Lakeside Sells to Nilsson Bros. For $107M

[farmers_son]

Grassfarmer: My Dad pointed out to me that sometimes when we saw someone who appeared to be doing really well, buying new machinery, building new buildings etc. what we saw was not how much they had made but how much they had borrowed. But I presume Nilsson Bros. must be making money or else they would not be able to borrow more or attract new venture capital. Nilsson Bros. is a private corporation and they do not publish their financial statements.

See:
http://ir.tyson.com/phoenix.zhtml?c=65476&p=irol-newsArticle&ID=1169591&highlight=

According to this report from Tyson Foods Inc., Nilsson Bros. Inc. will pay $57 million at closing with Tyson giving Nilsson time to pay the rest, $50 million paid over five years with interest, no mention of how much interest. That is really a very interesting arrangement and only time will tell if Nilsson has the depth to pull this off. Without question, Tyson will have some sort of security on the deal. Tyson may get the plant back in a few short years and keep the $57 million down payment to boot. I would have to think this purchase, although a real opportunity, involved considerable risk for Nilsson Bros. Growing too fast can easily sink an otherwise viable corporation.

Regarding packer profits…. See:
http://ir.tyson.com/phoenix.zhtml?c=65476&p=irol-newsArticle&ID=1135451&highlight=

Tyson lost $96 Million on $6.1 Billion beef segment sales in the first half of this fiscal year. “Operating results for the second quarter and six months of fiscal 2008 were negatively impacted by higher operating costs and losses at our Lakeside operation in Canada.” One can only wonder how much of the $96 million loss was attributable to Lakeside.

[smcgrath76]

GF - I said IF the AMLS is countervailed. I did not say when. I am trying to figure out and cover all the possibilities I can think of in my forward planning.
I am considering the potential that the Nilsson purchase of Brooks may enhance my prices as much as I am considering that it may decrease them. I am also considering the effect that new ownership may have on desired carcass characteristics of the cattle they harvest at Brooks.
It is just hard to navigate when the ground rules keep fundamentally changing on a daily basis. I always base my optimism on a skeptical critique of the current situation.
I can't change my opinion of the AMLS program based on the facts I have available to date, but the jury is still out for me on the Nilsson purchase (guess I am a blasphemer for saying so).
I am working on some solutions that may take our operation out of that issue completely anyway.

[DiamondSCattleCo]

"This sale does not involve a change in packing
plant capacity in this country. And as long as our
live cattle prices are determined in the U.S. minus a
basis and we have live cattle access to the U.S. I
would not expect a noticeable change in the price
of our cattle. "

I've long seen this arguement that number of chains
determines demand.

Its a load of bs spread by packer lovers with
absolutely ZERO understanding of economic
behaviour. While chains has an effect on demand,
number of BIDDERS in the system is far more
important.

What if Cargill sells out to XL next? Doesn't change
the number of chains in the country. Does this
mean the prices will stay the same?

FS, our prices echo US levels only because we have
the same large companies bidding here as they
have in the US. Now one of those companies is
exitting the market and you expect their US side
purchases will make up for the dropped demand?

What a load of crap.

Let me see if I can explain this to you: Tyson is
exitting the Canadian market to CONCENTRATE ON
THEIR SA MARKET! Perhaps we won't feel the sting
tomorrow or the day after, but we will soon.

This sale needs to be blocked, and blocked
immediately until another Canadian concern can
purchase it. Since we know those useless effers in
the ABP/CCA probably won't do anything about it,
we'll need to take it to our elected reps by
ourselves.

Rod

[farmers_son]

I think we would be better off to lobby our Canadian government regarding Canada’s access to the U.S. market when COOL comes into effect October 1, the day following the close of this deal.

For the most part, business is allowed to operate in Canada on a free basis and, for the most part, we would not want it any other way. I think is very unlikely that the Federal Government will do anything to block this sale. Last April, in what was called an unprecedented move, Canada blocked the sale of MacDonald Dettwiler and Associates to Alliant Techsystems, a U.S. firm. That involved the sale of crucial Canadian technology to the U.S. and would have ended Canada’s space program. This is a sale of Lakeside by a U.S. firm to a Canadian firm, how are you going to stop that?

Given the magnitude of the losses at the Lakeside plant, you might want to consider that we are very fortunate that anyone wanted to buy the plant and that it was not just shut down, which I believe had to be an option. You would have to think that there were not many buyers for this plant or Tyson would not have sold it for $57 Million down with 5 years to pay the balance of $50 million. I have mentioned in these threads before that we could very well lose one of our two major packing plants. Well the plant remains, for now, and Tyson will still be bidding on our live cattle from its U.S. operations in Pasco Washington.

Bottom line, as long as we continue to have open access to the U.S. live cattle market, it will not make much difference if Tyson or XL owns Lakeside. Like I said Tyson can bid on our calves from Pasco as well as from Brooks. I think what was most important was the plant remains open. And for that matter if, for some reason COOL or something else, access for our live cattle to the U.S. is restricted again like in May 2003 it will not make one bit of difference who owns Lakeside either. I can guarantee you if that happens we will not like the price we will get for our live cattle.

[Willowcreek]

I think when your lobbying your government- you may want to lobby for a stringent M-COOL law too-- because I'm sure Tyson/etal has some plans for that cheap South American expansion beef to be going north of the 49th too...

