Harrington's Sort & Cull

Seller's Remorse?

John Harrington
By  John Harrington , DTN Livestock Analyst

Despite outstanding packer margins of $15-20 per head, today's hog kill totaled no more than 391,000 head, 40,000 smaller than last Friday. Why the sudden slowdown? Have processors suddenly tired of carrying money to the bank?

No, the reason for the temporary moratorium on the amassing of middle equity has to do with a rather dramatic changing of the guard. The last business day of October marks the official transfer of pork assets (i.e., packing houses, feed mills, genetic farms) from Cargill to JBS.

Early last July JBS USA Pork entered into an agreement with Cargill to acquire the company's U.S.-based pork business for $1.45 billion. At the time, many considered Cargill's decision to exit the pork biz to be rather shocking, especially given the incredible profits of 2014. Furthermore, the family-owned giant had raised not a single whimper of dissatisfaction, actually advertising in the trade to sign up more pig growers to feed its bullish appetite.

While the great mogul of Minneapolis remained characteristically mum about corporate decision-making, the consensus among market analysts soon formed that the rapacious acquisition team at JBS simply ambushed Cargill with an offer it couldn't refuse.

Cargill didn't become Cargill by blindly falling in love with assets and ignoring real market value.

At any rate, today marked the big closing when plants at Ottumwa, Iowa (18,400 head double-shift capacity) and Beardstown, Illinois (19,400 head double-shift capacity) were darkened to allow accountants to take necessary inventories. New signs will be raised on Monday, making JBS the second largest hog killer in the country (up from No. 3 today).

It would be both silly and arrogant to second-guess the wisdom of a company with such an amazing track record in American agriculture. Still, I can't help wondering if Cargill didn't feel a tinge of seller's remorse when the final hand was put to paper. Pork processing may be less dependable than printing money at the national mints, but it's certainly come close over the last several years.

And what's not to like about the foreseeable future? Cheap feed, expanding hog numbers, a new green light from China? JBS for one wants to be on the "buy" end of the deal. Indeed. The Brazilian juggernaut always seems to be on the make.

Just this week Chairman Joesley Batista told financial reporters that the world's largest meat packer is ready to take on a slew of acquisitions next year.

Cargill would no doubt agree that such talk should be taken seriously. Take it from the ex-hog killer. When a determined JBS knocks on the door with check in hand, chances are high that you'll soon be missing a ring of keys.

For more of John's commentary, visit http://feelofthemarket.com/…

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