Lakeside Sells to Nilsson Bros. For $107M

[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.

[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