JBS Facing Corruption Crisis

In a turn of events that may send cattle producers and feeders to their brokers, JBS SA, the world’s largest meat company, is facing a major corruption crisis.

Many had wondered why the Batista family was able to steer a small, family owned business into the world’s largest meat company in just one generation.  Now it is alleged that the company got to where it is by a series of bribes to regulators and politicians to overlook unsanitary or unsafe practices at its plants.

The charges include alleged irregularities with some huge loans JBS received from Brazilian state-owned development bank BNDES.  Some also allege that JBS made trades that hint of possible insider trading prior to a plea bargain by JBS executives.

News stories of the corruption scandal indicate that JBS’ purchases of US beef packer Swift and Co., along with some other expansions into the pork and poultry businesses, were thought to have been made with real money made by the company’s large Brazilian holdings.

However, there are implications that the Brazilian government is involved through huge campaign donations.  A favored candidate’s win could bring favorable loan influence and favorable plant inspections.

Recent documents said JBS paid a total of $400 million in bribes to politicians, including President Michel Temer.  The papers said JBS paid him $4.6 million in bribes, and JBS Chairman Joesley Batista allegedly said he deposited at least $50 million in an offshore account held by former President Luiz Inacia Lula da Silva and $30 million in an offshore account for former President Dilma Rousseff.

Not surprisingly, the scandal has roiled Brazilian politics less than a year after Rousseff was impeached.




Markets have been upset as well, but traders have been unsure how to handle it.  The Brazilian real fell initially against the US dollar but has since recovered about half of the losses.  The US dollar index, a comparison of the dollar against a basket of other currencies, hasn’t shown any signs of movement, and JBS stock (BVMF: JBSS3) declined initially but has since recovered part of its losses.

Market analysts have said it is unlikely that JBS stock will recover fully in the near term.  There also are prospects of huge fines, although the Batista brothers may escape jail time by telling all to authorities.

Some news reports indicate cattle producers are demanding cash on the barrel head from JBS for cattle.  A similar action is not rumored in the US, but it could, and if it does, JBS may find it difficult to fill its feedlots or packing house kill floors.

The scandal also was said to be part of the reason US feeder cattle futures declined late last week.

The biggest problem for US trade would be a sudden shift in the real/US dollar exchange rate.  A drop in the real could take world customers away from the US, but a drop in confidence could bring them to US shores anyway.

Stay tuned.




Cattle traded on the livestock exchange Wednesday at an average of $132.54 per cwt on a live basis, down $2.27 from $134.81 a week earlier, cash cattle then began to trade at $132 to $132.50 live, down $1 to $1.50.  Dressed-basis trade was reported at $208 to $210, down $4 to $4.

The USDA’s choice cutout Friday was down $0.51 per cwt at $245.60, while select was off $0.53 at $218.45.  The choice/select spread widened to $27.15 from $27.13 with 85 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Thursday was $143.89 per cwt, down $0.80.  This compares with Friday’s Aug settlement at $146.95, down $4.17.