Lakeside Sells to Nilsson Bros. For $107M

[DiamondSCattleCo]

F_S, I'm not exactly sure how you get "we shouldn't
ship to the US" from my responses, but let me
explain the situation to you:

Right now we have 3 major bidders in the system,
all of which, either because their expenses are
similar or through collusion, have pretty much the
same top end price they are willing to pay for beef.
None of these bidders are willing to up their bids
(including XL!) to fill their Canadian chains.

If this sale goes through, one of those major
bidders is going to have their top end bid reduced
as they now have some added expense in the form
of shipping and cross border administration fees.
Since the other two bidders have already shown
they are unwilling to fill chains, what is going to
happen is that they will drop their top end price
down to approximately that of the bidder who
exited the Canadian marketplace. That bidder
(Tyson) is certainly NOT going to raise their bids up
as they have beef in their own country to buy up.

Do you understand now?

Besides, exporting live cattle into the US is not a
real good thing for the Canadian economy. We
should be exporting slaughtered cattle that have
been processed right on our own soil. Then we get
the value add and all the benefits that spin off from
that.

Not only that, we should NOT be relying on the US.
I dunno why ABP/CCA delegates are so unable to
understand that having one customer is bad for us.
Didn't you guys learn anything from BSE?

As far as the SA tariffs, have you paid any attention
to the US market right now? Not only is there a
quota (X number of tons can be imported tariff free)
, those tariffs can be waived in certain
circumstances, and in the 2006, tens of thousands
of tons of SA beef was imported tariff free into the
US over and above the tariff quota. I haven't seen
the 2007 numbers, but I suspect we'd see similar
numbers. Ditto the Canadian side.

Rod

[kato]

There may be a bit of light in all this, and that may be how Canada deals with MCOOL. .

We've all said that the only way to make something positive come from MCOOL is to use it to promote Canadian beef in the U.S. market. Before the Nillson thing came up, did we really have a major packer here that would even consider it? No!

Cargill and Tyson had nothing to gain by promoting Canadian beef. Their opportunities for profit would come from NOT promoting it.

Perhaps, with our second major player being Canadian owned, we may have a shot at getting a customer base for Canadian beef in the U.S., especially if they take the Canadian Beef Advantage promotion and run with it.

[grassfarmer]

Farmers-Son,
Indeed there are "other auctions, other feedlots, and other packing plants." The Tyson feedlot at Brooks is however the largest and most blatant demonstration of captive supply, something that is costing Canadian producers millions of dollars a year. As such we should be doing everything in our power to break the unfair practice that allows them to manipulate the live cattle market so easily.
Of course you won't support that though just as the ABP/CCA have repeatedly refused to approve producer resolutions calling for limitations on packer ownership of cattle prior to slaughter.
Why?? Do they pay you to defeat these resolutions?

[DiamondSCattleCo]

"We've all said that the only way to make something
positive come from MCOOL is to use it to promote
Canadian beef in the U.S. market. Before the Nillson
thing came up, did we really have a major packer
here that would even consider it? No! "

I wouldn't count on it. Neilsons have the same
agenda as the rest of them do: Import cheap beef
from anywhere except Canada and the US. If
Canada dropped all their tariffs on SA beef
tomorrow, you can bet Neilsons would be right in
the thick of it buying all the commodity beef they
can.

When MCOOL hits, all thats going to happen is that
Cargill will likely exit the Canadian beef market.
Since the ABP/CCA won't actually stand up for
Canadian producers, they'll applaud as Neilsson
buys up Cargill's beef division too. Then we'll be
left with a monopoly who will pay us SA equivalent
for our fats.

Rod

[farmers_son]

DiamondSCattleCo: I think it more like this… It is more correct to think in terms of a North American live cattle market as live cattle do move across borders on an ongoing basis. The most significant recent event in the North American live cattle market was not the sale and purchase of one packing plant at Brooks but the complete disappearance of two major packers in the United States when JBS outright purchased Smithfield Beef Group Inc. ($565 Million) and National Beef ($465 Million). JBS had purchased Swifts ($1.5 Billion) the year previous. Prior to the sale four U.S based companies had the majority of the North American cattle slaughter; Tyson, Excel (Cargill), Swift, and Smithfield. Now there are three. Overnight JBS became the largest beef packer in the world.

