Fact or rumour?

[pandiana]

I talked to a fellow yesterday, who talked to a fellow who was supposed to know someone in high places...who said that "that it had been announced that the border would be opened on September 1st". I heard an announcement along these lines but took it as another 'probable' or 'maybe'. This fellow, however, thought that it was official.
What are your thoughts?

[rodbradshaw]

Have heard that the border will open to boxed beef but live cattle may be a long time off. Hope this is not true or we will be held ransom for our calves and grain? Any comments?

[Muttley]

I think most of it is just wishfull thinking. I hope it opens soon but if you listen to most reports they are from undisclosed sources or from groups with no real say in the problem!!!

[cakadu]

I think what has fueled some of the rumors is that Americans were buying at the satellite sale held in Red Deer yesterday - August 1st. Some are believing that if the Americans are buying, then an open border cannot be too far behind.

Story I heard was that Van Clief said that the Japanese are willing to relax their stance on letting in Amercian beef, provided that the Americans can prove - read document - that NO Canadian beef is mixed in with what is shipped to them.

The powers that be are now trying to hammer out some sort of protocol that will allow for this to happen. Of course, this will all be subject to approval by the Japanese. The earliest this was to happen was by sometime in September.

How much of it is true, or speculation, or just plain wanting the border to re-open is anyone's guess at this stage. Boxed cuts will be one thing, but as Rod points out, without the border open to live cattle it still will fall short of what we need. Having said that though, at least it would be a start.

[rsomer]

pandiana: The fellow you talked to yesterday, who talked to a fellow who was supposed to know someone in high places...who said that "that it had been announced that the border would be opened on September 1st" would have been referring to a news story on CBC: http://edmonton.cbc.ca/regional/servlet/View?filename=ed_madcow20030731

rodbradshaw: Due to the urgency of the situation, whenever the border opens to live cattle it will seem like a long time. I have doubts we will be shipping boxed beef south by September 1. In my view it will take longer than that, late 2003 or early 2004. Yes, we are being held ransom but I don't believe the Americans want to kill their hostage, (the Canadian beef industry), rather they are holding out for a suitcase full of ransom goodies (change of leadership, competitive advantage for their beef industry, cooperation from Canada on Strategic Space Initiative, harmonization of marijuana laws, the list goes on...). The Americans will not squander the opportunity they presently have to get the Canadian government back in line with U.S. policy by opening the border too quickly or all at once. But they won't kill the hostage, although the hostage will be very uncomfortable for a period of time and will come out of this ordeal thinner and more afraid. Its fifteen months to the next U.S. presidential election, beef producers should look within that time frame for significant developments to occur at the 49th parallel. We would do well to watch the U.S. election polls in 2004.

[pandiana]

Yes! Boxed beef makes some sense. Some pressure from IBP and Cargill would certainly work in favor of opening boxed beef shipments.

[pandiana]

In consideration of the report from CattleFAx, excerpted from Cow/Calf Weekly, the following rosie outlook on the American cattle industry would probably dampen their enthusiasm for opening the border. It is difficult to assess how this will effect us in the long term. The longer the border stays closed, the harder it will be fore Canadian cattle to compete as the American cattlemen will quickly move to fill the void.
[The USDA cattle report released last week indicated little change in heifer retention rates but signs are beginning to show themselves. Cattle-Fax is beginning to see some heifers being redirected but, given the current cattle prices, he says it will be tough for many producers to hold heifers back. "But we think we will start seeing the building and restocking of the cow herd around the country in the next couple of years," Miller says.
The 2003 growing season's corn crop is shaping up to be record large. As a result, expect corn prices to be lower in the next 12 months than they have been in the past 18.
"Our industry has reacted to fill the void created by the situation in Canada. We have probably over harvested cattle -- relative to what we would have done otherwise -- the last eight weeks. And we'll likely continue to do that until there's a reopening of the border," Miller says.

He expects this year's slaughter figure to top last year's, and anticipates that the 2004-2005 period will be the cycle low for slaughter and should correspond with the likely high in fed cattle, feeder cattle and calf prices, as well. Cattle on feed numbers are likely to stay down until early in 2004 due to the recent aggressive marketing of fed cattle.


