Feedlots don't need more packers!

[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.

[ALICIA]

rowbott, I will be Devil's Advocate regarding bypassing Auction Markets. What about the farmer that wants to feed out a couple of hundred calves and doesn't want to travel around the country buying off farms. He now has the option of going to the Auction and picking out what he wants to feed, or getting an order buyer to do it for him. His calves are hauled in at the same time etc. Auction Markets have had their place overtime and I am sure will still play a role. I do not think they should be the dumping ground for every sick, skinny animal that the cattle producer wants to make that final buck out of though.

[cowman]

Is the auction mart system really all that bad? I wonder how the price would be set if we didn't have auction sales?
Now I will admit that some of the things that go on in the auction marts are not in the animals best interests. For example the selling of fresh weaned calves? I often wonder how they can possibly not get sick? Well I guess modern anti-biotics can solve that problem, right? But is that a good thing?
Now if you can find a buyer who will take your calves/yearlings right off the farm at a fair price then that is great, but what option do you have when you don't believe you have a fair price? One thing about an auction mart...you will find out real quick what the feedlots think your calves are worth? If you still believe you are not getting a fair price you do have the option of standing up and saying "No Sale"! Take them home and prove the feedlot buyer wrong!
Years ago pigs were sold by auction but today of course they aren't. The plant offers you a price and you can take it or leave it...around here that basically means you have no other option than to take it! Hmmm I wonder if that is why all the independent pig farmers have quit? Maybe they got tired of getting screwed so the mega barn could get a couple more cents per pound?

[magpie]

Look what happened to flax on the board at the Winnipeg commodity exchange when it wasn’t been used enough , became a dead horse and no price discovery. Same thing applies here, if you want to sell direct to feedlots fine or have buyer come to farm great, but at least you have the auction mart as one of the options for price discovery. Use it as a pricing tool and not think of the auction mart as a place to dump cattle.

[wd40]

robott - make sure you include all the checkoffs to the ABP.
PS. I had a buyer tell me that he had the commission from one group of calves 5 times.
I know cowman will say that's "free enterprise". But if I'm signing the check I'd dang sure find a way to find the right couple of ranches and cut a deal to buy the right calfe from the ranch. Those cost listed above are real plus death loss and grade redustions from treated calves. I believe the cost is much higher than listed above.

Those who aspire to be compdity marketers and "price takers" can use the auction mart.

Some of us that want to be "Price takers" will join Rusty's packing plant vertical chain.