poultry producer, Brazil Foods Corp. The latest was a deal in July to acquire poultry operations in Brazil and Mexico from Tyson Foods for A$595 million.

JBS also acquired Seara from Marfrig Global Foods in June last year, in a deal that elevated the beef giant into the number two position in Brazilian poultry production, and number one in the world in total bird processing, driven by the company’s Pilgrim’s Pride operations in the US).

The company’s newest business unit, JBS Foods, created in 2013 to produce value-added poultry, beef and pork processed foods in Brazil, should benefit from cost-saving synergies worth A$550 million with Seara by the end of this year, shareholders were told.




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