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Sandhusker

Well-known member
6th Submission to Justice Department Reveals Still More Ways

JBS Mergers Would Harm Independent U.S. Cattle Producers, Feeders


Washington, D.C. – On Friday, in its sixth formal submission to the U.S. Department of Justice, R-CALF USA furnished an eight-page letter and 14 separate exhibits that provide additional evidence to show that harm will befall independent U.S. cattle producers and cattle feeders if Brazilian-owned JBS is allowed to purchase National Beef Packing Co., Smithfield Beef Group and Five Rivers Ranch Cattle Feeding, the largest feedlot corporation in the United States. Evidence to that effect also was provided to the Justice Department in formal submissions on April 9, April 24, May 8, May 20 and May 28.

“Since our last submission, new information from USDA (U.S. Department of Agriculture) and other sources has become available that raises additional concerns regarding the JBS mergers,” said R-CALF USA CEO Bill Bullard.

This new information includes:

* USDA-developed charts depicting the ongoing erosion of the fed cattle cash market.

* A USDA-developed report showing significant price disparities between regional markets.

* A media report describing a distortion of competitive market fundamentals in the U.S. fed cattle market.

* A chart showing farm-to-retail beef price spreads in constant 2007 dollars.

* Evidence showing a tendency by the merging entities to unilaterally engage in anticompetitive behavior.

* R-CALF USA-developed maps showing concentration of above-the-average national cattle prices over time.

* USDA data showing that the top four beef packing firms already have surpassed optimal economy-of-scale levels.

“The basis for all cattle procurement transactions, ultimately, is tied to the cash market, and R-CALF has demonstrated that even under existing levels of concentration, meatpackers procure large volumes of un-priced cattle and other non-cash cattle, enabling them to shun the cash market for extended periods of time,” Bullard said.

“When packers shun the cash market, competition in the cash market is reduced and all cattle procurement transactions are thereafter tied to the price generated from the competition-deficient cash market, leading to lower prices paid for all cattle sold to all meatpackers,” he explained. “This trend demonstrates the ever-increasing acquisition of market power and is evident in recent USDA reports that show a precipitous drop in the volume of cash cattle procurements – since 2005, a drop of 15.2 percent in the Texas/Oklahoma/New Mexico market; a drop of 10.5 percent in the Kansas market; and a drop of 5.3 percent in the Nebraska market.

“JBS’ acquisition of Five Rivers feedlots would, by its very structure, exacerbate the ongoing erosion of the price-making cash market, given that the acquisition would place Brazilian-owned JBS in direct ownership of, and in close proximity to, the Five Rivers feedlots currently owned by Smithfield,” Bullard added.

USDA just very recently compiled new cattle market reports following the July 21, 2008, resumption of mandatory price reporting. One of the new reports provides regional fed cattle prices and shows that the cash price difference between some of the regions is nearly $6 per hundredweight (cwt), which would be a difference of approximately $75 per head, based on a 1,250-pound fed animal. The report shows the week-ago price for “Negotiated Grid: Live Basis” was $93.66 per cwt in the Texas/Okla./N.M. region, while the price in the Western Cornbelt region was $99.65 per cwt – a different of $5.99 per cwt.

“This significant price difference between regions demonstrates that the U.S. fed cattle market, unlike the wholesale beef market, consists of several regional markets, and should not be viewed as a national market,” Bullard asserted.

The Associated Press, on July 11, 2008, posted a news article stating that National Beef Packing Co. had attributed its higher third-quarter profits to increased beef demand and lower cattle prices, which is a counter-intuitive outcome for a properly functioning competitive market.

“Higher demand for beef should translate into higher prices for the feed cattle from which the beef was derived, but just the opposite has occurred because, according to USDA, U.S. cattle feeders operated at a net loss when marketing their cattle in each of the 10 months of August 2007 through May 2008,” Bullard explained.

Data show that the profitability of cattle feeding was reduced by more than half from the period 1994 to 2007. Data from the 1994-2008 period show that the net return from feeding yearling steers averaged less than $14 per head. If the JBS mergers are approved, that would decrease by $50 per head, meaning the feeders would lose $36 per head. A price decrease of only 1.4 percent would completely eliminate the modest profits cattle feeders realized from 1994-2008, leading to the conclusion that criteria typically used to define markets and to define an acceptable level of market power in the merger approval process are inappropriate to the U.S. cattle market.

