Cattle futures closed lower again on Tuesday with Feeder Cattle leading the way. There seems to be a growing belief that holders of non-commercial long positions will begin unwinding them within the next couple of weeks—arguably they’ve already started—as wholesale beef values and cash fed cattle prices swoon seasonally lower. News that JBS S.A. plans to sell JBS Five Rivers Cattle Feeding added uncertainty (see below).
Other than 35¢ higher in spot Jun, Live Cattle futures closed an average of 18¢ lower.
Feeder Cattle futures closed an average of $1.35 lower (95¢ to $2.67 lower).
Choice boxed beef cutout value was $2.47 lower Tuesday afternoon at $246.99/cwt. Select was $1.48 lower at $219.88.
Major U.S. financial indices closed lower on Tuesday, pressured by softer energy prices, led by another step lower in Crude Oil.
The Dow Jones Industrial Average closed 61 points lower. The S&P 500 closed 16 points lower. The NASDAQ closed 50 points lower.
JBS S.A. announced yesterday that it is selling Five Rivers Cattle Feeding as part of a divestiture program to reduce the company’s net debt.
You’ll recall that JBS announced a month ago that seven of its executives and its controlling entity—J&F Investimentos—entered into a plea bargain agreement with the Federal Public Prosecutor’s Office in Brazil, which came with a fine of about $67.6 million (US). Apparently, that’s besides the approximately $3.2 billion (US) that J&F agreed, in principle, to pay in fines. All of that was the result of a massive political and financial scandal reportedly involving thousands of bribes by JBS and J&F to government officials in Brazil.
Five Rivers is the largest cattle feeder in the United States with feedlots in six states and close to 1 million head capacity. As well, JBS will sell other assets including: shareholding interests in Vigor Almientos, S.A. (one of Brazil’s largest dairy companies) and Moy Park (one of the 10 largest food companies in the United Kingdom).
JBS executive directors estimate that the divestment program will result in a capital injection of approximately $6 billion (Brazilian Real), which is equivalent to about $1.8 billion U.S., based on the current exchange rate.
“Selling these assets is central to a strategy designed to reinforce JBS’ competitive advantage in the global food industry,” according to a JBS news release. “The sale of feedyard assets will more closely align the JBS business model with key U.S. competitors and allow the company to concentrate its efforts on its core food and value-added products businesses.”
If the announcement firms up the odds of JBS maintaining its beef packing plants in the U.S., the market will view it as positive. In the meantime, uncertainty increases with the fact that JBS had to liquidate Five Rivers and other assets, and that there is apparently no buyer for Five Rivers lined up and ready to go.