Give ABP a chance

[smcgrath76]

No worries Randy. I figured that was a
confidential question. I will eagerly
await the answer.

[MGMT]

WD40. I do not see how you arrived at $855,000. One Tyson share purchased at the IPO in 1963 for $10.50 would, today with splits, be worth $7200 giving an IRR or Compound Annualized Growth Rate of $14.57%. The annualized growth rate of the S&P 500 over the same period was 9.85%. For comparison purposes some of the higher priced farmland in Alberta would have generated returns of 13% CAGR during the same period. You will note there has not been a share split since 1997. Tyson shares, now worth about $20, were as low as $8 when Tyson sold the Lakeside division.

There is no question that Tyson, which has been in business for decades, is a profitable investment. The question is whether a new startup, given the realities of todays competitive environment, can even survive much less add value to the investors and the industry.

Surely it must be possible to comment on government dollars going into these ventures without being accused of being “married to my captors”. I think it is reasonable to say that if government dollars are needed to make the venture viable then the purchase price of the packing plant is too high. To my knowledge there is not a bidding war driving up the purchase price of the plant. If the present owners of the Balzac plant wish to dictate a selling price that is too high to make economic sense then maybe the plant doesn’t sell.

The comments made in this thread lead me to question if the people behind this drive are knowledgeable about the packing plant industry. There seems to a profound blindness to the competitive environment they wish to enter. When industry facts and characteristics are pointed out the quick answer is those facts are from the Kool Aid side of the books. The facts remain that a great number of start ups in the packing plant industry fail either before opening the doors or soon after. The facts remain that any participant in the industry must be able to withstand two or more years of very substantial losses. The fact remains that there is presently a lot of unused packing plant capacity in this country, especially in Alberta.

I do think any comments to the effect that the present packers are at risk of leaving are misguided. The financial statements all show that 2011 was a profitable year. Yes declining North American cow numbers are a concern. It appears to me that the marketplace is taking care of that as the primnary cow calf operation enjoys record high prices. I repeat myself. I wish the people looking into starting up the Balzac plant all the best in their venture. I would add I am impressed by the perseverance of Rkaiser.

If the Balzac plant is such a profitable opportunity then why the need for government dollars? If allowed to work the market based economy will make the right decisions. If the regulatory environment does not allow a startup a fair opportunity then fix the regulatory environment. When government dollars come into the mix that opens up a lot of very uncomfortable questions about who is the actual beneficiary of those dollars.

[per]

I was leaving this thread alone so as not to be accused of being ignorant of the facts and history and future and so on. But as usual I can't help but pop in for a quick question. Note that I am not taking some sort of official position or trying to divert the thread.

"If the Balzac plant is such a profitable opportunity then why the need for government dollars?"

Couldn't that question be also asked of past government handouts? Cargill and IBP/Tyson/Neilsons certainly participated in public monies over the past including a large chunk of change to bring Cargill to High River in the first place.

OK back to quietly observing and learning for me.

[rkaiser]

I thank you for your perspective MGMT, but will challenge your "knowledge of the packing plant industry" statement.

Your knowledge is obviously limited as well. Then again, you are not try to start something --- just doing the typical lobster pot routine trying to drag anyone in who tries to get out.

Your statement about the value of the plant are a perfect example. Do you know the value of our offer to purchase. Hell no. You know the asking price obviously cause you want to prove some kind of weird point about limitations and fear. Is this how you got to where you are business wise bud. Fear and worry and so called facts about problems that are damn well going to occur...LOL I will bet your banker has been all over that kind of thinking for years. LOL

You keep trying to mislead readers of the thread and talk about government handouts? where are you getting that thought. From the past obviously. We are simply exploring the idea of financing from the government bud and are working parallel with numerous private investors to see who will come to the plate first.

The question I would like to ask you is simply this. Is there room in this province, or this country for a third packer?... in your professional or private opinion. And maybe -- do you think that taking product off this continent like we are planning to do will cause a rise in price for cattle while eliminating the basis that has the two major packers in our country blowing away even there Northern State counterpart packers - profit wise?

How deep is this industry knowledge of your MGMT?

