Brazilian beef behemoth JBS SA sent shockwaves through the U.S. beef industry nearly 12 years ago when it announced it was acquiring Swift and Company, the third-largest beef processor in the U.S. and the largest in Australia, for US$1.4 billion. Little did the industry know that Brazil’s second-largest beef company would eventually buy into the industry as well.
This occurred just over a year ago when Marfrig Global Foods announced it was acquiring 51 per cent of National Beef Packing, the industry’s fourth-largest beef processor, for US$969 million. That deal was completed last June. It made Marfrig the second-largest processor in the world behind JBS in terms of production capacity (34,000 head per day).
Now Marfrig has increased its presence in the United States by agreeing last month to acquire Iowa Premium Beef (IPB) in Tama, Iowa, for US$150 million. IPB’s plant has a daily slaughter capacity of 1,100 head per day and this will be added to the 12,000 head per day of National Beef’s two plants. In 2017 IPB processed 285,000 head and had sales of US$537 million (closer to US$650 million in 2018), while National Beef processed 3.23 million head and had sales of US$7.35 billion.
The acquisition will leave National Beef third and well behind JBS USA, Tyson Foods and Cargill, the United States’ three largest beef companies. But it will give National Beef and owner Marfrig access to some of the highest-quality cattle in the United States, in the Corn Belt. So it is an excellent addition to the current National Beef operations.
Iowa Premium operates only with Black Angus animals and specializes in USDA Choice and Prime grade meats, said Marfrig in a news release. Added Tim Klein, CEO of North America of Marfrig: “I am excited to expand our beef operations with a processing facility in Iowa and look forward to strengthening relationships with family farmers who produce the highest-quality Black Angus cattle in the United States.”
“Iowa Premium fits in perfectly with the value-based strategy as the company continues to provide customers with the best beef products and programs,” Klein added.
The pending acquisition again proves that it is possible to breathe new life into an old plant. The plant began operations in 1974 and ran for many years as Tama Meat Packing. The plant eventually closed but reopened in 2003 as Iowa Quality Beef. It closed again, however, after only a year of operations.
IPB subsequently acquired the plant and attracted the interest of food service giant Sysco Corporation. It invested US$36.2 million in the plant, the first time it had put money into a beef processing venture. The plant began operations in late 2014. As part of the proposed acquisition, National Beef has signed a long-term supply agreement with Sysco.
Marfrig’s stake in the transaction is 51 per cent, which represents US$76.5 million. Other shareholders of National Beef include Jefferies Financial Group, U.S. Premium Beef, TMK Holdings and NBPCo. They all decided to increase their investment in the National Beef operation through the IPB deal. USPB is a producer-owned beef company. Through 2017, it had purchased more than 13.8 million cattle from those producers and paid an average premium above the cash market in 2017 of US$49.12 per head.
USPB’s part-ownership of the Tama plant will thus be beneficial both to National Beef and to USPB producer members. Its members in the Corn Belt will have much closer access to a processing plant, rather than having to send cattle south to National Beef’s Kansas plants. Interestingly, USPB had long sought a northern plant for that reason.