Feedlots don't need more packers!

[Horse]

cacadu I dont know a definate way to decide who is or is not a farmer but for sure someone with 20 cows is not realy in the game or as some say 300 is the number.
I do know there are a lot of land holders that do figure on retirement in the country when thier work carier is over and a lot of that is from tax dodges. The thing that riles me is that to work under the system they have to produce a comodety with no real expectation of profit and all that does is lower the price to me. A case in point is the crown grazing leases , to keep a lease you have to run cows on it although lots dont but there is upwards of 100 mill$ to the lease holders now if the govmt is so damed sure they need this welfare then give it to them without having to produce a calf to drive down the market for the rest of us that dont have a big welfare cheque.

[cakadu]

BFW, how much of a challenge would it be to get the feedlot margins higher? From what I understand and have gleaned from the many posts to this site, the margins are razor thin and keeps most feedlot owners on their toes. Is this really true or are there ways feedlot owners could increase their margins? I'm trying to get a better picture of how the feedlots arrive at their margins. Thanks.

[cowman]

I am old enough to remember the days when there basically were no huge feedlots. Every farmer basically raised his cattle right out to finished steers. The cattle business evolved into the system we have today for one reason...it made more economic sense...for everyone!
We had packers, back then, who delighted in screwing the farmer! They were not some sort of saints compared to Cargill/IBP?
I get a little nervous when governments start to talk about limiting the amount of cattle anyone can own? Do we live in a country where we have free enterprize or not? If it wasn't for Cargill/IBP putting some money in the feeder market the last couple of years, what kind of fall runs would we have had?
Cargill/IBP/XL have had a good run the last little while. They have done nothing illegal and have done exactly what every other business would have done...make the maximum dollars possible for their shareholders? This is bad? Does anyone honestly believe Canada Packers or Burns would have done anything different if they had still been around? Do you think the big feedlots would have been bidding more for your calves if they didn't have Cargill/IBP bidding against them?
So many cattlemen think they are getting a raw deal on their calves and right now I agree, but in the big picture over a period of time this "system" has evolved to be the most efficient one we could hope for? When this silly border BSE garbage is finally solved we will move back into that "system"? Why? Because it works.

[grassfarmer]

Cowman,
Doesn't "If it wasn't for Cargill/IBP putting some money in the feeder market the last couple of years, what kind of fall runs would we have had?" contradict your later statement
"So many cattlemen think they are getting a raw deal on their calves and right now I agree ...."?
It's obvious that any bottom they may have put in the calf trade was only a tiny fraction of what they could have spent given their market manipulation on the other end.I for one condemn the packers absolutely for being immoral, corrupt and unethical - like rpkaiser I will never forget this episode and will do my best to run these transnational corporations out of business and aim never to sell to them.
Perhaps now you have finally sold your cows you should change your handle from cowman - to maybe pacman or packerman ;o)

[cakadu]

What makes it work, cowman? Is it the fact that it is the devil everyone knows, which by default makes it work? Who does it serve best - certainly not the producer.

That article that InaHurry posted in the US imports thread (I believe it was) speaks volumes as to what the picture really is. What needs to be done now is to change that picture because it isn't such a pretty one anymore. If we go back to the way we did things, then we have learned absolutely nothing over the last 20 months and we leave ourselves wide open and vulnerable once again.

Grassfarmer, it seems to me that I read somewhere that the packers can have 8% of the kill be their own. There wasn't any mention of anything that they could have in feedlots being fed. Would there be any viable way to enforce something like that?

Cowman, I'm sure businesses have acted the way that they have since business began. Maybe now it is just far more visible than what it was in the past.

[BFW]

Cakadu, your assessment of feedlot margins being razor thin is accurate but a little more information is required. There are more or less 2 types of feedlots, one being a custom feedlot who feed cattle for other people or entities and feedlots who own the cattle themselves or feed "for their own account." The statement that feedlots try and make a margin of about $25.00/hd on a net basis is fairly accurate in my experience. Custom feedlots will charge their customers a rate over and above the cost of inputs such as feed, bedding and medicine which will cover their cost of operating the feedlot (wages, utilities,fuel, pen cleaning, repairs, depreciation etc) on a daily basis. This fee generally ranges from about 35-60 cents per head per day and varies by cattle type, geographical area and simply on an individual basis. For the custom feedlot the margin calculation is simple. Charge enough to ensure you cover those variable and fixed costs plus enough to return you the level of profit you desire. So the question of raising margins for the custom feedlot is quite simple raise the price that you charge your customer over and above the cost of the basic inputs to what the market will bear or increase efficiencies within the operation to drive down operating costs. On the other hand you have the feedlots feeding for their own accounts. They have the same costs more or less of operating their businesses as the custom feeder but have assumed the the risk of ownership of the cattle. You will find that these are probably the most efficiently run feedlots in the industry as they are not able to pass along their costs to a feeding customer. I believe that this is the crux of your question, how does this type of operation increase its margins? As I mentioned most of these types of feedlots already operate at optimal efficiencies so they look to improve their margins on the buying and selling of cattle. Obviously buying inputs such as feeder cattle and grain as prudently as possible and selling the finished animals at a level that at least covers all costs is the name of the game. Many of these operations have tried to use economies of scale to become more efficient. Certainly a minimum size is necessary to justify the required investment in facilities and equipment to feed cattle on a commercial basis but as many people have alluded to here bigger is not always better as at times bigger actually works against you (especially when you are losing). So in short the only way some one feeding for their own account can increase their margin is to buy cheaper, sell higher, be more nimble, I could go on and on. This was difficult prior to BSE and the current environment has only magnified the problems. Hope this helps. I have more but my fingers are getting sore.

[ALICIA]

If you have more packers competing to buy your cattle, would this not raise the highest bid up a notch.
I for one would rather have 6 guys wanting to bid on my cattle then 2.

Who ever bids the highest gets to own the cattle, and I would guess that means Cargell and IBP.

Talk about calling the kettle blue.
You cow calf guys are talking about backgrounding your calf to slaughter, so what is wrong with the big packers buying the kind of calfs they want and putting them on feed.
The only difference I see is the cow calf guy owns his calfs and the Packers has to buy his calfs from soom one like me, who doesn't what to back ground the calfs to slaughter.

[wd40]

Alicia - Philisophically speaking (thats way too big a word)

What was ment at the start is that feedlot opporators look for (lets say a $30 margin). They don't care wehter they pay you $1.40 for your calves or $0.65. It all depends on what grain is worth and what they can get out of their fats.

When they make, say a $60 margin they spend it on you're calves raising the price of them.

Therefore all they want is a environment where there is more packer capacity than cattle.

They don't care about who owns that capacity. Dosn't matter if it's a multi-national taking $100's Mill out of CDN.

[rowbott]

I think one point that is being missed here is the cost of marketing cattle (ie. sales commission, shrink, trucking, drug costs from shipping, etc.) Every time this is done from when the calf hits the ground until it hits the kill floor value is lost. If a calf changes hands 2 or 3 times in its life this can really add up. The cow-calf man and the feedlots each have there role to play. We have to stop trying to take advantage of each other and work together to optimize value of the end product. By-passing the auction market is probably worth $50-$100. There's a start.

[ALICIA]

wd40= Its not that big a word. Not only can I say the word, I know what it means.