Right now, the U.S. beef industry is on pace to produce about 26.3 to 26.4 billion pounds of beef this year.
The first six months of 2003 are shaping up to be the best six months of beef demand in the past 20 years. Even with what he called "extremely high prices" at retail and wholesale, there's no indication that U.S. consumers are backing off of buying beef.
Through May, beef exports are up 3.5% and beef import totals are down about 1%. The export figure doesn't include the months of June or July, however, which will move that export percentage higher as a result of the ban on Canadian beef exports, Miller says.
With the market moving up $2-3 the past week, Miller says it appears that the low $70s will likely be the fed-cattle support level for the balance of the summer. "We're not going to lose much money, if any at all, during the summer months, Miller says. "Historically, it's so rare that this industry doesn't lose at least a little bit of money feeding cattle. As a result, 2003 is shaping up to be one of the most profitable cattle feeding years in the last 15, and maybe 20, years."
Miller says that "for the first time in a long time, the entire industry is doing quite well." Meanwhile, prices for feeder cattle are expected to reach the $90 level later this year, while the market for 550-lb. calves will continue strong, possibly reaching the high $90s this fall.
"From a price standpoint, our industry is in very good shape" Miller says. "If there's one thing we frankly wish wasn't going to happen over the course of the next few years is that beef supplies will decline at a time when consumers are demanding an awful lot of U.S. beef," he says.
-- Joe Roybal]

[ValueChainFX]

Both Cargill and IBP are US companies; both companies have their own cattle on feed and will use those to look after their firmly entrenched Canadian customers. When the boarder opens up we can expect to see boxed beef and swinging carcass beef moving across. Hopefully this will take some of the pressure off, but you can bet it won't be much the low prices will get us.

However, I do expect we will see some of our more progressive producers move toward establishing a more diversified customer base and start investigating a more stable and long term marketing strategy!

[pandiana]

Value-Chain
"However, I do expect we will see some of our more progressive producers move toward establishing a more diversified customer base and start investigating a more stable and long term marketing strategy! "
I would be interested in knowing what your 'strategy' would be and where you think a 'more stable and long term market might be'.

[ValueChainFX]

Although market strategies are something not everyone will agree to facts are facts. Looking at the imports into Canada and the market potential of what we are calling niche markets today I think it is obvious that if we do not look after the markets in our own back yards someone else will.

An example of this can been seen right here in Alberta. Ask yourself where does the beef come from in our retail stores in Alberta?

To answer this question understand first that all the major retail stores require Federally inspected product. So now you can take the entire provincially inspected product out of this mix.

Now who does your Federally inspected product come from? Canadian companies? American companies?

The fact is, the live animals may be Canadian beef, but our large packers work in markets that they can mass-produce for. The small markets (niche) markets are left for a value added company to work on or not depending if they can get the product for that market. Such as the Organic market, the natural market, small box programs, etc.

The markets outside our boarders are important, but when these markets keep our industry alive we have to wonder if the risk is worth it?

The interesting part about marketing is that if a market is of no interest to one person, it opens an opportunity for another.

I suggest simply this, we know we have to provide the things the export markets are asking for so we are either going to supply them or not go after that market. In the mean time, we best be sharpening up our pencils, and revisiting our strategies of letting others take our own Canadian markets from under our noses.

[rsomer]

ValueChainFX: re sharpening our pencils and revisiting our strategies, Premium Brands, formerly Fletchers Fine Foods http://biz.yahoo.com/ic/52/52767.html has in response to the Canada’s BSE crisis shifted production of some products to the United States and reformulated other products. The company has lowered its 2003 earnings to approximately $20 million down from $24 million. See http://www.cbc.ca/stories/2003/08/05/premium_030805

This is an example of some strategies the real players in the beef industry are pursuing. When you say "take our own Canadian markets from under our noses" it sounds as if these markets belong to the Canadian cattleman, or as you describe the "more progressive producer". A more plausible scenario is these markets are controlled by the further processors and others such as the distributors down the supply chain from the packing plants (which may or may not be Canadian based)) who own the brands and control the established supply channels to retail. We as producers, even the more progressive producers, serve to fill the resulting derived demand. If a small upstart, for example your more progressive producer, were able to develop a new profitable niche, it is most likely that companies such as Premium Brands would come and, if the upstart competitor was very fortunate, buy them out. More likely the larger, more competitive player will simply take over its niche.

There are not enough niche markets to go around and even our more progressive producers, I presume like yourself, are not going to be able to sharpen their pencils sufficiently to solve the crisis caused by the closure of the U.S. border to Canadian beef.

[ValueChainFX]

rsomer, It is nice to see you following the market place. When you watch the market and you see the way production has been done up until now. A couple of things become very clear.

