JBS plant closure unlikely to support lean beef trimming prices

JBS USA's planned closure of its Souderton, Pennsylvania, beef facility is expected to underscore continuing pressure on US packer margins but is unlikely to significantly support lean beef trimming prices, sources said. The closure comes as the US beef complex remains defined by tight cattle supplies, strong seasonal beef demand and historically high import volumes of lean beef trimmings.

JBS said June 12 it plans to close its Souderton beef production facility, near Philadelphia, and a value-added facility in Memphis, Tennessee, as part of a broader effort to strengthen operations and improve long-term competitiveness. The Souderton facility has a processing capacity of about 1,950 head per day and is set to close Aug. 14, JBS media contact Nikki Richardson said.

Market participants said the Souderton closure could reduce some regional slaughter access for cull cows and other non-fed cattle, the main source of lean beef, but the broader impact on lean beef supply and lean beef import prices is expected to be limited because of the current excess of slaughter capacity across the industry.

"This closure is yet another casualty of the industry's overcapacity and the prolonged, deeply negative margins," a US end user said. "The US cattle herd is at record low levels, with significant rebuilding two to three years away at best."

"Given the excess capacity within the JBS system, as well as nationwide, this closure will have minimal effect on production," the end user added.

Limited US non-fed slaughter has kept domestic lean trimming supplies tight, supporting demand for imported frozen lean beef used in ground beef production.

Lean beef imports

Still, import prices have come under pressure from rising spot availability and cautious forward buying.

"Market on the trim is under pressure, and we are starting to see more spot offers that are building on the East Coast," a global beef trader said. "Brazil and Argentina have been the most aggressively priced, and not a lot of forward bids at this point."

"Brazilian supply is expected to build in the US market over the next month," the beef trader added. "Australian exporters have been slower to adjust prices because cattle values remain high while New Zealand slaughter levels are starting to decline."

"The problem is Australia is going to have to sell their meat into this [US] market, and they have not adjusted pricing in order to sell," the trader added.

According to the global beef trader, "throughput into the market is slow, and the plant closure in Souderton is significant but not enough to create a market shortage."

"The recent lack of operations at JBS' Fort Morgan, Colorado, plant was more significant to total slaughter capacity because that facility typically processes around 5,000 head per day," the global beef trader added. "Souderton's daily kill was closer to 1,800-2,000 head."

"The JBS announcement highlights continued struggles there ahead for the packing side of things as packers try to restore profitability amid tight cattle supplies," Ryan Urie, director, global head of crops and livestock for S&P Global Energy CERA, said. "Beef demand typically receives seasonal support around Father's Day and July Fourth, but elevated prices could limit consumer buying."

Lean beef trimming prices

Platts, part of S&P Global Energy, assessed the 90CL beef CIF East Coast for a 30- to 60-day shipment period at $3.65/lb on June 15, unchanged day over day, down 2 cents week over week, but up 2 cents month over month, amid a volatile and thin market. This was for Australia- or New Zealand-origin supplies, as those accounted for the largest share of observable CIF market data.

On the port-of-entry market, the 90CL beef FCA East Coast for a 16- to 60-day delivery period was assessed at $3.29/lb on June 15, unchanged day over day, down 4 cents week over week, and down 23 cents month over month, amid pressure from Brazilian imports. This was for South American origin, as those were the most competitive in the FCA market.

On the US domestic side, the US Department of Agriculture reported in the afternoon of June 12 that six trades for fresh 90CLs spot were recorded at US central packing plants, with a weighted average of $457.50/hundredweight and a range of $453.50-$458.78/cwt.

That was in line with last week's trade of about $458/cwt, but below the trade two weeks ago of about $463/cwt, and below the trade three weeks ago of about $480/cwt, which was a record for domestic fresh 90CLs spot.

"These decisions are never easy because they directly affect our team members and the communities where we operate," Wesley Batista Filho, CEO of JBS USA, said in the company's announcement. "Our focus right now is on supporting them with transparency, respect, and access to new opportunities wherever possible."

JBS said production from the affected facilities would be absorbed into other operations across its network, maintaining supply and service continuity for customers.