Cargill Exits Feedlots

Green Plains Buys Kansas, Colorado Lots

Cargill is getting out of the cattle-feeding business by selling feedlots in Kansas and Colorado to Omaha-based Green Plains Inc., according to announcements from both companies Wednesday.

The $36.7 million deal includes a multi-year agreement for Green Plains to continue supplying cattle from the feed yards in Yuma, Colorado, and Leoti, Kansas, to Cargill's beef processing plants in Fort Morgan, Colorado, and Dodge City, Kansas.

GP's subsidiary, Green Plains Cattle Co., will be expanding its capacity by about 155,000 head, making it the fourth-largest cattle feeder in the country with more than 255,000 head. Green Plains currently owns a 70,000-head feedlot in Kismet, Kansas, and a 30,000-head feedlot near Hereford, Texas.

For Cargill, the sale means the company will be getting out of the cattle-feeding business. Cargill said in a news release 90 employees at the feedlots will be offered jobs with Green Plains.

"When the sale of our Kansas and Colorado cattle feed yards to Green Plains is finalized, Cargill's Wichita-based North America protein business will no longer own any feed yards," Mike Martin, communications director of Cargill Protein told DTN.

In a statement, John Keating, president of Cargill's protein business operations and supply chain, said the company is making the sale to re-align its capital investments.

"Selling our two remaining feed yards aligns with our protein growth focus by allowing us to redeploy working capital away from cattle feeding operations to other investments," he said.

During the past two years Cargill announced about $560 million in acquisitions and capital investments to grow its North American beef, cooked-meat and other protein processing businesses.

DTN Livestock Analyst John Harrington said Cargill's move was not surprising. "Cargill has steadily been moving away from red meat production over the last decade," he said.

"I would love to be privy to corporate strategy in that regard. I've read some papers concerning serious concerns within the company about global warming and the risk of shrinking areas of production, especially in the Southern Plains. I have no idea whether such thought played into this particular sale but am curious, and there's definitely a pattern."

Cattle prices have been one of the few bullish ag stories in 2017, a 180-degree turn from the painful selling witnessed last fall, said DTN Analyst Todd Hultman. So far in 2017, U.S. beef production is up 5% from a year ago, which does not sound bullish, but came from lighter cattle and goes to show how insatiable this year's demand has been. Hultman added there is also hope that a steak dinner at Mar-a-Lago helped convince China's president to open the doors to U.S. beef, but negotiations are still ongoing. April cattle are currently near $132, about to expire at the highest spot price in a year.

Both feeder and fed contracts were sharply higher in early trading on Wednesday, according to DTN's Midday Livestock Comments.

Although Cargill is exiting the feeding business, Harrington said the company will remain the third-largest beef packer with a daily kill capacity near 24,000 head.

Cargill sold is pork division to JBS USA Pork in the summer of 2015, and sold two other Texas lots to Friona Industries in July 2016.

For Green Plains, the company said in a news release the move allows it to continue to diversify its business. Green Plains is the second-largest consolidated owner of ethanol plants in the world with 17 dry mill plants with a production capacity of about 1.5 billion gallons.

"The growth of Green Plains Cattle achieves one of our strategic initiatives of further diversifying our income streams and investing in adjacent businesses," Todd Becker, president and chief executive officer of Green Plains said in a statement.

"This purchase also aligns with our overall strategy to meet growing global protein demand in downstream markets that take advantage of our supply chain, production platform and commodity management expertise. A key component of the acquisition is the long-term agreement with Cargill under which Green Plains Cattle will be a strategic supplier of their beef-packing demand."

Becker said the deal also takes advantage of Green Plains' distillers grains business.

"One of the inherent benefits of this transaction is the scale of internal demand for our co-products produced at company-owned ethanol plants," Becker said.

"Our cattle business will now consume more than 300,000 tons of dried distillers grains and 40 million pounds of corn oil annually. The ability to effectively control our feed supply cost provides our cattle business with a strategic operating advantage resulting in more predictable and stable cattle-feeding margins while enhancing Green Plains' knowledge of ration dynamics."

The purchase may be timely for Green Plains, Harrington said.

"You could certainly make the case that the timing is good," he said.

"We have been expanding the herd for the last several years and continue to do so at a slower rate. This gives feedlots greater leverage over ranchers in terms of feeder cattle, cheap corn rolls on and on, keeping a lid on break-evens. Finally, how bullish do you want to get on beef export? Obviously, China is a huge wildcard. GP could be hitting a home run. Cargill seems to be looking at a different glass."