BRAZIL'S JBS SEES BIG WINDFALL FROM RUSSIA'S BAN ON U.S. BEEF
Aug. 19, 2014
JBS revealed high hopes for its windfall from Russia's ditching of meat imports from the likes of Australia and the US, in favour of Brazilian supplies, as the protein group voiced expectations for a revival for US beef-packing margins too.
Wesley Batista, the JBS chief executive, said that Moscow's decision two weeks ago to approve 90 Brazilian plants for meat export to Russia - while curtailing imports from the likes of Australia, the European Union and the US - was "very beneficial for our business in Brazil.
"Russia opened all the pork plants, chicken and beef. We believe we can increment [sic] between $600m-800m in sales in Russia through our South American operations," Mr Batista said, reconfirming that he was talking of extra revenues.
That would represent a substantial increase to exports to Russia, which in the April-to-June quarter amounted to about $250m for the Brazil-based group as a whole.
Europe to take the hit?
In fact, Mr Batista said that there would be little offset to the boost to South American volumes from countries affected by the sanctions, which Moscow aimed at countries which have imposed financial sanctions on Russia over claims of it destabilising eastern Ukraine.
The sanctions would have "very, very few" repercussions for JBS's operations in Australia, which "don't export a lot of product" to Russia, with the group's North American business only sending a "very small volume" of meat to Russia too.
"We don't see any impact in our business in North America and on Australia," he said, terming Russia's move "very positive for JBS overall".
The impact of Russia's move would be felt more in Europe, which "exports much more volume, especially in pork, to Russia than North America", but a region to which JBS has relatively little exposure.
'Most challenged business'
The comments followed the group's release of results for the April-to-June quarter showing an unexpected 25% slump in earnings, to R$254.3m ($112m), despite a jump of 32% to R$28.97bn in earnings.
The drop was attributed to a jump in currency hedging costs, although earnings before interest, tax, depreciation and amortisation (ebitda) in US beef were, at $108.6m, down 33% year on year, reflecting soaring cattle costs as meatpackers and breeders compete for tight supplies.
"The beef business in North America... definitely was the most challenged business in our whole company," Mr Batista said.
However, with meatpackers closing five plants in the last 18 months so, "that definitely is going to help to balance the supply and the industry capacity to be much more balanced.
"This looks almost 8,000 head per day out of the market, so for sure this is a key factor to help balance the industry to have a better margin and better results.
"Not only that, export is growing overall, so we are seeing a strong demand in China. So we believe we'll see less beef available in the US, and this also helps sales price."