“This ongoing market distortion is accomplished through the exercise of market power – National Beef and other packers are able to purchase cattle for less in the face of increased beef demand because they can control the price paid for live cattle,” he pointed out. “It is R-CALF’s position that this ongoing market distortion would be expected to worsen if the JBS mergers are consummated.”

Additionally, the spread between producer cattle prices and consumer beef prices has continued to widen over time – in particular, a dramatic increase in the spread in recent years – and is evidence that the marketplace has become inefficient and inequitable both for cattle producers and consumers.

In an effort to show the effects of declining competition on cattle prices, R-CALF USA developed maps that show changes over time to the mix of states with cattle prices above or below the average national cattle price. Because of continued regional concentration of the big four meatpackers into the central U.S., the number of states with above-the-average cattle prices are becoming fewer because there are fewer significant buyers and thus, below average prices. Also, 2006 USDA data show the profitability of mid-sized and smaller packers was greater than the profitability of the big four, suggesting the maximum economy of scale is achieved by mid-sized packers.

“R-CALF USA has built its reputation by successfully fighting battles others said couldn’t be won,” Bullard concluded. “This, too, is a winnable fight, despite the fact that conventional packer-oriented organizations and the current Administration are not expected to help. This is a battle that must be fought and won; otherwise, the U.S. cattle industry will go the way of the U.S. hog industry, where independent producers are the exception, not the rule. We have furnished various state attorneys general state-specific information that demonstrates the harm that would occur if the JBS mergers are approved and we are asking those attorneys general to formally challenge this merger.”

Note: To view the 6th Submission to the Justice Department and relevant exhibits, visit the “Competition Issues” link at www.r-calfusa.com.
 

cedardell

Well-known member
R-Calf is right on. I think maybe it would be helpful in the fight if the "Big Four" packers were constantly audited to see where their profits are dispursed to. Can't figure why JBS would be so eager to control an industry that has reached its limit in capital generation. I am also interested to know if the Batista family are the same ones Castro ousted from Cuba. I couldn't find any info on their family history on their website. Maybe someone else is better at that than I am. It would be mind boggling if we approved the same procedure Castro started a revolution to save his country from. Talk about coming full circle.The Italian govt. claims the Mafia controls US food and construction industries. But we can't have a revolution here because the perpitrators are spread all over the world. At most all we can do is tar and feather our congressmen
 
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Anonymous

Guest
Looks to me like they know how to play the game just like the rest of the Packer-mafia---its just that they may have much deeper pockets and might be able to bankrupt us all in their goal to control the worlds supply of beef....

The senior José Batista got his start a half century ago buying cows and selling them to meatpackers in Anápolis, in the Brazilian state of Goiás. Feeling that meatpackers were underpaying him, in 1953 he opened a butcher shop and began slaughtering one cow a day. In 1957, as Brazil government was moving the capital from Rio de Janeiro to Brasília, Mr. Batista followed, opening one of the first slaughterhouses in the region.

As Brazil's economy expanded, meat consumption grew, and so did Mr. Batista's business, which he named Friboi. Between 1993 and 2005, the company acquired 12 meat-processing companies, becoming one of Brazil's biggest beef producers.

His three sons -- José Batista Jr., known as "Junior;" Wesley, 38; and Joesley -- skipped college to work at the company, starting out by supervising workers who skinned and deboned cows. Three Batista daughters helped with administrative and managerial tasks.

Today the brothers call the shots at JBS, although their father, now 74, continues to advise them and to help buy and sell cattle. Every Sunday, the family gathers at his home outside São Paulo, or on a telephone conference call, to discuss the week's activities. The brothers talk almost every day by phone.

In 2004, the company moved its headquarters to an old meatpacking plant in São Paulo, where the senior Mr. Batista had sold cattle decades earlier. The company was thriving, and the Batista family routinely traveled over the city by helicopter and to their ranch on the Paraná River -- where they entertained customers and prospective investors -- by private jet.

