Daily Management Review

U.S. Cattle-Feeding Business To Be Exited By Major Beef Supplier Cargill


04/30/2017




U.S. Cattle-Feeding Business To Be Exited By Major Beef Supplier Cargill
In what is the latest transformation for the global commodity trader, Cargill Inc said that it will be exiting the business of feeding cattle to direct capital toward other potential investments.
 
After the company sold out other feedyards to Friona Industries last year, according to the companies, Minnesota-based Cargill struck a deal to sell its last two feed yards to ethanol producer Green Plains Inc for $36.7 million.
 
A change in priorities at the company, which says it is the world's largest supplier of ground beef, is highlighted by Cargill's withdrawal from the feeding business.
 
Cargill spokesman Mike Martin said that along with other opportunities linked to livestock and poultry, the company wants to expand its North America-based protein business by exploring plant-based protein, fish and insects.
 
He said that hundreds of millions of dollars annually in working capital used to purchase cattle will free up by the sales of feed yards to Green Plains and Friona.
 
By slowly expanding into higher-margin endeavors such as food ingredients and aquaculture and through a tactical exit from some of the lower-margin businesses projects, Cargill has refocused its operations in recent years. It first sold its U.S. pork assets to Brazilian meatpacker JBS SA in 2015 and then it sold a U.S. agriculture-retail business to Agrium Inc last year.
 
In order to increase profits and distance themselves from gyrations in commodity prices, a strategy of shifting toward higher margin products has also been adopted by other agricultural companies, including U.S. meat processor Tyson Foods Inc.
 
"The driver from a Cargill perspective is how they can best deploy capital and they’ve decided not in cattle feeding but in further processing," said Jim Robb, director of the Livestock Marketing Information Center.
 
In order to target sales to retail and food service customers on the east coast, Cargill bought a ground beef processing plant in South Carolina last year.
 
According to the companies, for processing through a multi-year agreement, Green Plains will supply cattle to Cargill. The two yards it is buying have a capacity of about 155,000 cattle.
According to the company, with capacity of more than 255,000 head, Green Plains Cattle Company, a subsidiary of the ethanol producer, will be made the fourth largest U.S. cattle-feeding operation after the completion of the deal.
 
Large markets for its distiller's dried grains, an ethanol byproduct used to feed livestock, is gained by Green Plains from the buying of the feedyards.
 
"The ability to effectively control our feed supply cost provides our cattle business with a strategic operating advantage," Chief Executive Todd Becker said in a statement.
 
The companies said the deal is expected to close by the end of May.
 
(Source:www.reuters.com)
 






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