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Cargill Pork’s Trek through Modern Pig Business
The announcement on July 1 that JBS USA Pork, a subsidiary of Brazilian-based JBS S.A., is buying Cargill’s U.S. pork business for $1.45 billion was a surprise to most in the meat industry. Minnesota-based Cargill, the nation's largest privately held company, has always kept information close to the vest.
Included in the deal are two packing plants, five feed mills, and four hog farms. JBS, which bought Swift & Company in 2007, is already a major pork, beef, and lamb processor, as well as a majority shareholder of Pilgrim's Pride Corporation, the second-largest poultry company in the U.S.
I track the pork production side of the meat industry, collecting sow numbers for the exclusive annual Pork Powerhouses report in Successful Farming magazine. I started this ranking of the 25 largest U.S. producers in 1994 and Cargill has been on the list every year.
Here’s what I have learned from sources at JBS and Cargill about the pig production portion of the deal as it stands right now.
- JBS USA Pork and Cargill Pork are separate companies until regulatory approval of the sale by the Department of Justice, which could take months. Until then it is business as usual as separate entities. If the deal is approved, Cargill Pork will become part of JBS.
- Cargill has a total inventory today of 175,000 breeding females, of which 15,000 are un-bred gilts. The Dalhart, Texas, location has room for another 10,000 sows to be stocked. Last fall, Cargill had 161,000 sows in the breeding herd, making it the eighth largest pork producer in the U.S. The 2015 ranking will be released October 1 on agriculture.com.
- JBS owns a 2,400-sow farm in Georgia. The pigs go to Indiana to contract finishers. JBS also has a long-term weaned pig agreement with Ag Production Enterprises, a family farm in Indiana with 11,000 sows.
Pork Powerhouses sow numbers for Cargill
Sow numbers for Cargill have jumped up and down in the past 21 years. Here is a summary.
1994: 77,000 sows
2014: 161,000 (eighth on the ranking)
2015: 175,000 sows
20-Year Timeline for Cargill
I have kept notes on Cargill’s pig production business since 1994. Here are some highlights.
1994: Cargill Pork has 20,000 sows in North Carolina, 37,000 in Arkansas, and 20,000 in Illinois and Missouri. The total of 77,000 sows ranks the company #5 on the inaugural Pork Powerhouses list.
1995: Cargill sells its U.S. broiler chicken operations to Tyson.
1996: Cargill grows to 90,000 sows with expansion into Oklahoma.
1997: Cargill and Garden City Co-op, Inc. in Garden City, Kansas, form an LLC that includes a 6,300-sow farrowing operation in Colorado called Bell West. Cargill sow numbers grow to 115,000. Finishing space is added in South Dakota.
1998: Cargill acquires the worldwide grain operations of rival Continental Grain Co. The deal does not include Continental's poultry pork, cattle, flour milling or animal feed businesses.
1999: Cargill sells 8,000 sows in North Carolina to Lundy Packing. Total sows number for Cargill is 110,000. In August, Cargill operating earnings are down 53% from a year ago. Robert Lumpkins, Cargill's vice chairman and chief financial officer said, “Commodity prices suffered their third straight year of decline . . . This has been hard on farmers and companies like Cargill.”
2001: In February, Cargill acquires Agribrands International, an animal nutrition company in Europe. In April, Cargill buys a significant stake in St. Louis-based Purina Mills, Inc., the nation's largest producer of livestock feed. In May, the Excel (Cargill) Marshall, Missouri, hog slaughter plant closes. In August, Cargill buys meat company Emmpak Foods and converts the plant in Marshall, Missouri, to produce case-ready beef and pork.
January 2002: Excel Corporation, a wholly owned subsidiary of Cargill, sends a letter (excerpted here) to pork producers about a Senate amendment that would prohibit packers from owning, feeding or controlling livestock for more than 14 days prior to slaughter.
“This type of legislation is full of unintended consequences, and could have far reaching implications that could drastically impact our industry and the services we are legally allowed to offer producers. In our opinion, this amendment clearly prohibits almost all risk management tools that packers offer to producers. If the intent is to eliminate forward contracting, then this takes away one of the most important risk management tools livestock producers have. Additionally, it could make illegal any number of successfully joint venture companies with pork processors and producers.”
February 2002: An administrative law judge finds that Excel violated the Packers and Stockyards Act. At issue were allegations that Excel failed to notify swine producers prior to changing a formula that calculated the prices paid on a carcass merit basis. As a result, Excel underpaid producers approximately $2.9 million for about 3.6 million hogs purchased between October 1997 and July 1998.