Friboi rankled some Brazilian ranchers. In 2005, the Brazil-based National Agriculture and Cattle Federation filed a price-fixing claim against a group of meatpackers, including Friboi, alleging that they kept cattle prices artificially low. Before the investigation was done, Friboi reached a $13.8 million settlement with the government. Later, four other meatpackers were declared to have formed a cartel and were fined 5% of their 2004 revenue. The Batistas say the matter is behind them.
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Some analysts think JBS will try to use its deep pockets to take market share away from its competitors. "These guys have a lot of money," says Rich Nelson, director of research at commodity-research company Allendale Inc. in Chicago. "The game," he says, is to see which company can tolerate losses "for the longest period of time."


Full article from Wall Street Journal:
http://www.truthabouttrade.org/content/view/12183/54/
 

MO STOCKER

Well-known member
I believe Chandler Keys ,former NCBA employee, has a position with JBS. If I remember right Keys lobbied for NCBA or at least worked out of the DC office. I'd say he knows his way around the legislature.
 
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Anonymous

Guest
Commstock on the JBS Merger
Tuesday, 19 August 2008
The CommStock Report - 08/18/08
Copyright 2008 CommStock Investments, Inc.

David Kruse


The NCBA seems like it can't wait for Justice Department approval of the JBS purchase of National and Smithfield Beef so the beef industry can become more integrated like pork and poultry and feedlots can become contract producers like the other meat industries. It normally takes 8-16 months for the Justice Dept. to put a deal like this through anti-trust scrutiny.



This sale is being pushed through a justice department that was recently revealed has been politicized. Instead of being a civil service, the Justice Department now has lawyers servicing political interests. The Bush administration really hasn't seen a propsed merger that it considered damaging to competition. Iowa Senator Chuck Grassley noted, "I've been pressing the Justice Department about consolidation in agriculture, but the Department doesn’t appear to think there is a problem. Quite honestly, I don't know how much longer they can continue to let these mergers slide by. Now producers will only have 3 major beef packers to sell their livestock to. Is it going to take only one packer in the industry for the Justice Department to say there isn't competition?"
DTN reported, "Sen. Charles Grassley, R-Iowa, also expressed concern on Wednesday about the merger, but added that 'based on the dozens of letters' he has written to the U.S. Department of Justice in the past 15 years about agriculture mergers, the senator doesn’t hold out much hope that Department of
Justice will make major changes to the proposed purchase. Grassley said he does not think the Department of Justice has much expertise in agriculture and therefore approves most agricultural consolidation with little concern about the impact on producers."
The size of captive supply in the cattle industry is directly proportional to the concentration of packers. Some now believe that only 35% of cattle prices are discovered by the cash market in a competitive or limited competitive manner. The JBS deal will shrink major buyers from 5 to 3. This will intensify the negative impact captive supply of cattle held by fewer packers will have on competition for cattle. The Five Rivers Feedlots, 810,000 head one time capacity, are owned by Smithfield Foods and is part of the sale to JBS. That's a huge addition to captive supply for JBS.
OCM General Counsel, Michael Stumo noted, "Smithfield sells its approximately two million cattle per year to other packers, because it owns no Great Plains packing plants where its cattle are fed. Post-acquisition, the cattle become JBS' captive supply, taking 1.75 packing plant equivalents off the market for cattle buying purposes (one plant processes about 1.25 million cattle per year.) The basic case is this. The cattle market is only marginally competitive now. The acquisition will substantially lessen competition. The reasons are: (1) Only three top tier buyers will remain; (2) The captive supply (Five Rivers) will enable market manipulation and price depression; and (3) Cattle are perishable, needing to be sold within two weeks, which means feeders have little market power."
JBS will own 30% of the U.S. daily beef slaughter capacity and be the largest meatpacker in the world. How did it come about that a Brazilian meat packer could end up owning such a share of the U.S. beef industry? The Brazilian company's buying power was a result in part of the decline in the U.S. dollar. In 2004, the Brazilian real was trading 3-1 to the dollar. Today, the currency exchange is closer to 1.5 to 1. U.S. assets priced in Brazilian currency are now 50% on sale.
That's what happens in a global economy when you debase your currency. George W.'s administration fiscal policy resulted in the significant decline in the dollar. Now the Justice Depart is basically being asked to help JBS cash in on it. JBS also consummated the sale when U.S beef packers were losing money; now they are not. JBS has multi-national beef packing experience. Beef Magazine's contributing editor, Wes Ishmael, agrees that "At least conceptually, the move gives U.S. producers a foot through the door of true international beef marketing. No one but JBS probably understands exactly what that means at this point. Possibilities become clearer when you think about the competitive advantages packers can exploit domestically in terms of owning packing and processing facilities close to where the cattle are, and increasing market leverage with size. The same rules should apply when U.S. operations become a regional asset within a global supply/marketing chain."
You can tell what side of the issue Beef Magazine is on. Former NCBA lobbyist, Chandeler Keys, is now fronting for JBS. The pay is better and he was working for packers even when he was being paid by NCBA. Joesley Batista, son of the patriarch that founded JBS, told the WSJ, "Sometimes we make very aggressive movements. But we have never done something before having all the pieces in place."
That's a profound and powerful statement. JBS is a global player and the U.S. acquisitions are just one piece of several that they believe they now have in place that will give them enormous global market power. I believe JBS hoped to benefit from expanded U.S. beef exports to Japan and South Korea, something they are good at. While USDA mucked it up, JBS will grease the gears to improve exports. U.S. cattlemen may benefit from that but JBS will benefit more. The WSJ noted, "By acquiring footholds in many different countries, it aims to work around trade barriers and other obstacles to selling beef globally. It is also hoping that it can operate more efficiently than its competitors and offset losses in one market with gains in another."
The WSJ revealed "In May 2007, JBS agreed to buy it for about $225 million, plus the assumption of $1.23 billion in debt. In order to complete the deal during the U.S. credit crunch, JBS turned to Brazil's government bank for $600 million of equity financing, which left the bank with a 13% stake." I would think that someone in Washington will have a real problem with the Brazilian government bank owning 13% of the largest packer in the U.S. But then again, maybe not.
While opposing the JBS acquisition of National and Smithfield Foods, I do respect the skill, tenacity and audacity of the Batista Family. The father, Jose, started JBS packing company in 1953 by slaughtering one cow a day. The family has built an impressive global enterprise in the last 55 years.

