And for the support of this Declaration, with a firm ...

1 Trading of livestock and grain products on CME Group trading floors and the Globex platform will be closed tomorrow, July 3 in observance of Independence Day. All commodities prod-ucts futures trading floors will close at 12:00 noon today. Commodity options trading floors will close at 12:02 and Mini Grains trading closes at 12:30 Globex trading of grains and oilseeds will close at 12:00 noon as well and will reopen for trade date Monday, July 6 at 7:00 on Sunday, July 5. Globex livestock products close at 12:15 today and will reopen on Monday, July 6 at 9:05 Not to be outdone by Tuesday s grain and oilseed fu-tures markets, Cargill and JBS USA decided to launch some fire-works of their own Wednesday when they announced that JBS would buy Cargill s pork business. This was a very well-kept se-cret as we have found no one that saw this coming. JBS will pay $ billion for all of Cargill s current pork business including packing plants, feed mills and hog production facilities.

2 Included in the sale: Two pork packing plants that Cargill acquired in 1987 when it en-tered the pork business. The plants at Ottumwa, IA and Beardstown, IL hare able to process 18,400 and 19,400 head per day. Both have been modernized in the past few years and are considered to be high quality facilities. Four hog farms two in Arkansas, one in Oklahoma and one in Texas. The farms are primarily breeding, gestation and farrowing facilities that provide weaned pigs to nurseries and finishing facili-ties in Missouri, Iowa and Illinois. Cargill has been very active in signing up contract growers in Missouri over the past few years with those barns to finish pigs from Cargill sow farms and then shipping them to the two packing plants listed above. Five feed mills, Two of those are located in Missouri and one mill is located in Iowa, Arkansas and Texas. So why is is this deal being done and what happens next?

3 JBS has been aggressively buying meat and poultry assets all over the world the past few years so the fact that they are buying is no surprise. This will be, to our knowledge, their first foray into primary hog production at least on any scale as significant as this. Accord-ing to Successful Farming s 2014 Pork Powerhouses listing of the nation s largest pork producers, Cargill ranked 8th with 161,000 sows. JBS is already quite familiar with vertical integration, though, as it is the majority shareholder in Pilgrim s Pride, a major chicken pro-ducer. Cargill did not say why it is exiting the pork business. Its press release did say it was not looking to sell but JBS made an offer that demanded consideration. Cargill has long been the fourth largest pork slaughter firm, trailing Smithfield, Tyson and JBS. At least one analyst speculated that the inability of moving to one of the top two spots in the industry the General Electric philosophy, we think might have been a factor in accepting JBS s offer.

4 Pork margins were record high last year on robust domestic demand and PEDv-shortened hog and pork suplies. They have fallen back to more nor-mal levels so far in 2015 but it could well be that Cargill s management believed that these assets might never have this much value again, especially given the recent completion of the Texas production facility. The sale is subject to regulatory review and approval and will likely get some close scrutiny from the Department of Justice. Putting together the 3rd and 4th largest pork packers will increase the indus-try s four-firm concentration ration (CR-4) by to by moving Hormel to the #4 spot in the rankings. More importantly, combining these high-ranking companies will drive up the Herfindahl-Hirschman Index (HHI) by about 190 points. The HHI is a measure of concentra-tion computed by summing the squares of each company s market share.

5 The pork packing sector has been classified as moderately concentrated for several years due to its HHI of around 1300. We say around because our calculations are based on rated capacity and not actual slaughter since we do not know what actual slaughter was for each company. This merger will move the HHI to about 1500, still well short of DOJ s 1800 demarcation of a highly concentrated indus-try. But any increase of 100 points or more in a moderately concen-trated sector raises significant competitive concerns according to DOJ merger guidelines. JBS and Cargill are direct competitors for hogs in eastern Iowa for their Marshalltown and Ottumwa plants and in southern Illi-nois when procuring hogs for their Louisville and Beardstown plants. The merger does not change concentration in hog production but will almost certainly become a political football for presidential candidates desperately seeking attention in Iowa.

6 Vol. 13, No. 127/ July 2, 2015 Sponsored by The Daily Livestock Report is published by Steve Meyer & Len Steiner, Inc., Adel, IA and Merrimack, NH. To subscribe, support or unsubscribe visit Copyright 2015 Steve Meyer and Len Steiner, Inc. All rights reserved. The Daily Livestock Report is not owned, controlled, endorsed or sold by CME Group Inc. or its affiliates and CME Group Inc. and its affiliates disclaim any and all responsibility for the infor ma on contained herein. CME Group , CME and the Globe logo are trademarks of Chicago Mercan le Exchange, Inc. Disclaimer: The Daily Livestock Report is intended solely for informa on purposes and is not to be construed, under any circumstances, by implica on or otherwise, as an offer to sell or a solicita on to buy or trade any commodi es or securi es whatsoever. Informa on is obtained from sources believed to be reliable, but is in no way guaranteed.

7 No guarantee of any kind is implied or possible where projec ons of future condi ons are a empted. Futures trading is not suitable for all investors, and involves the risk of loss. Past results are no indica on of future performance. Futures are a leveraged investment, and because only a percentage of a contract s value is require to trade, it is possible to lose more than the amount of money ini ally deposited for a futures posi on. Therefore, traders should only use funds that they can afford to lose without affec ng their lifestyle. And only a por on of those funds should be devoted to any one trade because a trader cannot expect to profit on every trade. The Daily Livestock Report is made possible with support from readers like you. If you enjoy this report, find if valuable and would like to sustain it going forward, consider becoming a contributor. Just go to to contribute by credit card or send your check to The Daily Livestock Report, Box 2, Adel, IA 50003.

8 Thank you for your support ! And for the support of this Declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor. Fifty-nine men affixed their signatures to the document that closed with that line. Many of them paid a terrible price for their treachery in the eyes of the British Crown. But their courage led eventually to a new nation and a new way of man governing man. We and the entire world are, and forever will be, in their debt. To-morrow marks the 239th anniversary of the first public presentation of the Declaration of Independence. Have you ever read the entire document? Please take time tomorrow to do so. You will be moved and impressed! This marvelous document can be found at Have a happy and safe Independence Day!