[MGMT]

Per. I think that is a fair question. Economic texts tell us that government dollars are justified in times of market failure. BSE and the resulting loss of markets did cause a market failure. Even with COOL we are not in the midst of a market failure now. Have we, as an industry, become so accustomed to injections of government money that we have forgotten that our industry is market driven? I would question how much government money actually went to the average producer who is the back bone of this industry. There have been far too many multi million dollar cheques cut to large, influential friends of the government. My opinion only but I see that as a problem.

Rkaiser. My take on your first post was to berate ABP for not supporting a bridge financing plan for a packing plant project involving the bankrupt Ranchers Beef facility at Balzac. The ask was for low interest rate bridge financing (open or closed?) made to the then Minister of Agriculture. Or else a $40 per head levy? The purchase price was indicated as being less than $20 million dollars which, assuming $20 million, is $8 million over the 2008 selling price of the plant determined by the receiver Algers and Associates Inc. through an open tender process.

Please Google bridge financing to learn more. Bridge financing is not a simple secured loan. Typically bridge financing is more expensive because of the risk the lender, in this case the Province of Alberta either through AFSC, AVAC, ATB etc., may be assuming if the venture fails. ATB had nearly $30 millions in the Balzac venture when it folded. Some of that would have been recovered, largely through the sale of the facility to Sunterra, but most would have been lost and picked up by the taxpayer.

Rkaiser may simply be exploring government financing bud but anyone who dares to question the need for government dollars in their proposal is subject to attacks. Get the purchase price of the Balzac facility right, get the business plan right, get the management team right and the need for government involvement disappears.

[per]

"Per. I think that is a fair question. Economic texts tell us that government dollars are justified in times of market failure. BSE and the resulting loss of markets did cause a market failure."

When Cargill came to town the incentive was to bring a new competitive bidder to town. I

Randy we all should be able to agree that a third bidder moving into a different market space can be nothing but good for the industry as a whole.

[ASRG]

Come on....what's 20 million or whatever? The Alberta government subsidizes the oil and gas industry in the neighborhood of 6 BILLION every year....what's a measely 20 million....to keep the farmers from getting screwed by the packers!
How about our wonderful clowns in Ottawa give us $20 million? About 2% of what they owe us for screwing up the cattle business through the BSE gong show!

[wd40]

Thanks ASRG - you took the words out of my mouth. For some reason the beef industry seems to think it should stand alone set apart from the rest of the corporate world and do everything including dying on it's one.
The list of corporate aid from the Alberta Govt. coffers since Lougheed would fill an 8x11 page. ATCO, the magnesium plant at High River, Precision Drilling, and on, and on and on.
But the beef do-gooders (who are married to the packers) see it as the "un-pardonable sin", to get anything back from our own Govt. for such ventures.
Hypocrite
I can’t believe that when one sees how the vibrant beef industry has gone and will never come back (in our lifetimes), since 2003 we’re still debating this point.
The packers used to sit back and laugh at us, now we’re not even on their radar. Fools we are.

[rkaiser]

Google bridge financing? I am sorry if I used the term wrong MGMT. To me bridge financing is a tool to finance a project until another loan is applicable. CLP was asking for a loan to purchase the plant from the government. If they called it bridge financing as well, we are all extremenly sorry for the error. LOL

Of course this project is risky for crying out loud. What startup is not? Especailly if you compare it to other ventures that had horrible business plans and over shot their infrustructure costs in the millions of dollars. You really need to dig a little to see how many reasons there were for the failure of Ranchers beef the first time round.

How many people like yourself along with most of the gang at our duly elected ABP (LOL) are warning everyone about the risk and using bullshit numbers like the ones you keep posting to prove themselves.

I could put you in touch with the right guy to speak with at Algers to get your Sunterra purchase price right if you wish. Not to mention the Algers sale listing that says that the replacement cost of the plant is 75 million. Even if your 20 million bs number was right --- still a deal to me.

Have you taken a look at the real estate values in the area or the buyers in the vicinity?

Then you start spewing some bs about bridge financing or else a $40.00 levy. What the hell are you talking about. The $40.00 levy is meant to pay back the loan.

Sorry bud, trying my best to be respectful...