http://www.competitivemarkets.com/index.php?option=com_content&task=view&id=239&Itemid=20
 
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Anonymous

Guest
Entrepreneurs and their (Brazilian) enterprises are responsible for almost all the economic growth in the United States.
George W Bush
 
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Anonymous

Guest
Even the greenies are blasting JBS acquisition...

No End Seen to Cartel's Destruction of Food Capacity



Friday, August 29, 2008 by: Barbara L. Minton

Natural News



(NaturalNews) Farmers are blasting the role of the food cartels in destroying farm output capacity, creating food shortages and producing monopolistic conditions. In a recent interview for Executive Intelligence Review, Frank Endres, board member of the National Farmers Organization, focused on newly announced acquisitions by JBS Swift & Co. of the 4th and 5th largest beef packing companies in the U.S. He sees the acquisitions as symbolizing the refusal of our government to enforce anti-trust laws. This failure allows tremendous amounts of consolidation in the food industry, resulting in huge multi-national corporate control of commodities and food production.


The Sao Paulo, Brazil based JBS-S.A., parent company of JBS Swift & Co., is Latin America's biggest beef producer. It bought U.S. based Swift Foods in July, 2007 for $1.4 billion, making it the world's largest processor of beef and pork. In addition to the acquisitions of National Beef Co. of Kansas City, and Smithfield Beef Group and Five Rivers Ranch Cattle Feeding, a joint venture of Smithfield Foods and ContiGroup based in Loveland, Co., JBS' current buying binge includes the Tasman Group, the second largest meat processor in Australia.



Some cattle producers have raised concern that the merger would reduce the number of cattle buyers from five to three, leading to depressed prices for cattle producers and higher retail prices for consumers. Many independent producers may be put out of business, with the hardest hit being taken by those with fewer than 80,000 beef cattle operations that have herd sizes over 100 head.



