Chicago, IL - Continental Grain Co. may be ending a 185-year history in global grain trading by the planned sale of that part of its business to long- time rival Cargill Inc. but it is likely to only grow bigger in the meat business, analysts say.
A first sign of that after the Cargill deal could be the purchase of a U.S. beef processing plant, they said.
“I would say there is a very, very excellent chance because they need the integration,” said Chuck Levitt, a senior livestock analyst with brokerage firm Alaron Trading Corp.
Continental shocked the farm industry on November 10 by announcing the sale of its grain division to Cargill, a deal that will unite the top two grain exporters. The transaction, for undisclosed terms, awaits review by anti-trust regulators.
Continental chairman Paul Fribourg, explaining the Cargill deal this month, made clear that Continental would be open to expanding their meat businesses.
“Domestically, we will continue to integrate further up the food chain to obtain a greater share of the added-value portion of the business,” Fribourg said, adding that Continental “will continue through acquisitions, investments and strategic partnerships.”
Continental spokesman Seth Tandlich said both its pork and poultry operations already include slaughtering and processing but he declined to comment on any specific intention to move in the same direction in beef by acquiring a slaughter and processing plant.
“We will be pursuing opportunities for growth in all of our existing agribusinesses, including pork, poultry and cattle,” he said.
Analysts said even as Continental exits the grain business it retains a huge stake in agribusiness and expanding its meat production would make sense.
“They are the largest cattle feeder in the United States and they don't have any packing capacity,” said Chris Hurt, an agricultural economist at Purdue University.
As the single top cattle feeder, Continental currently owns and operates six large feedlots in the U.S. Plains states - three in Texas and one each in Colorado, Kansas and Oklahoma.
Together, their feeding capacity is a maximum 405,000 head and annual marketings to cattle packing plants total about 1.1 million head.
In addition, Continental raises more than two million hogs annually, mainly at its Missouri-based unit Premium Standard Farms. Its poultry division is also huge, producing 1.2 billion lbs of fresh poultry per year.
It is also active in aquaculture and has its own big animal feed and nutrition subsidiary, Wayne Feeds, to add to any future integration of production in its meat businesses.
Analysts see a move into beef packing as the logical one.
“There are going to be some facilities available. I think that would be in their sights,” said Harry Baumes, senior vice president-agriculture at the consulting firm WEFA Inc.
Several packing companies have plants near Continental's feedlots. But industry sources said one or more plants owned by Conagra Inc's (NYSE:CAG - news) Monfort unit might be prime candidates.
“They have feedlots in areas that have Monfort plants,” said livestock analyst Dale Benson at Crystal River Capital.
Conagra, with $16 billion in meat sales annually, remains number one in the meat processing industry. But depressed exports and huge meat supplies have cut Conagra's Fresh Meats earnings sharply the last two years, leading to industry speculation that the unit or parts of it could be sold.
A ConAgra spokeswoman would not comment beyond saying that Tom Manuel, Monfort's president, has put signs in Monfort plants stating the company is not for sale.
Conagra's Fresh Meats Division includes Monfort Beef and Lamb Co., Swift and Co., and Conagra Poultry Co.
Meat Industry Insights News Service
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