Chinese e-commerce giant JD.com has struck a $300 million beef deal with the Montana Stockgrowers Association, including $100 million for a new packing plant.
JD.com signed the agreement with Montana's largest livestock organization in mid-October, but kept it quiet until President Donald Trump's visit Wednesday to China. JD.com is the world's third largest Internet retailer, behind Amazon and Google.
Stockgrower's Executive Vice President Errol Rice and Miles City Rancher Fred Wacker were in Beijing for the signing ceremony.
"JD.com is wanting these cattle from the great state of Montana, known for its fresh water and its clean air and tasty, tender beef," Wacker said. "We're now at the point where we go to ranchers and get them signed up."
Ranchers will supply $200 million worth of Montana-sourced beef to JD.com beginning in January 2018 and continuing through 2020. At a minimum, JD is expected to buy 80,000 to 90,000 cattle, Wacker said.
The agreement is expected to increase 2018 Montana beef exports by almost 40 percent, according the U.S. Department of Agriculture statistics. The agreement is nonbinding.
The $200 million beef buy will be progressively stepped in over three years, topping out at $80 million in 2020.
Construction on a packing plant and feedlot is expected to begin next spring, according to the terms in the October memorandum of agreement. The location for the slaughterhouse hasn't been announced.
The deal stems from a Sept. 9 meeting with Chinese officials in Maudlow arranged by U.S. Sen Steve Daines, R-Mont. At the meeting, Chinese Ambassador to the United States, Cui Tianka, flanked by representatives from the China Chamber of Commerce U.S., laid out terms Montana ranchers would have to meet to do business in China.
Daines scored the meeting after traveling to China in April to talk beef with China Premier Li Keqiang. On that trip, the senator presented Li with a small Coleman cooler containing Montana steaks.
"It’s just remarkable to think that it’s gone from Maudlow to Beijing in the course of a couple months, and I give all the credit to Fred Wacker and Errol Rice, who are out there advocating on behalf of Montana beef,” Daines told The Gazette. “And I don’t want anyone to forget that when we took those steaks to the premier of China back in April, those were steaks that I hand-carried from Fred Wacker’s ranch in Miles City.”
From the beginning, Wacker said he wanted Montana to break away from the processing herd by butchering its own beef and selling it under the Montana brand. That's a tall order in a country where cattle from multiple states are funneled into a few large meatpacking plants where the animals' state identity is lost.
At the September meeting, Cui suggested that acquiring Chinese investors would give Montana beef a leg up in China. By October, that investment focused on creating a feedlot and packing plant in Montana.
Bank of China has signed onto the memorandum of agreement as financier.
Montana's agriculture community is no stranger to foreign investment. Many grain elevators in the state are owned by Japanese companies determined to secure supply and control quality of U.S. wheat.
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U.S. beef trade with China only recently thawed after a 13-year ban stemming from a 2003 Washington state case of bovine spongiform encephalopathy, better known as mad cow disease.
During the 13-year ban, China's demand for beef grew with the nation's burgeoning middle class. American ranchers watched with their noses pressed up against the glass as Chinese restaurants and supermarkets served up increasing amounts of beef from other countries. China imported 825,000 tons of beef in 2016.
Wacker's Cross Four Ranch raises antibiotic-free, implant-free Angus cattle for Whole Foods. The Miles City ranch is already marketing the kind of cattle sold in China's high-end beef market. Wacker said most Montana ranchers are very close to meeting the same requirements.
There are other nations selling beef into China that can out-compete U.S. producers on sales in lower- and mid-range quality grades. Shipping costs put U.S. producers at a disadvantage when competing against competitors like Australia, which by ship is 10 days closer to the nearest Chinese port.
To turn a dollar, Montana producers have to target the high-end market. Wacker said Montana can meet the order.
"The rules are very simple. They have to have source and age verification. They have to have and EID tag in their ear, a branch that says this is the ranch they were born and raised on. And they have to not have had any implants," Wacker said.
Ranchers would be assured the highest market price on the day their cattle were sold, Wacker said.
Because the contract with JD.com is with the Montana Stockgrowers Association, the group will be taking on more of a cooperative role with members committed to delivering on a sale. MSGA traditionally focuses on state and federal policy issues.
"We want to focus on policy advocacy as kind of our core business in the state Legislature and in Washington," Rice said. "But we also want to focus on how can we create value for our cow-calf sector in Montana through efforts that can commoditize beef through the supply chain," Rice said. "Obviously this discussion has been around, 'Can we create infrastructure in Montana that can grow our feeding capacity and we actually invest in processing to put attributes on cattle that fit a unique and dynamic market like China?'"
Montana sells about one million head of cattle annually.
The Chinese are already investing in Montana, to the tune of $17 million, according to Cui.
Beijing-based Goldwind, the world's second-largest manufacturer of wind turbines, built a 14-turbine wind farm near Shawmut in 2012. The turbines are made in China. The wind farm will supply electricity to NorthWestern Energy into the 2030s.
The beef agreement announced Wednesday would be China's first direct investment in Montana agriculture production.
It’s been nearly 33 years since Montana had a meatpacking plant of significant size. Among the last, Pierce Packing Co., tore a 500-job hole in the Billings economy when it closed in 1984. Pierce was a regional giant, but the consolidation in the U.S. meatpacking industry pushed the 50-year-old company to extinction. Midland Packing Co. closed in Billings in February of 1985.
There have been several attempts to revive Montana meatpacking, but most production is small scale.
"When you think about what we need to do in Montana over the next 10 years to make sure we keep growing our operations, getting production up, getting prices up, this could be a game changer," Daines said.