July 21, 2011

Rabobank reports world beef industry consolidation to accelerate

Mergers and acquisitions among beef processors worldwide are expected to pick up speed, with middle-tier processors particularly vulnerable unless they have a niche position in the market, according to a report by Rabobank.

"The next era of successful beef processors will need the size and reach to both access the cattle they need as well as arbitrage the trading opportunities that are increasingly present in the global beef industry," Rabobank editors David C. Nelson, Guilherme Melo, and Ethan Hendricks wrote in the company's Quarter Outlook for Global and Regional Markets for the second quarter of 2011.

Consolidation is likely to be tempered in the United States, which already has worked through a lengthy period of buying and selling. On the other hand, the industry elsewhere has plenty of room to shrink.

"Competition between beef-packing companies for cattle has become fierce and has forced cattle prices higher," the report said. "There is nothing new in this, but the challenge for beef packers under these circumstances has become more complicated. Another important challenge beef processors face in this environment is financial liquidity for working capital in the face of extremely high cattle prices."

In the Brazilian state of Mato Grosso, which is responsible for 12% of the total Brazil cattle herd, 17 of the 40 beef packing plants are closed. In Argentina, several plants have closed in the past year, or are closed temporarily, as a result of this squeeze. In Australia, the joint venture between Cargill and Teys Group will yield a combined 19% share of Australian slaughter.