January 19, 2018

New York-based Pinnacle Asset Management, a leading commodities and natural resources investment firm, has acquired U.S.-based Five Rivers Cattle Feeding, the largest cattle feeding operation in the world, from JBS USA for $200 million.

Under the terms of the deal, Pinnacle has partnered with two other firms – Arcadia Asset Management LLC, an already active player in the livestock sector, and Ospraie Management.

“Ospraie is pleased to partner with Pinnacle and Arcadia on this market-leading, commodity transaction,” said Jason Mraz, president of Ospraie Management. “We have a long history of working together and have great respect for both partners’ expertise in physical commodities.”

Jordan Levi, managing member of Arcadia Asset Management, also expressed the upside to the synergistic nature of the deal. “We are excited to combine Arcadia’s livestock marketing and risk management experience with the first-class management team at Five Rivers. We believe that the complementary strengths of Pinnacle, Arcadia, Ospraie and Five Rivers will create significant value. We look forward to continuing the legacy of best-in-class production, livestock care and animal welfare, and environmental stewardship established by the more than 600 skilled professionals who comprise the Five Rivers Cattle Feeding team.”

In business since the 1920s, the deal for Five Rivers includes 11 feedyards located throughout Arizona, Colorado, Idaho, Kansas, Oklahoma, and Texas with a combined feeding capacity in excess of 900,000 head of cattle, and a long-term agreement to supply cattle to JBS USA, the largest beef processor in the world.

The strategic decision by JBS USA to divest its U.S.-based feedyards business and its assets was a result of the company’s Divestment Program – a course of action adopted and approved by the JBS S.A. board of directors with the goal of streamlining to allow for greater focus on its core businesses. A portion of the proceeds from the sale also will be used by JBS to pay down its debt load in Brazil, reported Feedstuffs.

The decision to sell its U.S.-based lots also comes six months after JBS Food Canada, a subsidiary of JBS, announced its agreement to sell Lakeside Feeders – its beef cattle feedyard, along with adjacent farmland in Brooks, Alberta, Canada, to MCF Holdings Ltd. – a subsidiary of Alberta-based livestock business, Nilsson Bros. Inc., for C$50 million (US$40 million).

“The sale of the Five Rivers Cattle Feeding assets and farms is a strategic move that will allow JBS USA to more efficiently deploy working capital and focus on the company’s core food and value-added products businesses,” said Andre Nogueira, CEO of JBS USA. “The transaction concludes the divestment program previously announced and unanimously approved by the JBS S.A. board of directors and more favorably positions the company for future opportunities.”

Top Players Tapping Out

Although not typically a sector identified as rapidly changing, activity by the top players in the U.S. cattle feedyard industry has been making headlines since mid-2016.

In July 2016 Cargill announced its decision to sell its two Texas-based cattle feedlots in Bovina and Dalhart to Friona Industries for an undisclosed amount.  Then, less than one year later, Cargill made a second announcement that it had agreed to sell its remaining two feedyards located in Leoti, Kansas, and Yuma, Colorado, to Green Plains Inc. – a vertically integrated ethanol producer with feedlot operations on Kismet, Kansas, and Hereford, Texas.

Prior to the sale of its feedlots, Cargill had a capacity of 293,000 head at its four locations, and was the fourth largest cattle feed in the country, according to CattleFax. Now, upon closing of this deal, that ranking will belong to Green Plains, which will have total capacity exceeding 255,000 head.

The two deals saw Cargill completely exit the U.S. cattle feed business, and much like the JBS transaction, gives the company additional capital to allocate toward other investments – in this case, ones that Cargill feels will strengthen its North American protein business through expansion into plant-based proteins, insect proteins, and aquaculture.

JBS however, will continue to operate its remaining U.S.-based beef and pork facilities, and continues to be the top shareholder in Pilgrim’s Pride – North America’s largest poultry company.

-Lynda Kiernan