More beef consolidation
The latest move in the ever-tighter US meat market is news of a joint venture between cattle stockyard company ContiBeef and pork and beef packer Smithfield Foods. The new, as yet unnamed company, to be owned jointly by Smithfield and ContiBeef's owner ContiGroup, will merge the feedlot operations of the two companies, creating an even more dominant player in the feedlot layer of the beef industry.
The feedlot industry has been, up to now, far less concentrated than the packing industry. This sector acts as a middleman between the cattle ranchers and meat packers, collecting and fattening livestock as it undergoes the final preparation for slaughter.
Smithfield recently (October 2004) acquired MF Cattle Feeding from ConAgra with its four major feedlots. Those will be combined with the six feed yards of ContiBeef, all in the Great Plains and Western US. While the new entity will continue to sell to all of the major beef packers in the US as ContiBeef has done in the past, it's clearly an advantage for Smithfield, currently #5 or #6 in beef packing, which will be the first among equals.
The combination will make for the world's largest cattle feeding operation, though it is still holds, by one report, a relatively small 6 percent of the market. But the trend is started, and further consolidation could give these middlemen more power to negotiate with the beef packing oligopoly. As the executive director of the Colorado Livestock Association is was quoted as saying. "it seems like our business is just the same as other businesses like banks or breweries. It's like Bill Coors said -- you either acquire or be acquired" (Greeley Tribune, 2/17/2005). The reference is to the acquisition of Canada's Molson brewery by Colorado-based Coors.
ContiGroup, formerly Continental Grains, has operations in a number of areas. It is a major poultry supplier through its Wayne Farms subsidiary. What is notable is that it is Smithfield's leading competitor in hog production though its PSF Group holdings. It is, however, now out of the grain exporting business.
This is not just an alliance between two big (but not yet dominant) beef feedlot companies. It is also a tie between the top two and dominant competitors in hog farming. As such, it creates a friendly alliance between what the naïve might assume to be bitter rivals.
10:54:25 AM 
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