1.) Someone between the producer and the consumer is making money.
2.) Production is done on a mass scale and therefore must conform to specifications that are easily worked into a mass flow system.
3.) Turnover in this mass production system is high and consistency is hard to achieve and new products are harder for the mass producers to introduce.
4.) The large companies have you the producer ship live animals from all over to them. (Less money to ship a 1000-pound live animal than 500 pounds of meat in a box)
5.) The producer has little or no control over the income they can make from their live animals.
6.) The value added processor has a better opportunity to recieve premium money than most in the supply chain.
7.) Retails are looking for product that the big packers cannot deliver, i.e. organic, natural and retail brand product.
8.) The studies, reports, analysis has indicated that for the producer to make more income from their product they need to reach deeper into the supply chain (value added, partnerships, alliances)
9.) Large packers are unable to meet the demands of trace back, trace forward and small box (small quantity) product the consumer is looking for.
10.) Our Canadian markets that are being supplied by product other than Canadian product are very venerable now, especially given the publicity of late.
11.) A niche market is only a market that appears small and the big guys are not going after. How many of these markets are not being supplied because the big guys can't supply them through their mass machines.
12.) When a producer is getting as little money as they are at the moment, could we not supply the consumer at a price lower than retail yet enough for the producer to make an income.
13.) No one individual, group or company is going to clear this industry challenge we have, but it is a fact, that in Ontario there is a movement for a producer plant, also in Manitoba, Sask., Alberta and BC.

These plants need expertise to run them and put the systems in to meet the demands. It will never open the boarders, or use all the beef in the system today, but in the future I can see it working in the best interest for producers.

Finally, if smaller Federal plants are developed to meet some of the demands in the market, the producer will at least have some more choices. At the moment what choices do they have?

Do we have all the answers, I am sure we don't. Are we doing something? I am sure we are and so are the many producers that are talking to us in Alberta and across Canada. I believe we have enough interest now that it could be said our plan has past the test of scrutiny!

Always open to more input and always open to make the system better though. I do appreciate your input.

[rsomer]

ValueChainFX: Rather than respond point by point, I would state my view that there is tendency amongst producers to see vertical integration as offering a solution to periods of low profits by subsidizing the unprofitable primary production with the generous profits from other levels of the supply chain. This view is incorrect. Vertical integration, up and down the supply chain, has the potential in some cases to increase competitiveness of agriculture and agri-business. But integration won’t fix an unprofitable sector. It can, over a longer term, offer a measure of price stability to primary agriculture when compared to selling production on an open market.

In Alberta’s beef industry, I have looked to the example of Lakeside which owned a large feedlot and packing plant. The owners chose to divest the packing plant and concentrate on the feedlot. I don’t know why they chose this strategy but it’s possible they decided to stick with what they were best at.

During this time of crisis I would expect each sector of the beef supply chain is being challenged economically. Does this present an opportunity for producers to move up the supply chain, maybe or maybe not. Right now I don’t think I would want to be diversified into any sector of the Canadian beef industry. I would point out that either creating a new market niche or moving up the supply chain by starting a new packing plant controlled by producers takes time, years not weeks. Even the worst case scenario has the U.S. border opening in seven years. Lets face it, time is not on our side. I challenge whether a creating a new value chain or other form of vertical integration can save even the progressive beef producer, if for no other reason than there is not enough time.

A political solution will certainly present itself well before there would be time to save the farm with a value chain, probably not by September 1, but sooner rather than later. Something to think about, after the border reopens all value adding sectors of the beef industry from the feedlot on up will have to consider very carefully if they want to continue to operate on this side of the 49th parallel. If the border can be closed like it has you may want to have the portion of the value chain you own on the south side of the border.

[ValueChainFX]

Rsomer You are so right, many producers, government, consultants and the industry in general have looked at vertical integration as a solution.

I may suggest that if we look at ONLY vertical integration (meaning to me a straight linier path through the supply chain) the solution is not there. However, if you view the industry as a supply chain supported at each level by many other supply chains to each component of the main one, you can quickly see the ability to balance out incomes to make the industry sustainable.

Question 1

How many people have been affected by the present challenge?

Question 2

How many of those people would be willing to take a little less profit if it meant they were going to go back to work or supply their product or service to the agriculture industry?

Your comment in regards to subsidizing the unprofitable primary producer with generous profits from other levels of the supply chain, kind of surprised me.

If we don’t have a primary producer we don’t have an industry. If we are subsidizing them (or need to subsidize them) there is something wrong with the market (local or global) and all WTO countries have the ability to protect their producers. Even outside of that if we can’t pay our primary producers for their product we have no industry anyway.

I may suggest that vertical integration in a commodity ONLY market place May increase the competitiveness, but I would also suggest that marketers that do not meet the customer demands in our global market place “will” find themselves on an order desk answering phones. Markets are very fluid and require constant information exchange to make them viable in the long term. They are becoming more and more demanding as they insist the product is ; Food safe, has security, has adequate quality assurance, can be delivered in a consistent manner with a consistent supply, can have a verifiable trace back, proper labeling and I am sure more to come in the very near future. I will agree that vertical integration in the commodity (mass produced whack em and hack em) market is not the way to create stability that is sustainable.

