JBS to beef up production from grass-fed Brazil herd

SAO PAULO Thu Nov 15, 2012 2:18am IST

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SAO PAULO (Reuters) - JBS SA (JBSS3.SA), the world's biggest meat company, is betting on Brazil's grass-fed beef industry to win global market share as high grain prices squeeze production in other countries.

In the coming months, the family-run company will open six additional slaughterhouses that will increase its beef production capacity in Brazil by 15 percent, Chief Executive Wesley Batista said on Wednesday.

The company slaughters nearly 12 million of the 40 million head of cattle that Brazil kills annually.

Analysts expect Brazil's grass-fed beef industry to gain market share as other global beef producers, such as the United States, Europe and Australia, reduce the reproductive potential of their herds due to high feed costs after the recent drought in the United States farm belt.

The six additional plants will increase processing capacity by 1.2 million head of cattle by July 2013, head of investor relations Jerry O'Callaghan said on a conference call to discuss the company's third-quarter earnings.

As the plants reach full production toward the end of 2013, they will be able to process up to 2 million head a year. Three of the plants will be new and three inactive ones, acquired with JBS's takeover of rival meatpacker Independencia, will be reopened.

In April, JBS snapped up Independencia, once one of Brazil's biggest meatpackers, at a cut-rate price while it was in bankruptcy -- a victim of the 2008 financial crisis.

"This expansion will cost very little. They are units that we already have and are going to direct to the local and foreign markets," Batista said during a conference call with analysts.

JBS posted a quarterly profit of 367 million reais ($178 million) late on Tuesday, recovering from a quarterly loss of 68 million reais a year earlier thanks to its strong beef business in Brazil.

Batista said the company was quickly reducing its leverage, or debt to earnings, with the improving reproductive cycle of the Brazilian cattle herd and a weaker Brazilian real against the dollar.

"The cost of raising an animal in the United States is twice the cost of raising an animal in Brazil. So, they are reducing the size of their herd," Batista said, adding that the outlook for Brazilian beef production was extremely positive.

Batista said he expects a favorable cycle for the company's Brazil operations until 2015 as the number of cattle available for slaughter grows. The country has the world's biggest commercial herd of more than 200 million head.

"Business in Brazil is more attractive than abroad. We are increasing production in the place that offers the best returns," Batista said.

Company shares rose 3 percent in early trade on Wednesday in Sao Paulo, but later fell back to close down 3 percent, in line with the Bovespa index .BVSP as stocks reacted to generalized strikes in Europe and weaker Brazilian economic data.

(Writing by Reese Ewing; Editing by Jeffrey Benkoe and Bob Burgdorfer)

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