In a move that is sure to draw fire from the more conservative US producer groups, Reuters reports that Smithfield Foods Inc.’s owner, China-based WH Group Ltd 0288.HK, is looking for US and European beef and poultry assets to buy.
The story said such a move would lift Smithfield’s meat processing capacity and put it on par with global giants Tyson Foods Inc. and JBS SA. Smithfield SFII.UL already is the world’s largest pork producer, but the company is looking to expand into beef and poultry.
“We’re a food company,” said Smithfield Chief Executive Ken Sullivan in the story. “No one said that we’re strictly a pork company.”
Sullivan told Reuters no deals were imminent, however.
Luis Chen, WH Group’s director of investor relations, declined to provide any specific targets of the company’s expansion plans or how much money has been budgeted for the acquisitions.
MARKETS ATTRACTIVE
Chen told Reuters it was an attractive time to enter the beef business after China last month agreed to resume imports of US products after a block that had been in place since the 2003 discovery of an imported cow with Bovine Spongiform Encephalopathy, commonly called “mad cow disease.”
Cheap grain and strong demand for meat have helped increase operating margins for producers of red meat and chicken, Reuters said.
Reuters cited WH Group’s latest annual report to say the firm has the firepower to buy more companies. After spending $4.7 billion for Smithfield in 2013, the firm still had bank balances of $1.14 billion at the end of last year and $2.762 billion in unutilized banking facilities.
SALES CONCEPT COULD BE A TOUGH SELL
Market analysts said WH Group acquisition of further US or European companies could be a tough sell to government regulators. Growing European nationalism that sparked the UK’s vote to exit the EU, as well as US President Donald Trump’s promise to “make America great again, may not allow further food company ownership by a foreign company.
Already some companies have declared their assets were not for sale.
However, money talks, and a concerted effort by a well-financed company like WH Group could get the job done, the analysts said.
The Reuters story said a move to acquire beef and poultry assets would be an about-face for Smithfield, which agreed to sell US beef operations to JBS in 2008 and a stake in turkey producer Butterball LLC for about $175 million in 2010.
However, it would fit company efforts to reduce its dependence on outside producers, which supply Smithfield with beef and chicken to make into products like hot dogs, the Reuters story said. It would mirror Smithfield’s vertically integrated model in the pork business.
CASH CATTLE QUIET
The weekly livestock exchange video auction sold two pens at an average of $136.75 per cwt on a live basis, up $4.57 from $132.18 last week. Little subsequent cash trading was reported at $220 per cwt on a dressed basis. Live-basis bids were said to be up to $136.
The bulk of last week’s trading took place on Thursday and Friday at $136 to $137.50 per cwt on a live basis, up $4 to $5 and at $215 to $216 on a dressed basis, up $7.
The USDA’s choice cutout Thursday was down $0.32 per cwt at $250.39, while select was up $0.11 at $220.01. The choice/select spread narrowed to $30.38 from $30.81 with 103 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $154.11 per cwt, up $1.30. This compares with Thursday’s Aug settlement at $153.95, down $0.85.