SÃO PAULO, Brazil – Shortly after announcing the financial results of its 2012 fiscal second quarter results, executives of JBS SA hosted a media teleconference to further discuss these results plus answer questions. Wesley Batista, CEO; Jeremiah O´Callaghan, investor relations officer; and Don Jackson, CEO and president, JBS USA, addressed a variety of questions ranging from the effect of the current drought on the company’s protein businesses to the future potential for US exports.

When asked how rising grain costs will affect meat and poultry exports from the US and Brazil, Batista pointed out, “The grain market is a global market. It is not only the US that is facing higher grain prices. The chicken industry will need to balance supply and demand and prices will need to be higher everywhere to compensate the huge impact in [the rise of] grain prices. I think that for Brazil and US, the two largest chicken producers, the adjustments will come in their chicken prices.”

“You’ll see some rationing around the world that will be reflected in the US market with less US corn exports,” Jackson added. “To date, we’ve not seen further reduction in the US chicken placements. They’re basically year-over-year at about par to last year. I would expect we will see some decreases in chicken placements.”

Jackson said some liquidation of the sow herd on the pork side has started and he would expect that to occur as hog production has increased maybe 2 percent year-over-year.

In the US, the cattle supply is currently plentiful although cattle prices are edging up. “We would continue to believe that the cattle supply would be adequate. There should be some tightening of supply in 2013, but at the same time I think if there’s a reasonable balance of supply and demand and good packer discipline in terms of the slaughter – the margins can remain positive in 2013.”

Batista said earlier he expected reasonable margins in US beef and pork in the third quarter. When asked what he considers “reasonable margins”, he replied, “For the third quarter, at least 3-5 percent for beef. Pork is between 6-8 percent.”

JBS USA has not lost any share of beef from the export pie due to the strengthening in the US dollar and softening in the Brazilian Real, he added.

On the retail side, it was said earlier this year there is a lot more promotional activity on beef than on chicken, one reporter iterated. When asked if he is seeing any change in that trend, Jackson responded, “Year-over-year, beef has decreased to the extent of maybe one less ad per month for any given retailer. Beef featuring has declined. Generally, chicken featuring has increased.”

One reporter asked Jackson if Pilgrim’s Pride plans to achieve production discipline in this environment through head-count reduction or weight reduction.

“We have gone through some seasonal adjustment in our placements going forward, and that would be [head-count reduction]” Jackson said. “We don’t plan any weight adjustments internally. The history of slaughter is, despite an increase in corn costs, the only solution is by adjusting end supply relative to demand. We’re very vigilant in that regard and we continue to modify our placements to make sure they are in balance with our own company demands. We’re not seeing any changes on the industry side of the moment, but it’s a little early to say that there’s not going to be any change in industry placements.”

When asked about exports going into 2013, Jackson said, “Our business model in the US is very focused on exports. We expect in 2013 we will continue to grow our export business. Although I think year-over-year there was a slight decline this past quarter on beef exports, they still are basically on a par with last year’s exports. We’ve grown our pork exports year-over-year. We’ll continue to grow exports year-over-year, that’s very central to our business model.”

The US imports quite a bit of beef, O´Callaghan added. “We’ll probably see a declining trend toward importing beef into the US because of demands in so many other markets around the world. I suspect that would also be a factor that would affect supply and demand domestically in the US,” he said.