By Brazil Stock Guide – JBS will close two facilities in the United States as weak beef margins and tight cattle supply continue to pressure the industry, according to a report from BTG Pactual.
The company announced the planned closure of a beef production facility in Souderton, Pennsylvania, and a value-added facility in Memphis, Tennessee. JBS said production from the affected sites will be absorbed by other facilities across its network.
BTG said the move represents the permanent closure of an estimated 8% of JBS’s beef capacity in the U.S., calling the decision an unusual step for one of the company’s core protein businesses.
“In nearly two decades covering the stock, we cannot recall another instance in which JBS deliberately decided to shut capacity in one of its core protein businesses,” analysts Thiago Duarte and Guilherme Guttilla wrote.
The announcement comes as U.S. beef processors face one of the most difficult margin environments in years. JBS and Tyson Foods both reported negative operating margins of 3.9% in U.S. Beef in the first quarter, while National Beef reported a negative margin of 1.2%, according to BTG.
The bank said industry cutout spreads in April and May suggest the second quarter could be even weaker, despite a seasonal backdrop that is usually more favorable.
JBS is not alone in reducing capacity. Tyson and Cargill have also announced plant shutdowns or downsizings in recent months, reinforcing BTG’s view that the industry is becoming more disciplined in response to weaker profitability.
Shares of listed protein companies rose after the JBS announcement, as investors interpreted the move as a sign that processors are willing to reduce supply rather than continue operating at depressed margins.
BTG said the market reaction was understandable. Capacity discipline may help create a floor for margins by showing that major processors are no longer willing to tolerate unlimited profitability pressure.
But the bank said the move should not be read as a sign that the cycle is close to turning.
“Rather than celebrating that margins may not fall much further from here, we would be more concerned that they may take even longer to recover,” the analysts wrote.
The pressure on the sector is being driven in part by tight cattle supply, which has raised costs for processors. BTG also cited the risk from New World Screwworm cases in Mexico and the potential for cases to eventually be registered in the U.S., which could further tighten cattle availability.
The USDA had already reported nine cases of New World Screwworm as of the report’s publication, according to BTG.
For JBS, the closures may help improve utilization across the company’s remaining U.S. network, while reducing exposure to weaker assets during a difficult part of the cycle.
BTG remains more constructive on JBS than on other companies in its coverage. The bank rates JBS as its only Buy-rated name in the sector, while Tyson is rated Sell and MBRF is rated Neutral.
The broader message, however, is cautious. The capacity cuts suggest that U.S. beef processors are acting to protect margins, but BTG said a real recovery in the beef cycle is still not visible.
The announcement reduces the risk that processors continue accepting deteriorating profitability without response. It does not yet solve the industry’s central problem: tight cattle supply and weak processing spreads.
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