Many onlookers are astounded at the pace, size and bundling of these acquisitions. According to Endres, this cartel will now control 35% of the U.S. beef supply and over 35% of the livestock slaughter in the U.S. He notes that farmers in general and especially those involved in the raising of livestock are very concerned because the parent company has been investigated and fined for its cornering of the meat processing market in Brazil, and there is fear that these tactics will soon be seen in the U.S.



After the acquisitions are completed, JSB Swift will have a capacity of over 875,000 head of cattle in their feeding operations. Endres sees that as way too much centralization of control in too few hands, and as leading to the further bankrupting of family-owned farming operations, ranching and livestock operations that produce the feeder cattle. When buyers for feeder cattle are very few, setting low prices and enforcing them will be much easier than it would be under a free market system, and a small number of buyers can often lead to price fixing.



Right now there is a shortage of calves in the U.S. The consumption of beef in the country outstrips the production of beef cattle. But despite these shortages, the downward pressure on prices for calves has remained consistent, bringing about 40 percent of parity, what the producers need to pay their bills. This shortage has led to the need to import beef to keep up with demand.



Onlookers expect the U.S. Justice Department to look the other way on the merger, even though it means that JBS Swift will have the capacity to slaughter 42,500 head of cattle per day in the U.S., a number that is far ahead of the next two largest processors, Cargill, at 29,000 head per day, and Tyson Foods at 28,300 per day. And the acquisition of Five Rivers will allow JBS Swift to become the largest cattle feeder in the world, with a one time capacity of 81,000 head of cattle.



The timing of the acquisitions is perfect. Strengthening of the Brazilian currency compared to the sinking U.S. dollar will make the buying power of JBS-S.A. go a lot farther. And there has been downward pricing for beef processors in the U.S. since 2004, further setting the stage for JBS-S.A.



Seen as counterpoint to these huge corporate monopolistic trends is the recent call from the Schiller Institute founder, Helga Zepp-LaRouche, who advocates that "Instead of wars of starvation, let us double food production". She calls for emergency action to increase agricultural production and stop the "free trade policies that have led to starvation and food riots in 40 nations over the past year." She also advocates the dissolving of the World Trade Organization and its free trade policies, which she sees as having enriched the few at the expense of the many.



Zepp-LaRouche wants the United Nations Food and Agriculture Organization to immediately institute programs for increasing food production, and medium-term measures to build infrastructure, develop water management systems, and create food processing industries in developing countries. She is also advocating a new financial system that would bring a "New Deal for the entire world", in the tradition of President Franklin D. Roosevelt. This New Deal would be a "new and just world economic order."



While this is going on, Endres is preoccupied with the current chaos among dairy farmers in California where he see another food industry falling into the hands of the big cartels. Lack of regulation for perishable products such as milk has opened the door for Nestle and other giant corporate processors such as Unilever, Suiza, and Kraft, leaving farmers uncertain of whether they can market their output or not.



Dairy farmers in California have increased production and don't have the processing facilities to handle it. Farmers have had to dump their milk when their tanks get full so they can keep on milking their cows on schedule. Farmers will have to transport their milk out of state, or they will have to sell to what are known as calf ranches, which will pay them next to nothing for it. If they can't get their milk picked up by a trucking company before their milk tanks are full and its time for the next milking, they will literally have to dump it into the sewer.



Endres has seen 128 loads of milk dumped at a time, loads from large 7,000 gallon tank trucks. When the trucks go to deliver milk out of state to get rid of it, the turn-around time is doubled. If the trucks can't get back in time to pick up the next load of milk at the dairies, the milk will no longer be in a condition to sell.



In a competitive business market where niches are always filled, one has to wonder why the shortage of trucks and processing facilities remain.



Sources:



Executive Intelligence Review, 'Shiller Institute Founder Calls for Doubling World Food Production - Now!', June 6, 2008.



Bill Jackson, The Tribune, "JBS-Swift preps to buy nos. 4 and 5 in beef packing industry", March 5, 2008.



Bill Jackson, , "JBS Swift CEO at Senate subcommittee hearing", May 8, 2008.



Lyndon LaRouche Political Action Committee, May 23, 2008.



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