[MGMT]

Get the purchase price of the Balzac facility right, get the business plan right, get the management team right and the need for government involvement disappears.

The point has been raised about the packing plant industry getting government money in the past as if somehow two wrongs make a right. Reagonomics never worked, in my opinion. The theory that government dollars at the packing plant level will somehow trickle down to benefit the producers is a myth. It is socialism for the rich, free enterprise for the poor. Does it make any difference if the money flows to Cargill/XL or to this proposed startup?

The point has been raised that it is only $20 million so what is the problem. And that there is a long history of government handing money to private ventures such as the magnesium plant at High River. Lets overlook the fact that the magnesium plant never got off the ground. The truth is that with enough government money (bridge financing if you will) behind the project this plant, or any plant, could operate indefinitely. It would take ongoing injections of the $20 million dollar government fix. The Ranchers Beef operation ran up a debt of $56 million and was only in operation a short while. The government backing/money would be required for at least ten years or longer as it would take that long for a naïve management team to go through the required learning curve, develop the required marketing channels and accrue the financial depth to operate without the government umbilical cord. There is a possibility that plant would never be viable without the support of the Province's treasury.

Actually it would be more cost effective in the long term to simply nationalize the Lakeside plant as a going concern and get on with it. Or why stop there? Why not nationalize the Cargill High River plant as well and take over the world beef market? After all, our province has the financial resources to do that. Think of all the money that would trickle down to the producer level.

[rkaiser]

One thing that you have nailed is that there is no trickle down effect from the two private players in the province.

There will be from a producer owned plant that is taking product off the continent and working outside the conventional markets. Especially for participants and subsequently for Cargill and NB customers as well. The only ones who will suffer or at least have to pick up their game and pay more for cattle are the Cargill and NB.

I do agree with your first statement and am focused on those points. If you have been in business long enough however, you would know that exploring all options is crucial.

All your fear about asking for more money after a loan is in place is due to historic events and your own personal desire to be right about something...

Cheers and Happy New Year MGMT

[burnt]

"The only ones who will suffer or at least have to pick up their game and pay more for cattle are the Cargill and NB."

Not trying to mock you Randy, but, Hahaha, such a minor point!

They'll not likely object at all, will they?

Because that's the biggest reason that new beef processing ventures fail - the old boys club won't let them in.

Cattle prices can be plodding along at 80 cents a pound and when a new guy starts bidding on a few then all of a sudden by golly those same darn buyers somehow discover in their heart of hearts that they can actually pay 90 cents - golly why didn't I think of that sooner!

That's exactly what happened a year or so ago when a small packer took over the defunct Gencor Foods plant in Kitchener. Jeepers all of a sudden Cargill needed a whole whack of cows too and while Cargill could absorb the higher price on a relatively small portion of their production, the new boy couldn't because it was on his whole supply.

Your advantage is that you are not competing in the same market.

[grassfarmer]

"Your advantage is that you are not competing in
the same market."
So what does that mean? You are selling into a
different market? You still have to buy in the same
market as far as I can see. Or are you implying that
producer shareholders would have to surrender
their cattle, at a lower than market price to "their"
plant to make it profitable?

[smcgrath76]

We certainly saw that over-competitive bidding with our involvement in SK. Cull cows
rose several cents in proximity to the plant when a couple of others buyers got really
competitive.
If a higher value market(s) is/are secured then it is possible to pay a premium, however
I believe a more sustainable model probably requires the contributors to participate in
the final market, rather than having the "plant" take all the market risk. Shifting a
mindset from dumping live calves to participating in a value initiative is a big one, so
it will take some time to build, but I expect that is half the fun.
Based on the cattle cycle and how things roll out in the global economy (timing and
order of price changes) it may put a squeeze on things at the wrong time. That will be
a management challenge to ensure the participants keep their eye on the big picture and
to manage cash flows well.
GF - I agree with your sentiments, but I know that commodity prices (even when high) are
average prices and a lot of poor cattle are overpaid for, while still leaving value in
the good cattle. Sorting that out will take cooperation between parties. Perhaps a CWB
payment/final payment or a grid like Natural Valley tried to implement could assist.

[burnt]

I meant the market into which they are selling.