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JBS hikes beef capacity to exploit rising demand

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JBS revealed the opening of six new beef plants in Brazil, and prepared for a recovery in US production too, to exploit a rise in world meat consumption expected to reach 22% this decade.

The Brazil-based group, the world's biggest meat producer, said it was next week to start on a programme of openings of processing plants, which will add 1.2m head, or 15%, to its processing capacity by July 2013.

The plants, which are already owned by JBS or being leased, reflects expectations of a rise in world meat consumption to 338.3m tonnes by 2020, a 22% increase over levels at the start of the decade, JBS said, quoting United Nations and OECD statistics.

By 2030, average world meat consumption will approach 50 kilogrammes a year per person, roughly one-quarter higher than at the turn of the century.

'Twice the cost'

The dynamic favoured Brazil as a major meat exporter and low cost producer, Wesley Batista, the group chief executive, told investors.

"The cost of raising an animal in the United States is twice the cost of raising an animal in Brazil," he told investors.

However, the group was preparing too for a recovery in the US beef industry from the poor dynamics of early 2012, when beef prices failed to keep up with cattle values boosted by desire to rebuild herds after drought-forced liquidations last year.

The US cattle herd will see a "substantial recovery" from 2014, JBS said, quoting US Department of Agriculture data, which will see beef output hit a record 13m tonnes by the end of the decade,

'Improvement in margins'

Already the group said that its US beef business had reached a "turning point" in achieving earnings before interest, tax, depreciation and amortisation (ebitda) of $175.1m for the July-to-September period, after running at a loss in the first half of 2012.

"The improvement in the dynamics of the sector permitted an improvement in margins at JBS USA," the group said, flagging a "better balance between supply and demand".

The impact was seen in particular in beef export sales, in which the group achieved an average price of $4.55 a kilogramme, up 17.9% a year, echoing the national trend.

Commentators have blamed higher prices for a 16% drop to 12.3m tonnes in US beef exports September, as revealed by industry data last week, the ninth successive month of year-on-year decline.

Market reaction

JBS, which has also agreed to manage two processing plants a feedlot and a farm for XL Foods In Canada, revealed earnings of R$367.0m for the July-to-September quarter, returning to the black after a R$67.5m loss a year before.

Performance was also boosted by return to profit at its US-based Pilgrim's Pride chicken operations, besides a 47% jump to R$665.6m in ebitda at its Brazilian operations, boosted by a turn up in the cattle cycle, lifting supplies and so keeping a lid on costs.

This uptick in supplies looked set to continue "this year, in 2013, 2014 and 2015", Mr Batista told investors.

The data received a cautious welcome from analysts at Itau BBA, who termed the results "strong" but warned that it did not expect the firm ebitda levels "to be recurring", flagging the potential for higher cattle costs in the US, given tight supplies for now.

Elevated grain costs are likely "to pressure the results in the poultry segment", Itau BBA analyst Alexandre Miguel said.

While he restated an "outperform" rating on JBS shares, the stock closed 3.1% lower at R$6.33 Sao Paulo.


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