Feedlots don't need more packers!

[wd40]

We've talked alot about the need for packer capaacity. I have come to the conclusion that the feedlot industry won't benefit from more packer capacity.

[Bez]

I have a feeling the packers might fill them.

Bez

[Bez]

Bez you could be right. Packer ownership has never really been dealt with has it ?

[cakadu]

WD, would it be possible for you to give a bit of an explanation as to how you came up with your conclusion? I'm always interested in hearing "outside the box" thinking and would like to understand where you are coming from.

[wd40]

The light finally came on this week.

We as producers are wy too mush "Next Year" people. We are content with short sightedness. And the feedlot are the worst.
1)They are happy with a $25 margin year in year out.
2) They are always and only "margin players".

Therefore they never really apply their minds to how to increase the margin significantely to say $45 may we dare $50.
3) As soon as they have hit that invisable margin they spend it on buying calves and the price of calves goes up, (or toys)thus they maintain that invisable margin at what ever level they are happy at.
4) Therefore we never stratagize toward how to capture more value.


To add insult to injury Cow Calf producers are totally content to watch the tail lights of the linners after the last calves are laoded.

They (most) never really look at how can they add more value (not pounds) to their calves to help the feedlot realize more margin so he can spend more on the calves.

What a stupid industry we have created.

To add one last final insult to ourselves, The reason our Govt's haven't come up with a long term solution is becasue we are happy with short term quick fixes, and they listen to our fearless leaders provide insight.

It's high time we collectively took ownership of our induatry and make it waht it could be.

That is so far of the radar screen, most wouldn't believe it.

I think I'm going to be come a Maytag repair man.

[cakadu]

Thanks WD, your points are valid and do cause one to pause and think about viable solutions.

I suppose the biggest question is how to get producers to think outside the box and look for ways to capture the value.

I know that we have talked about costs, debt and financing in other threads. What I am reading in many of the threads is that more and more producers are beginning to understand their costs of production and make plans from there. How many animals are necessary to make things viable for individual producers is dependent on what choices the producer makes and what each one considers appropriate to meet his/her needs.

Gaining an understanding of costs is a major step forward; using that information to make sound business decisions is another step.

One problem that you have identified is that when a "magic number" is achieved, that is when expansion plans are implemented. A question I have is do we need to examine the point at which we make expansion decisions? Is it when things are rolling along real well and prices appear to be good, or do you do it based on other factors?

One other question I have is will we ever see the amount of packer owned animals change? I believe that right now it is at about 10% - is it possible for that number to go higher?

[Horse]

If we could truely use just our costs we may be able to survive and prosper but I feel one of the biggesr threats to our industry is the part time farmer and the sink farms and there are lots of them.
How do we know what the off farm investor may do if they have a good yr at what they do they arive at the market with bags of cash and skew the market while that is good for those at the market with thier calve sthat day how does one plan on such an event.

There are a lot of people in the oil business, and others , that are setting themselves up with a nice [ranch] as they dont farm and are doing it with a lot of tax $ so when they retire at 50 they have a nice toy and they dont figure profit and loss the same as real farmers have to to survive.
And to top that off the govmt programs are set to get votes not to give help so those with a tax farm colect the same as the other guys do .

[cakadu]

Horse, you also make some valid points. The tax rules catch up with some because you do have to be seen to be trying to make a profit and as emrald as said, there are restrictions when it comes to off farm income and how much of a loss you can claim. I do know that there are those who know how to get around these things, but eventually some of them do have to pay the piper.

How do you see there being a differentiation between a bona fide farmer and one who is using it as a sink farm as you call it? At what point is there a cut-off i.e. based on number of head, land owned, crops harvested, number of hours spent doing farm work? That is something that I think would be quite a challenge to determine.

[BFW]

Wd40 what are you complaining about? You should be happy that feedlots try to operate on a margin of $25.00/hd/turn. The easiest way to increase my margin would be to pay less for feeder cattle. As luck would have it, feedlots (as you point out) are extremely competitive when buying feeder cattle thus feedlot margins seldom have an opportunity to get very big at least for any length of time as we hate to miss out on any potential loss opportunities!

[grassfarmer]

Cakadu, I would suspect that packer owned cattle amount to more than 10% of their kills. It is said it takes 14-17% to control the market so I would be surprised if they don't have that much control already. And it has been the growth industry this summer by all accounts - sowing up deals with struggling feedlots to get them to custom feed for them under cover. This is a huge problem which has not been addressed. We took the 10% figure to Doug Horner and I don't think he was very interested in pushing for that limitation.

[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.