Sort & Cull

To say May has been a good month for beef packers rings like a gross understatement. You might as well deadpan "President Trump has experienced a challenging spring."

More specifically, the last two weeks have gifted processors with an extraordinary windfall, a bottom-line bonanza that momentarily mirrors the money-printing success of Apple, Berkshire Hathaway, and the Denver Mint. And one hardly needs a degree in econometrics to appreciate the size of the party.

On one hand, the cost of live cattle inventory has absolutely collapsed since early May, tanking close to $12 per cwt. Over the same time period, seasonal beef demand has caused carcass value to soar, surging nearly $25 per cwt. According to the DTN model, these happy warriors will start next week with gross margins close to $350 per head.

Nice work if you can get it, indeed. Yet some in the room, believe or not, actually have bigger steaks to grill.

While JBS will be beaming right along with the country's small fraternity of beef processors, its broad corporate smile stands to shame even the combined enthusiasm of Tyson, Excel, and National. Not only will this global giant have the incredible pleasure of shouting "KA-CHING" 28,000 times per day next week (i.e., its approximate U.S slaughter capacity), Brazilian accountants at JBS may also be deliriously booking profits scored this week on long-dollar/short-real currency trades.

Given the wild news week surrounding the White House, Russia, the FBI and DOJ, I suppose you can be excused for missing the big headlines out of Brazil concerning a major bribery scandal, which is rattling JBS bank accounts in more ways than one.

Specifically, Brazil's President Michel Temer is under investigation in connection with a sprawling corruption scandal. The country's Supreme Court on Thursday confirmed that the probe involved the president a day after Brazilian newspaper O Globo reported that prosecutors had recordings of Temer purportedly encouraging payments allegedly intended to silence former Speaker of the House Eduardo Cunha, who was convicted in March of corruption and money laundering.

Where do you suppose the incriminating recordings came from?

Apparently, they were handed over by certain JBS executives who were also facing the possibility of jail time (the charges against these guys remain unclear, but they were serious enough to warrant a fine of R$225 million). As part of a plea bargain, JBS threw Temer under the bus by handing over said recordings.

Economically, the immediate reaction to all this dirty laundry was extremely ugly. The Ibovespa stock index was down 8% midday Thursday after declining as much as 10% earlier in the day, prompting the stock market to suspend trading for the first time in almost nine years.

Brazil's currency, the real, tumbled 8% to 3.32 against the dollar from 3.13 the day before. Traders said it was the currency's biggest fall in more than a decade.

Here's where it gets interesting.

While I have absolutely no inside information regarding the inside workings of JBS or financial positions the company has or has not taken, it is common knowledge within the trading community that it is a huge player in the currency market. Indeed, why wouldn't it be given a sprawling network of business concerns in virtually every corner of the world. Given such realities, surely it's not tough to imagine that JBS was uniquely positioned to take major advantage of this week's imploding real.

For what it's worth, there are even some Brazilian newspapers suggesting that JBS favorably positioned itself in the currency market before the plea bargain was made. Will Rodgers used to say "all I know it what I read in the papers," and even then he probably had to slog through a couple columns of fake news.

Who knows if we'll ever know the true story in this regard? All of I can tell you is that JBS either had a real good week, or a real, real, real good week.

John A. Harrington can be reached at john.harrington@dtn.com

(SK)

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