Packers and Animal Ag - strange yet necessary bed fellows

The recent news of JBS planning to take stake in Pilgrim's Pride got me to thinking about the state of animal agriculture in the United States. For the longest time, there has been a constant battle between the three main sources of protein in the U.S.: beef, pork, and chicken. During the 1980's the poultry industry was indirectly responsible for labeling red meat, especially beef as being high in cholesterol, and being bad for everyone. This has since been proven wrong, and red meat, especially beef should be a part of a balanced diet. However, this notion changed the way proteins were perceived and still do for the most part. As a result, pork still uses the very successful catch phrase "Pork...the other white meat", to differentiate itself from poultry.

So, there is always animosity between the big three proteins, and probably always will be, or will it?

In 2001, Tyson, one of the largest poultry producers in the U.S. (2nd behind the now bankrupt Pilgrim's Pride) bought out IBP (Iowa Beef Packers) then the #1 beef processor and #2 pork processor in the US. Since that time, revenue from beef has accounted for 44% of the company's sales in 2008, while poultry accounted for 33% of total sales. And now with JBS (a huge beef packer based out of Brazil) buying out Pilgrim's, you have to wonder if the lines of animal protein are beginning to get blurry, from a purely agriculture view point.

Basically, who do the packers side with on important trade, health, and political issues when it comes down between beef and chicken? For instance, the U.S. government is planning on levying tariffs on Chinese tires currently, and China is willing to stop importing U.S. poultry, if the U.S. does goes through. Now, wither or not American beef would be able to capture anymore of the Chinese market due to the absence of American poultry, I doubt it. However, this probably won't happen, because China LOVES chicken feet, yes I said chicken feet! It’s a delicacy over there, and they have to have it. The threat of banning the importation of American poultry is more of a grandstanding move by the Chinese government than an actual promise. But with this being the case, where do the packers stand on this? Do they not care, and hope that the beef revenues make up enough to cover the potential losses from poultry? Maybe so.

Secondly, what happens if, God forbid, we have another BSE or perhaps a foot and mouth disease outbreak in the U.S. and it terrifies the American public and causes them to quit eating beef or significantly cut back on it? The same question from above can be asked again. I used to work for Sanderson Farms, a large poultry processor, and back in 2003 when the first case of BSE was found, it seemed like the whole damn company was happy as hell, because people were scared of eating beef, and turned to chicken. This is one of the many reasons why I don't really care for the poultry industry and the way they do things, mind you I still eat chicken, just not that much.

One final example, national animal identification has been proposed for the last several years as a means of tracking animal diseases more easily. This proposed program would mainly affect beef and pork because each individual animal would have to have an ID number, but chickens could possibly be allowed to be identified by pen/house number, basically be numbered in groups. This would increase production costs for beef and pork, but not chicken. So, once again who do the packers side with? The most likely answer is nobody. As I mentioned before, as long as one protein can make up for the other, they won't care. All that matters is that they reach their target revenues and stock prices, so that the stock holders will remain happy.

Now, if there comes up a rare situation where beef, pork, and chicken all have to work together, then, that's when you will see the packers jump in and do something. For instance, animal rights groups are constantly attaching animal ag, and hopefully packers have been and will continue to work with the representative livestock associations to stop these groups from doing more harm than good to animal agriculture.

However, in the mean time, livestock associations and their members will have no choice but to continue to raise their animals the best way they know how to, while maximizing profits to stay in business. This includes marketing their respective products to try and gain more market share from competing proteins or at least hold onto their current share.

One thing's for sure, there's fewer and fewer packers/processors to sell animals to, so farmers and ranchers will continue to have their hands tied behind their backs when it comes harvest time. There’s not much that the agriculture community can do when it comes to packer consolidation, because they have to sell their products to someone.

The only thing they can hope for is that the Justice department continues to uphold antitrust laws and protect both consumers and producers. Earlier this year the Justice department blocked a merger between JBS and National Beef Packing Co. that would have given an unfair advantage for the company and hurt the competiveness of beef producers in the U.S. But that's another blog for another time...