I suggest it is incorrect to think that we have one less bidder for our live cattle and Nilsson Bros. would not be so foolish to believe that they will not have to compete with Tyson for both live cattle and beef sales out of Tyson’s Pasco location.

What I think has been overlooked is that we have a new major player in the North American beef packing industry creating a new significant bidder, not fewer bidders. Nilsson Bros. (XL) is no longer a marginal player but has moved up to take their place with the big boys with the purchase of a major plant.

I think most cattle producers would have been happier if Tyson had stayed in Brooks. However we are fortunate that Nilsson Bros purchased the Lakeside plant as there was a real possibility that Tyson would have simply closed the plant and moved their equipment south. It is very good news that the Lakeside plant will remain open. It also has to be good news that the Canadian beef packing industry is more Canadian owned than it was a month ago and only time will tell if that will make a difference in marketing Canadian beef to new markets. In any event I do not see the sale of the Lakeside plant dramatically impacting live cattle prices in Alberta and any impact it might have would be minor when compared to the sale of Swifts and National to JBS in March.

Overall, I think the Nilsson Bros. purchase of the Lakeside plant is positive.

[DiamondSCattleCo]

"I suggest it is incorrect to think that we have one
less bidder for our live cattle and Nilsson Bros.
would not be so foolish to believe that they will not
have to compete with Tyson for both live cattle and
beef sales out of Tyson’s Pasco location. "

I never said that Nilsson's wouldn't have to compete
with Tysons US operations. Not once. But did you
even bother to read my message? Do you not
believe that Tyson's top end bids will be reduced by
shipping, administration, and COOL costs? THE
WAY IT IS RIGHT NOW??????? What in god's name
makes you believe that Tyson moving back into the
US would make them pay the same as they are right
now for cattle, and just suck up the added costs????

As for XL being a "fringe" buyer, <insert rolling
eyes>. XL has always been a substantial buyer of
beef, especially in Saskatchewan. They were the
third bid that helped keep the majors at least a
little more honest.

Farmer's son, I want you to show me SOUND
economic theory that shows that cattle producers
will not lose a nickel by losing a local bidder. Not
this ABP/CCA nonsense of repeating something
over and over with no evidence to support their
position.

You say you can't? Now there's a surprise.

Anyone who thinks that this is a good thing for
producers needs to have their heads examined.

Rod

[DiamondSCattleCo]

By the way, nice scare tactics F_S: "If they didn't sell it,
they would have closed it".

Horseshit.

Rod

[farmers_son]

The fact of the matter is I am trying to make a living by raising cattle so perhaps I do need my head examined. At the best all I am offering here is my opinion for what it is worth, probably not much.

Without question, packer consolidation is a concern. For instance one company Brazilian JBS taking over Swifts, Smithfield and National. That will have more impact on our live cattle bids than the change of ownership at Brooks, again however that is just my opinion.

If you do not believe Tyson will close a plant check out these news items:

http://www.tyson.com/Corporate/PressRoom/Default.aspx

Tyson Plant Consolidation to Improve Efficiency (York Nebraska Plant Closes)
Tyson Finalizes Plans for Restructured Operations at Emporia (Discontinuing Beef Slaughter, Emporia Kansas)
Tyson to Consolidate Beef Plants to Boost Efficiency (Boise Idaho Plant Closes, Pasco Washington plant scaled back).

Horseshit or no horseshit, Tyson is scaling back operations under the leadership of its new CEO Richard L. Bond. I also notice there have been a lot of changes in the directors and executive of Tyson since Bond took over the leadership of the company. If you read the link I provided earlier in this thread you would see that Tyson had lost $96 million on beef segment sales in just one half year and a significant amount of that loss was due to the Lakeside operation. Maybe you connect the dots differently than I do but I think we could have had a very different announcement on June 26. Of course that is speculation on my part but what we do know is Nilsson Bros. did purchase the plant, by all indications the plant will operate as it did before and I am very sure Nilssons did not purchase the plant in order to close it. To me that is a good thing.

[DiamondSCattleCo]

Those US side plant closures were done because
those plants had been continuously losing money
for years. I also understand the equipment in those
plants is getting tired.

