March 15, 2013

JBS expects higher profits in US beef operations

Following a competitor's beef plant closure and Japan opened its market to more US beef exports, JBS SA expects its beef operations in the US to generate higher profit margins starting in the second quarter.

The company reported on Wednesday (Mar 13) that fourth-quarter profit more than doubled from a year earlier to BRL66.4 million (US$33.9 million), helped by cuts to operating costs. The US beef operation was one of the weak spots in the improvement, but that should change this year, said JBS President and CEO Wesley Batista.

"Beef was most challenged in the US last year...but we have some changes in the marketplace that we believe will improve the market this year," Batista said in a conference call.

Batista referred to two specific events that should help reduce production and increase demand. Cargill Inc., one of the world's largest beef producers, said in January it will close a Texas processing plant due to dwindling cattle supplies caused by drought in the central US.

In the same month, the Japanese government announced it will let more US beef into the country, easing restrictions that were implemented following the first US case of mad cow disease a decade ago. JBS has no plan to increase beef production in the US, Batista added.

"We are not going to increase capacity or run plants with better capacity utilisation," he said. "We are also reducing hours to some extent to better balance the market and try to improve margins."

The company also has no plans to increase chicken production capacity in the US, said Batista. One of JBS's competitors in that country has plans to boost output, but the US and export markets should be able to absorb the increase without changing market dynamics, he said.

"We believe the market for chicken will grow outside the US," Batista said. "But we believe there should be discipline in the market to not increase production more than the market can absorb."