How to Count Packers
As we have gotten a little further into the proposed acquisitions by JBS-Brazil (which already owns Swift), we have begun to see a little more of the argumentative strategy of those supporting the proposal. Supporters are trying to make the argument that the proposed merger would make eight packers into six, not a significant change of the competitive scenery. In order to make the current count of eight, the proponents have to include some rather small, single-plant firms. This stretches reality quite a bit. Those small firms are niche marketers, and as such are not precisely head-to-head competitors with the big boys.
Opponents have pointed out that the five to three reduction of the packer count is more realistic, as the five largest packers are much larger than others down the line. While this is indeed closer to reality, it still doesn’t take the whole picture into account. The details of the proposed acquisitions tell us that, as far as competitive bidding for fat cattle goes, the real reduction is from five to two.
Besides buying National and Smithfield Beef, JBS-Brazil is also proposing the purchase of Five Rivers Cattle Feeding. Five Rivers has a one-time capacity of over 800,000 head of cattle. Add to that the close, captive relationship JBS-Brazil (Swift) already, according to rumor, has with other very large feedlots with over a half million capacity and it becomes clear that the new bigger packer will not need to be an aggressive bidder in the cash market.
That would leave only two big “competitors” active in the cash market. But, those two, Cargill and Tyson, buy different types of cattle. Tyson focuses on yield grade while Cargill focuses on quality grade. The two will virtually never bid on cattle with the same degree of finish at the same time. The cattle that JBS-Brazil buys now overlaps the Cargill and Tyson types a bit, but with JBS-Brazil positioning itself to avoid the cash market, a competitive cash market will be much harder to find.
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