February 2002: Officials of a Cargill Pork Inc. operation near Martinsburg, Missouri, plead guilty in the St. Louis, Missouri, Federal Court for violating the U.S. Clean Water Act. The company pays a $1 million fine and restitution costs. Duane Connor, former manager of the operation, was charged on two felony counts for discharging slurry from a 17,000-head finishing operation into a tributary of the Missouri River, killing more than 30,000 fish.
April 2002: Hormel Foods and Excel Corp. form a joint venture to market nationally branded, fresh, case-ready pork and beef under the Hormel Always Tender brand name. The new venture, Precept Foods LLC, is a unique alliance reflecting attitude changes in the food chain. It allows Excel to supply more of its fresh meat products and Hormel to further expand its brand name.
August 2002: Cargill closes sow farms that aren’t performing well and initiates a massive campaign to eradicate the PRRS virus, closing many herds for six months. The company has 104,500 sows in production.
2003: Cargill has 118,000 sows and increases swine finishing capacity in Canada. In September, Cargill bids $385 million for bankrupt Farmland Foods, but loses the bid a month later to Smithfield Foods. In November, Cargill consolidates its meat operations under one name: Cargill Meat Solutions, based in Witchita, Kansas, where Excel has been headquartered since 1941. It is the second largest meat company in the U.S., behind Tyson Foods, Inc.
January 2004: Cargill Animal Nutrition signs a purchase agreement for the assets of Agway Animal Feed and Nutrition from Agway, Inc., an agricultural cooperative owned by 69,000 farmers in the Northeast.
May 2004: Cargill sells several sow farms in North Carolina and exits the pig production business in that state. Sow numbers for Cargill drop to 99,000 nationwide.
September 2004: Cargill acquires a majority share of Seara Alimentos SA, a major Brazilian poultry and pork processor. (The company is now a subsidiary of JBS Foods S.A.)
2006: The State of Iowa and Cargill resolve a dispute over the constitutionality of Iowa's prohibitions against processors vertically integrating into pork production in Iowa.
"This agreement enables Cargill to pursue its stated plans to significantly expand its hog production contracting in Iowa," said Iowa Attorney General Tom Miller, "and it protects the rights and interests of Cargill's contract producers." In return for Cargill's compliance with its commitments under the settlement, the State will not pursue enforcement of the ban on packer involvement in swine production with respect to Cargill, Miller said. The agreement has a term of ten years. Specific provisions of the agreement include that Cargill must not finish hogs in company-owned facilities for a period of five years.
2007: Cargill grows to 107,000 sows, mainly through new construction.
2009: Cargill Pork announced a new 100% vegetarian diet for hogs that supply its Good Nature pork line of products. The diet is completely free of any animal byproducts. The product is already guaranteed to be antibiotic-free, and hogs selected from the program never receive antibiotics or growth stimulants.
2010: Cargill Pork and Cargill Animal Nutrition open the Cargill Sow Innovation Center in Sugar Grove, Kentucky, in support of the company's animal welfare efforts. The facility will incorporate gestation group housing, as well as evaluate alternative housing for sows giving birth.
2011: Cargill buys Smithfield’s 21,500-acre Dalhart, Texas, sow operation, empty since 2009. The units will be restocked to produce pigs for Midwest grow-out facilities, many of which still have to be built. “It is a long slow process to add sows at the Dalhart location,” said Jeff Worstell, vice president of livestock production with Cargill Pork. “The sows will be bred and their offspring will be used to populate the facility. It will be next summer before there is much growth.”
2012: Cargill sow numbers hit 136,000, mainly by adding sows at the Dalhart, Texas, site.
2013: Cargill’s pork business breaks ground on a $29-million feed mill in Hedrick, Iowa.
2014: Cargill moves to group housing of sows, says company-owned facilities will be 100% group housing by the end of calendar 2015. Contract hog farms that contain Cargill-owned sows will transition to group housing by the end of calendar 2017.
July 2015: JBS USA Pork enters into an agreement with Cargill to acquire the company’s U.S.-based pork business for $1.45 billion. Completion of the acquisition is subject to regulatory review and approval. Included in JBS’ acquisition of Cargill’s pork business are two Midwest meat processing plants, one in Ottumwa, Iowa, and the other at Beardstown, Ill. Both plants were acquired by Cargill in 1987, and in 2014 they processed a total of 9.3 million hogs. The purchase by JBS also includes five feed mills (two in Missouri, and one each in Arkansas, Iowa and Texas), and four hog farms (two in Arkansas and one each in Oklahoma and Texas).
What Does the JBS - Cargill deal mean for prices? See Rich Nelson's Column