A Real Business Model for Beef...

[smcgrath76]

The events of last few days have really got me thinking...
If a person had no preconceived notions about what they wanted to do, and were approaching the beef industry strictly as an investor looking for a 15% return what would you do?
Traditional cow/calf is out. too much capital tied up to generate a limited amount of income, and a very time captive cash flow.
Feedlot is a maybe, but pretty high risk and low return. A packing plant is slightly better, but there is excess capacity and this creates competition for the input (live cattle).
The ideal situation is where you would contract cattle off the farm (someone else absorbs the huge capital cost), custom finish them to spec, and then harvest and sell them into a value added, attribute specific program.
If you have the feeding capacity and the cows, then you have to add a lot of value to cover the additional capital costs.
XL's move from a pure business perspective looks like a pretty decent one. By moving into a situation where they can more fully utilize their capacity, they may reduce their transaction cost on every kill and grow their margin.
I know the lowly guy at the start of the chain may or may not see any benefit from this, but from a pure third party business observation it is pretty smart stuff.
Would anyone else here do something different if presented with the same opportunity and if so what?

[perfecho]

Agreed, they are only doing their job, making the best returns possible.
It is our job to make our best returns by lobbying gov to keep competition in the fore front, controlling output to maintain margins, collaborating to ensure market viability, working to control further processing to enable other markets, etc.
They have done their job, we haven't done ours!

[wd40]

Man you guys don't get it. You're senerio of only 15% counts out the packer. If thats all they were going to make they wouldn't even get into the business. They count on at least a 30% return after tax. And thats not only packers. I talk to business owners every day and most good business aim at a simular margin.

[sjc]

We have done this to ourselves. The world is controlled by Big multinational corporations and each and everyone of us contributes to this. When we buy stocks in a company or invest in an RRSP, we demand a return on our investment. Gone are the days when we bought our inputs, groceries or sold our cattle from a mom and pop operation who made what they needed to. There was no 30% return, there was enough to support the family. Now we sell to a company who is demanding a return to inturn share with its owners. We as owners of our beef and grain farms are still like the mom and pop operator. We take whatever we can get, try to pay the bills and continue doing what we all love to do. Unfortunately, whenever it looks like we may make a decent return, like this year in the grain industry, fertilizer and crop inputs spike dramatically upwards and make that decent return look alot smaller then it did a few short months ago. All of a sudden crop protection companies did not make a proper return on their investment, Agrium had poor returns, Viterra did not make what the shareholders demand and the prices for inputs go through the roof because the farmer sees there is a chance he might make a profit so he is willing to spend more. It is sad but that is the way it is. We will never make more then we are now because as soon as things pick up and there is money in the industry again, someone decides they need a bigger return and we get squeezed. Unfortunately, we as producers will take a small margin and live with it, a multinational company will not take a small margin, they will take it from us.

[Kathy]

sjc - well said!

The concept on our farm, is that God gives us grass to feed to the cows(when it rains). Our farm converts that grass to flesh on the cattle. This is the sole limiting factor on our farm of major importance. We could have a few more cows with the better rains we have been having (although our hay crops are poor this year). We keep our numbers at a level manageable to our family... which suits our lifestyle, also.

I'm not into growing crops with chemicals. Soon enough these chemicals will destroy all the good bacteria and organisms in the soil, and the nutrients in the soil will be unavailable to the crops. I speak of this from comments made to me by guys that are farming - and living in good soil/crop zones. They are seeing a decline in the health of the soil.

Right now, one of my priorities is to remain debt free. Controlling my inputs to the best of my ability.

The AB recovery cheques are designed to flow through me/us to the next guy - to pay our bills. I am sure that the government is worried about losing all the businesses that live off our spending. Being at the bottom/start of the food chain makes me dependent (to the extent that I allow it) on the rest in the chain. I would like to see an industry that works together to keep everyone happy. BSE demonstrated to me, that those big multinationals won't be happy until they own the whole chain. The Premise ID concept is for their benefit - not mine. It is a detriment to my business. The propriatary information about my business is mine. We should not be telling the government or anyone else, how many calves we have to send to market.... devulging our details gives an advantage to the rest of the industry which they use against us.


A healthy change has to come from the bottom up (not the top down). Premise ID is a top down dictate which we should all say NO to.