An Alternative Solution

[kato]

Just how is this proposal written?
It seems to me that an offer of 70 cents for our fats is already a 69.9 cent gift from cargil and tyson as it is.

I can't see how the taxpayers are going to be included in any of this.

What's the scoop. Anybody know the meat of this proposal?

[BWC]

Again I am scared of going into figures , my understanding is that the basis would be a tied to US fat prices, with the differennce coming out of a top up to the CAIS program, which effectively makes the gov't a cattle buyer, which is where the red flags pop up, the first being supply management, and secondly I seriously wonder if it will be trade friendly to GATT,WTO, or NAFTA. my understanding is that if the program proceeds, ther is an 18 month sunset clause attached. I hope that this sheds a bit of light on the subject, and I apologize for being a dolt and not writing this down when I was informed. This report was also quantified by a higher up in the WSGA.

[rsomer]

Rpkaiser is right about the packers fixing the price of fats and that they could just have easily fixed the price at 10 cents per pound instead of 70 cents per pound. Does that make them heroes? No. The packers have fixed the price of fats at a level that they believe the government will tolerate.

Will the packers agree to pay a higher price, a 25 cent basis instead of a 50 cent basis? A 25 cent basis means the packers are still making record profits but at least some of the profits would now go to the producer. Maybe the packers would agree to this if they thought such an arrangement was better than the consequences of not agreeing to it.

The parliamentary committee could still reconvene sometime in July. This time around Parliament will not dissolve before any action can be taken. Maybe the threat of the Parliamentary Committee taking action is the stick that will encourage the packers to agree to a more reasonable profit level. Maybe it will take another bigger stick but whatever stick is used we need to use it now to show the packers the rest of the industry has had enough of them taking all the profits.

[kato]

"Maybe the packers would agree to this if they thought such an arrangement was better than the consequences of not agreeing to it."

This is the million dollar question. The biggest problem I see is, do we have a government that has the ability or the will to actually impose a consequence?

The Liberals have a minority. They at least "seemed" interested in helping before, even if they didn't follow up very well.

The Conservatives on the other hand, who "say" they are concerned, have already put their money where their mouths are by supporting the packers in the inquiry issue. They have shown their true colours regarding which side they are on.

Our own government is our weakest asset right now.

It's going to take some serious effort on our parts to win this one.

We need to get more details on how this would work, and then "take it to the streets", as they say.

[cswilson]

So what you are saying is that when packers lose money(and at times they do)the government would be justified in putting a ceiling on calf prices. Not a packer lover by any means but not a hypocrit either. This fixed basis idea is patently unworkable even if the government tried to implement it.

[rsomer]

If a fixed basis off of the CME Live Cattle Futures were established the packers would not loose money. They would not make as much as they are now but they would still be doing very well, much better than their U.S. counterparts.

The price of cattle would still move up and down with the futures markets. But the basis would be established. The market would function more normally, the feedlots would be able to hedge again so they don't have to pencil in $100 or $200 per head for BSE risk. The price for calves would still be less than they should be but they would be better than they are now.

Maybe some people are unsure of what basis is. Basis is the difference between the actual price paid for a live calf and the futures price. Since BSE the basis for our live calves has been way too wide resulting in huge profits for the packers. This would see that basis cut in half.

[cswilson]

Who is going to play god here and decide what this basis is going to be-and where does it end I fail to see how you can legislate a profit ceiling in a free enterprise situation and how you could do so without breaking some sort of trade law. I'm sure Cargill's lawyers would tie this one up in court forever and frankly I wouldn't blame them-it would be a very dangerous precedent for the government to set.

[rsomer]

First of all, we are not in a free enterprise situation. We are in the midst of a market failure where normal supply and demand forces no longer are working. Cargill and Tyson Foods have a monopoly and they are ones playing god by fixing the prices they pay for fat cattle.

Lets face it, if this were happening in the U.S. it would have been stopped long ago. The U.S. has laws to protect their citizens against cartels and monopolies. What can be done in Canada is not so clear. The Parliamentary Committee looking into the excessive packer profits apparently did have some authority to deal with the packers. A $250,000 per day fine would even get the attention of big players like these.

Trade rules are an issue and whatever solution is developed I would expect that to be considered. Cargill and Tyson Foods are global companies and tend to be pragmatic when it comes to dealing with governments. I think even these two companies realize the present situation cannot go on much longer. They very well may agree to an arrangement where they still get to make lots and lots of money if it means they avoid some government interference in their business affairs.

I am not sure this will involve any legislation at all, certainly no new legislation. Buyers and sellers sign basis contracts all the time, this would essentially be a maximum basis contract.
No one is talking about establishing any kind of profit ceiling or floor. This is merely establishing a maximum basis. Certainly no feedlot or cow calf producer would be guaranteed any kind of profit, packers too because they could still tighten the basis if they wanted to bid up for fats. Although our markets would potentially be tied to the U.S. futures like they were before May 20 and although the prices in the U.S. are very high right now at very profitable levels, those prices could still fall. Establishing a basis would make the markets function like they did before May 20, profit, loss and all. But at least the market would be functioning.

[cswilson]

Good Luck!

[kato]

Who is working on this, and how is it going?

I know the Ontario cattle association was calling for it. Have they had any luck?

Boy, I sure hope they have!