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June 7, 2017

Decline of JBS to create Openings for Small and Medium Processors

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

JBS was the largest meat processor in the world, but it has been brought low by a widespread corruption scandal that has the company teetering on the brink of insolvency. As a result, JBS announced yesterday the sale of their operations in Argentina, Paraguay, and Uruguay to a subsidiary of Minerva for US$ 300 million. JBS indicated they intend to use the receipts of the sale to shore up part of their failing finances. Industry observers feel that this a signal of just how serious the situation is at JBS.

The rapid expansion of the company in recent years was fueled by borrowed money from Brazil's National Development Bank (BNDES). Many people feel that the accusations of corruption stemmed from the company trying to buy influence with members of the Brazilian Congress in order to lighten their debt load. The company ended March with debts of R$ 47.8 billion reals.

The troubles at JBS has the potential to reshape the meat sector in Brazil. According to the president of the Brazilian Association of Meatpackers (Abrafrigo), Pericles Salazar, the restructuring of the meat sector will probably be more intense in the state of Mato Grosso, which has the largest cattle herd in Brazil estimated at near 30 million head.

Approximately 50% of the beef processing in Mato Grosso is done by large corporations such as JBS, Marfrig, and Minerva with the other 50% done by small and medium size companies. According to Salazar, JBS intends to close nine beef processing facilities in the state and that should open up space for small and medium size companies to purchase and process cattle.

Part of JBS's problems in Mato Gross is their inability to source enough cattle for their operations. Ranchers in the state are very reluctant to sell cattle to JBS fearing they would not get paid in the customary 30 or 60 days. Salazar feels it will take longer for JBS to restructure their operations in other countries.

With the fall of JBS, Salazar does not feel that one of the other large processors will step in to create a new monopoly.