Five Rivers: JBS Spot Challenges and Split Ownership

US - Following the JBS acquisition of Smithfield Beef Group in October 2008, JBS decided to explore alternative ownership structures that would allow the company to retain most of the benefits while avoiding potential challenges that were later identified.

1 June 2009

2 minute read

North America

The potential challenges thery identified included existing and future potential “Packer Ban” legislation at the state and federal level that place significant restrictions on packer ownership of livestock prior to slaughter. Iowa is the only state that enforces such “Packer Ban” legislation today. However, other states have enacted “Packer Bans” in the past and such a ban is usually proposed during drafting of the Federal Farm Bill each year.

JBS also noted that since cattle feed for an average of 3 to 5 months, there is a significant working capital burden involved in owning hundreds of thousands of cattle at a time.

Ultimately, JBS made a strategic decision with J&F Oklahoma (“J&F”), to split ownership of the JBS Five Rivers business with J&F owning the cattle and JBS USA owning the feedlot operation. Specifically, the ownership split has resulted in the following:

- JBS Five Rivers, a subsidiary of JBS USA, now owns 10 feedlots and charges owners of livestock a daily per head fee to fatten their cattle and take care of the animals until they are ready for slaughter. This is a cost plus operation in accordance with standard market conditions.

- J&F Oklahoma Holdings owns up to 800,000 head of cattle on feed. J&F Oklahoma pays JBS Five Rivers a market based daily cattle feeding “hotel fee” for the care and maintenance of its animals.