If we look at Cargill they own a lot of their own cattle and use the cattle they have to leverage in the market. How they work their strategy has been based on the Canadian / US trade more than the global commodity market (although that does play a part) and their integration for value added, counter ready and RTE product is working very well for them. But let’s watch as they try to meet some of the more challenging demands being put on them such as trace back in their mass production system!

The economic challenge in the industry today is seen as being totally caused by the BSE crisis. Producers have had a growing challenge for some time now in the industry. Mainly caused by a production based market system. One of our wise forum writers once said you can’ expect to produce your way out of low prices by producing more. We will only see the industry regain a foot hold if we can derive more income from what we are producing.

You asked “Does this present an opportunity for producers to move up the supply chain”? I believe the producer needs to have choices to move deeper into the supply chain or not, based on information that is accurate. If they want to stay in the business they must do something, what alternatives do they have?

You also said “Right now I don’t think I would want to be diversified into any sector of the Canadian beef industry. “ For some they have no choice they are in the industry and have to figure out what they can do.

You are also right when you say it takes time since we have been developing the strategies for several years and are ready to move forward I believe we are much further ahead than most. Again you are right in saying time is not on our side, but the sooner we start the sooner we are in a position to get on with the industry. Some producers will be lost in this crisis (many were on the edge before the crisis hit) some will live through it, but to what end … to be a part of the primary producer group that needs to be subsidized? I think if producers knew this would be their future they would pack it in right now and save the grief.
If anyone believes for one second that a political solution will present itself and allows their future to sit in the hands of the politicians I would question where they have been for the past number of years. We have not seen any REAL assistance for some time. If the ag departments in Canada let 75% of their staff take an extended holiday for a couple of years most guys probably wouldn’t miss them for the first 12 months.

I guess the final point you make about being a Canadian producer or moving to the US my thoughts are many producers make up the CORE of what Canadians are, they still have a strong Canadian Pride, when we look for Canadian patriots I think you will find the real ones working the land and feeding the world. That is what we do.

YIKES … looking back on this it looks so serious! Just for a smile, I was asked how you tell a Canadian from an American as there didn’t seem to be a physical difference.

The answer is we are both the same the Canadian is just an unarmed (north) American with health care!

Thanks for your comments and your opinion we all have to believe in something I just believe …. There is a way out! Maybe not short term solutions but we are on the path to somewhere.

[rsomer]

ValuechainFX: You made a comment I find interesting. For certain our producers are proud Canadians, they have Canadian pride, probably drink Canadian beer and wear a T-shirt that says I A.M. Canadian. They will be very proud of our Canadian beef that is slaughtered in an American owned packing plant. They can take pride in that tasty steak cooking on the barbecue which since May 20 very likely will have come from the U.S. and certainly would be fed this past year with American corn. While dining on their American corn fed steak they can discuss the BSE crisis which was started when an American raising cows in northern Alberta sold a downer cow which very well might have been born and raised in an American herd. I think it is fair to say that each and every one of western Canada’s 33 major feedlots feeds cattle in the United States on a regular basis and before the BSE crisis routinely shipped fat cattle to the U.S. yet they would still be proud Canadians, T-shirt and all. At some point in the distant future the U.S. border will reopen to live cattle shipments. Where would you want to feed those calves, Canada or the United States? Failing some concrete assurances that the border will never be closed to Canadian beef again our large Canadian feedlots will have to consider moving operations south of the border. They can still be proud Canadians, they will just be proud Canadians feeding Canadian calves in the United States. The beef industry is or at least was an integrated North American industry. We can be proud Canadians as our neighbours to the south are proud Americans and still operate within a North American industry. That’s kind of a value chain isn’t it? The cows have to be fed where the grass is, they will remain in Canada. There will be an interim period when the border is open to slaughtered beef but not to live cattle. That period will be very hard for cow calf producers as the feedlots recoup their losses of May 20 from a captive Canadian feeder calf supply, as rodbradshaw pointed out earlier in this thread, but we need to be grateful that someone may be finally buying calves. When the border opens to live shipments, the feedlots will leave. That is how I see it. There is no reason to believe our beef industry will be the same once the border opens, whether it is September 1, 2003 or 2010.

Just to clarify, when I said that producers look to vertical integration, or forming value chains, as a means of subsidizing their unprofitable primary commodity production, I was not referring to government subsidization.

I don’t have a joke to tell but as I write this we are getting a little shower so we are smiling.