[farmers_son]

Now, now, Willowcreek... We Canucks know that COOL is about Canadian live cattle and beef, not South American beef which was destined for food service/packaged foods which are COOL exempt. Last time I checked no South American live cattle were being processed in U.S. packing plants like Canadian and Mexican cattle are and no South American live cattle are being fed in U.S. feedlots like Canadian and Mexican live cattle are. The negative impact on offshore imports will be minimal.

In fact, depending upon how COOL is implemented, COOL will increase imports of South American and off shore beef as imports of Canadian live cattle and beef are reduced. The net result will competitive gains for countries that have a much lower cost of production than the U.S. and Canada does with a resulting loss of competitiveness for all North American beef and live cattle.

The best way to defend your industry against cheaper off shore imports and increased global packer concentration is to support a North American market place which has a common cost of production, comparable type of cattle, similar climate, shared borders.

[grassfarmer]

F_S, Your judgment seems to be clouded by the idea that the US is the only market for our beef. It's a big world out there with a growing number wanting to eat beef but unable to produce it. You are setting the bar very low if the best we can ever achieve is US price minus a basis. Saying that competition for live cattle will be just fine because Tyson will haul cattle to Pasco indicates that you didn't learn the lessons of the "BSE" border closure. It will put us in a hugely more vunerable position if the border closes again for whatever reason. All the more reason to look for other markets.

One issue that should be taken to the competition bureau is that the Tyson packing plant and feedlot should not be owned by the same people. This would be a start of fighting the captive supply issue although it wouldn't solve it overnight.

[Willowcreek]

Farmers-son-- you are correct about the fact that there is little- except for soup and stew beef- entering the US from S.A. now-- but thats also the problem with ABP/CCA/NCBA- they don't look toward the future...

With the JBS new purchases- and the Tyson holdings in Argentina and Brazil- it will not be long before all types of cheaply produced beef from S.A. will be entering N.A.-either directly or indirectly thru Mexico--and without requiring origin labeling on all- no way to designate them apart- and no way to even be able to promote or market higher quality domestic raised product...

At least now with the M-COOL consumers can (and I believe will) choose domestic over imports- especially imports from Mexico and S.A., where the standards are still very questionable...

And this M-COOL is just the first step-there are already laws drafted to require COOL labeling of ALL major ingredients in ALL products- and removal of the restaurant/service exemptions...They are just awaiting Jan. 2009 when the Democrats will most certainly control both Houses of Congress- and most probably the White House...Representative DeLaurio is just sitting on them until then...

[DiamondSCattleCo]

"Like I said Tyson can bid on our calves from Pasco
as well as from Brooks. "

You just don't get it, do you f_s? Tyson will bid on
Canadian cattle MINUS transport fees,
administration fees and whatever it costs when
COOL is enacted. That WILL lower the overall
dollars that Canadian cattle producers will see, not
to mention taking away fats that could be
processed right here, creating jobs and adding
value.

So whats the ABP going to do? How about this:
Hammer on government to buy the plant, or
guarantee a loan to something like the B5 group.
Or is the ABP simply going to sit back and watch
Canadian cattle producers get screwed again while
they pat themselves on the back over what a good
job they're doing?

While you're at it, get some ABP members some
economic lessons. You guys appear to need it.

Rod

[farmers_son]

DiamondSCattleCo: Are you saying that we should not ship live cattle to the U.S.?

I have always supported producers owning packing plants in these threads. And still do. However it will not be as much fun owning and operating a packing plant when it is losing $100 a head as when it is making $200 plus a head like during the bad old days of BSE. And if you want to own the Lakeside plant, you might just have to wait a few years and it will be up for sale again.

If this sale of Lakeside highlights one thing, it is that the packing plant industry in Canada is in trouble. Not that I am a packer lover but we are in a new reality with high labour costs in this province, feeders and fats exiting Canada resulting in a lot of unused plant capacity. I think we are fortunate that Nilsson is willing to take a stab at operating the plant, it will not a sure fire profitable venture and much depends upon what comes down the pipe out of COOL. It is obvious that Tyson was not real optimistic about what that would be. But I would point out that Tyson never really did choose to operate in Canada. They simple bought out IBP January 1, 2001 (for $4.7 Billion) and ended up with Lakeside as a result. IBP had bought Lakeside in 1994 after they were taken over by Occidental Petroleum in 1981. Tyson was really a chicken outfit until they bought IBP and it looks to me like they are still chicken. (bad pun) Nothing chicken about Nilsson Bros. and they are taking a very big risk that might be make or break.

Grassfarmer: This will make Nilsson Bros a major player in feedlot size. I do not know if they will pass Cor Van Raay or not. The Competiveness Bureau could very well investigate this sale but I expect they will not have a problem with it. There are other auctions, other feedlots, and other packing plants. Still their growth rivals that of IBP in the 1960-70s.

Willowcreek: Did you know that North American has a high tariff on imported off shore beef. 26.5% after the initial TRQ is filled. We are not going to going to be flooded with offshore beef, any more than we are now. It would seem to be in everyone’s best interest though to fill the North American demand for beef from within North America and not create further market opportunities for cheap off shore beef. The number one beef importer into Canada is not from South America, it is the United States.

As far as your two parties go, the Democrats have tried to win votes by Canada bashing and obviously they have got your vote. But when the election is over whoever wins has to run the country and they will recognize that Canada is their number one supplier of crucial energy, still their biggest trading partner and an important ally in the war in Afghanistan. It will be an interesting election this November.