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What underpins Cargill’s acquisition spree?

Just days after purchasing a US animal nutrition maker, the agri major has bought a Brazilian cattle feed business. We find two reasons why Cargill's acquisitive spell may not be over yet.

 

Cargill has bought Brazilian cattle feed producer Integral Animal Nutrition at a time of heightened investor interest in the Latin American country.

The acquisition, which covers all of Integral’s assets, is designed to help Cargill’s effort to build its beef business in Brazil’s mid-West. “This acquisition will take the best of both companies’ capabilities to better serve customers looking for greater access to important minerals and premixes,” the company said.

Just days ago, Cargill bought Diamond V, a Cedar Rapids, Iowa-based producer of nutritional products for food and companion animals. It had already purchased the animal feed business of Southern States Cooperative, a Virginia-based farm supply retailer and service cooperative, in August.

Ivan Saval, managing director for food and agribusiness at National Securities Corporation, told Agri Investor that Cargill’s Integral deal comes as difficulty achieving profit margins in the US has inspired investors to look for opportunities in Brazil, where many large agriculture companies have long histories.

“The local buyers don’t have access to capital,” Saval said. “It’s a nice vacuum […] for someone like ADM, Bunge, Cargill, Dreyfus or Gavilon to come in and do opportunistic acquisitions. They know they are really the only players that have balance sheet to do a deal.”

Integral was established in 1986 and focuses on the production of cattle feed and provision of related services in the mid-west region of Brazil. Its products include Free Choice Minerals and premixes. The company has $25 million in annual revenue and maintains a presence across seven Brazilian states.

Feedlots forced out?

The wider context of Cargill’s investment also includes ongoing changes in the global cattle supply chain, Saval said.

Whereas US producers of cattle calves and packers who process beef before sale have seen good earnings in recent years, feedlots in the US, which sustain and add weight to the cattle before slaughter, have come under increasing pressure to improve their environmental, social and governance practices. That pressure has prompted speculation that more of the feedlot business will eventually move outside of the country.

Cargill appears to be taking steps to build a global animal feed supply chain in advance of such a shift, Saval said.

“They are probably seeing, at some point, a move of global beef supply shifting more towards non-US geographies. If that’s going to be the case, they want to get in before that trend happens and start establishing a foothold on feeding them.”