Tyson's Canadian side has only lost money for a
couple years (if indeed they've lost any at all, which
I doubt). Even though North American firms don't
take a long term view like the Japanese, even they
take a longer term view than a couple years,
especially given how much money they made
during the BSE years. That plant would not have
closed, and this whole cheap sell to Nillson has all
the signs of something behind the scenes having
went on.

[farmers_son]

I agree, there is something behind the scenes going on. No doubt about it. In fact there are a quite a few things going on behind the scenes. They are:

• There is a credit crisis in the United States, very comparable to the late 1990s with shades of comparison to the late 1920s
• Last week Tyson’s bond rating was downgraded from investment grade to junk bond status.
• SRM removal costs are higher in Canada than in the U.S.
• Labour costs are much higher in Canada/Alberta than in the U.S.
• The Canadian dollar is par with the U.S. dollar.
• High feed costs and ethanol production are changing the cattle feeding industry.
• Oil hit $146 a barrel today.

See:
http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

We are living in interesting times and Tyson is taking a strategic decision to reduce debt, close plants, consolidate and refocus on profitable areas like alternative fuels. They may be right, time will tell.

[DiamondSCattleCo]

Right or wrong, virtually every cattle producer I talk to
is against this sale. Since the ABP is supposedly a
democratic organization where every producer gets a
vote, what is their response?

Rod

[farmers_son]

DiamondSCattleCo: I definitely was under the impression that you were from Saskatchewan. In fact you said in another thread “Unfortunately, our Ag minister here
in Sask is a blazing idiot.”

See:
https://www.agriville.com/cgi-bin/forums/viewThread.cgi?1213714607

I think your concerns would be more correctly directed to your provincial cattle association in Saskatchewan.
However it is possible you pay check off in Alberta and you certainly can talk to the ABP people in Calgary or your zone representatives, they would be glad to hear your concerns.

I think the sale is what it is, and there are pros and cons. I know I preferred it when Lakeside was owned by Canadians, but it got sold and then it was owned by IBP and then it was owned by Tyson and now it is owned by Canadians again. Each of those different owners had different strengths and the price of cattle went up and it went down through all those years. Just imagine what the cattle producers in the States whose nearby packing plant is now owned by Brazilian JBS are wondering. But the real kick in the pants is when your nearby packing plant closes and that did not happen here.

[greybeard]

Unfortunately this is just a symptom of an industry that can’t function on the amount of money going around presently. The pots too small and there isn’t room for everybody to fit .Costs have risen all the way through the system, and consolidation has occurred, top to bottom. Big changes have to occur, and some of us won’t be here to see them.
As someone else said, multinationals have no patients. Profits have to be produced in order to drive share prices. Higher share prices make for multi-million dollar bonuses.
Cargill and N B are both family held and may be willing to wait for opportunities to cream off on an occasional windfall. Cargill is doing it now in fertilizer. They bought when no one else wanted it. I feel they look at everything in a longer term.
We have to hope for more money to come from retail to make the pot bigger.That does appear to be happening now as the retailers are stocking up because the expect higher prices ahead. That’s a big turn around from waiting for it to get cheaper.
N B may not be the choice of all, but a dark plant in a location where they haven’t been able to fully staff for years doesn’t appeal to me. 50 dollars a head or 3.5 cents a pound on fats isn’t going to save my operation. Good for them if they can get it.

[DiamondSCattleCo]

I am from Saskatchewan, unfortunately due to the
horrible organization of the CCA, our voice is
completely lost in the background to the ABP. So if
want to have a voice, we have to approach the ABP.

Besides, Alberta producers are just as much against
this as Saskatchewan producers, and I see you
didn't answer my question: Given how many
producers are against this sale, and that the ABP is
supposed to democratically represent producers,
what is the ABP response to this sale?

[per]

It doesn't matter whether N B or Tyson owns Lakeside. It is important that someone operates it. I would prefer it to be producer owned. We were just issued enough cash to buy it. My big concern is the complete vertical integration that has occurred here. N B is involved in a large portion of our auction markets, feedlots and packing plants. It is time for our industry groups to step up to the plate to lobby for no or limited packer owned and controlled fed supply. It is more important now than ever before. As far a the ABP standing up for or against the sale. It appears there are folks on both sides of this argument. What ever stand they take on this one they can't get it right because there isn't a clear cut right answer other than the obvious; it is better operating than shut.