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U.S. Cattle Suppliers Keep Pace, Despite Roiled JBS Buyer

JBS is not paying cattle producers for 30 days.

SAO PAULO, Brazil-- JBS, the world’s leading company in the animal protein market, has been the last protagonist in the crisis that plagues Brazilian politics.

Since the company admitted, in a plea bargain with the Justice Department, the practice of donations and bribes to politicians, as well as being accused of corruption tied to the President of the Republic Michel Temer, JBS has gained prominence in the news.

According to industry analysts, this situation is negatively impacting the Brazilian beef market, and the main losers are the cattle ranchers. In the state of Mato Grosso, the largest cattle producer in Brazil with more than 30 million head, JBS was responsible for buying 48% of the processed cattle.

Recently, the company has decided not to pay farmers in cash any more, closing deals only with 30-day payments.

The company’s strategy is to maintain operations without compromising cash. As the cattle ranchers’ confidence in the company is low, most of them are not closing deals with JBS because of the default risk. With the animals ready for slaughter, producers have to sell them to other slaughterhouses that are not JBS in order to fulfill financial commitments. As a result, they (producers) end up accepting market prices and receiving less for their animals.

“The standardization of livestock policy in 30 days took place almost two months ago, with 97% of purchases already being made in this way,” says JBS in a statement sent to Successful Farming-Brasil.

According to the company, the current cattle prices are directly related to the livestock cycle and to the greater supply of livestock for slaughter. Apart from that, the consumption decrease in the domestic market and the retracted economy have a direct influence on the price of the animals.

A month ago in Mato Grosso, a fat cattle animal cost R$130, whereas now it costs around R$118. “Brazilian exports have increased, consumption continues normally, and industry continues to shed,” says Luciano Vacari, executive director of the Mato Grosso Breeders' Association (ACRIMAT). “In four weeks time, the price of beef cattle has fallen by 6%, which is about R$10 less per arroba.”

JBS also affirms that its financial situation is robust and that it maintains a close relationship with its suppliers. “Businesses are proceeding at their normal pace, whether in Brazil or in the U.S., always according to our global business plans,” says the Brazilian company.  

Competition

With JBS, Marfrig and Minerva are the main companies that slaughter cattle in Mato Grosso. However, according to Vacari, there is a strategy to push the price of the arroba because companies know that ranchers are running out of options to slaughter the oxen they have in their pastures. “Competition is healthy in any segment. We want the reopening of the units that are closed, the incorporation of new groups, and also increase the participation of those that are already working,” says Vacari.

Futures market  

According to Alex Lopes from Scot Consultancy, JBS is a company that buys a quarter of Brazil’s livestock. “This setback in purchases generated a great impact on the price of the arroba, creating instability in the market,” he says. What has caught the attention of analysts was the future market in October and November. According to Lopes, in a week there was a “sharp” drop from $128 to $118 in the future market. “One of the facts that contributed was the completely uncertain scenario,” says the consultant. “Nobody knows how this company, which dictates the market price, will position itself in purchases from now on.”

Indebtedness  

To reduce net indebtedness and to strengthen the financial structure, the JBS executive board estimates that with the divestment program the company will obtain approximately R$6 billion from the sale of 19.2% of Vigor Alimentos and the sale of Moy Parke from the assets of Five Rivers, Cattle Feeding and farms.  

The company believes that recent events show how things are at the heart of the Brazilian political system. “The collaboration of Joesley Batista and six other people with the Justice is very different from everything that has been done before. Collaborators remain available to cooperate, and additional information and documents are being identified for the investigations and will be delivered within 120 days,” says JBS.

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Written by Naiara Araújo, Successful Farming-Brasil Reporter