An Alternative Solution

[rsomer]

Interesting comments from all. Cswilson: I like the way you think but I believe if the shoe were on the other foot and I could hold the entire livestock industry hostage and fix the price of fat cattle somehow, I would end up in jail. The fact of the matter is I as an individual producer could never be in the same monopoly situation as the packers are in this country. The 68-70 cents per pound the packers are paying for fats has nothing to do with a natural turn of events or supply and demand or free enterprise. The American packers are price fixing by using their monopoly stranglehold on the Canadian industry that they got handed on a plate after the U.S. government cut Canada off from the free market competition we depended upon to keep our markets fair and functional.

There is nothing free enterprise about the Federal and Provincial governments paying out almost $2 Billion in subsidies to producers and the packers clawing all the money back for themselves by artificially lowering the price of cattle the very day the programs are announced. If we’re going to let free enterprise take care of this, just about every producer in this country would be broke, there would be no Canadian owned feedlots of any kind left. The two packers and other American interests would own what ever remained of the Canadian beef industry. If we lived in a world where free enterprise ruled the day the American government could not shut the border to our live cattle on a whim and unfairly keep that border closed for 14 months while their producers enjoyed record profits even though the International Review Panel said this is a North American problem.

This is not a free enterprise problem and there will not be a free enterprise solution.

Rpkaiser: No there is no basis for weaned calves. Canada has not shipped many live weaned calves south for a long time. The market would work like it did before May 20 only the maximum basis deduction off of the U.S. Live Cattle futures that the packers could take would be established . Before May 20 this basis was established by competition in the market place. If the two packers in Canada took too much basis for themselves, the calves went south. Now without competition the packers have widened the basis without fear of consequence from competitors. Free markets do not function without competition, some way needs to be found to get the markets functioning again. No one is taking away the ability to make money or to loose money. The only thing that would be changed is limits placed on excessive packer profits.

[kato]

A nation's food supply is an important part of it's national security.

It should be a top priority of any government to step in if a major section of it's food producing ability disappears.

[BWC]

rsomer brings up some very good points,
and I also agree that without those two plants, we would be much worse off. The fact is that the American Gov't and the big packers have kicked your teeth in for fourteen monthes. As was mentioned in an above comment that there may not be any one solution to our problem, but a body of many ideas to arrive at a flexible solution that comes close to representing what the Canadian cattle producer needs and wants. If you were a professional boxer and you had been knocked out in the first round of your last fourteen fights against the same guy..... look for someone else to fight... it might feel better. Any one solution that is inflexible in its make up will never work. The basis idea if trade green may be a part of the short term solution, but for my part I want some written guarantees that we don't end up with any sembalance of supply managment. Again until we have seen the deal in writing and know exactly what it entails it is hard to make any judgement. If proposals like this were made a little more public we would'nt have to deal with speculation, but with facts. I have 3 good reasons every time I sell an animal just like anyone else does, that say we should be kept better informed by our beef industry boards and reps.

[blackjack]

cswilson... I would like to know how the cow-calf backgrounder would be surviving at all today ...if we had not had the prices we received in the years from 99-01 ... leading into the drought of 02 and now the BSE prices of 03 and 04... maybe you can raise 900 lb animals for 700$ and run a farm ... but a lot of the young guys I know that are also raising families think these prices are bull crap...

rsomer...why is the ABP not looking at just giving the cowman a subsidy for the the number of cows they run until the border opens...that way we can make decisions whether to keep the cow or sell her..

[cswilson]

People all I'm saying is we received some very good prices for calves and yearlings the last few years if you didn't RP my condolences-I never said the prices were skyhigh right now-and if you haven't made any money in the last ten years something is wrong because other people have(maybe your in wrong breed) sorry couldn't resist.Other than nationalizing the cattle industry I can't see how you can regulate what packers are paying.Free enterprise at its worst is still better than supply management.

[cswilson]

I was not talking of a basis for calves going south rsomer, I am talking about the calves coming into the market this fall. These calves will more than likely not go south and will be ripe for the picking in a captive Canadian market. If this basis spred is established for finished stock, what is to say that feedlots will not low bal these calves to try to make up for losses incurred over the last year.
I am only saying that a basis will likely help the fat cattle owners, but what protection does it give to the calf or feeder type guy.

Hey wilson, I'm ready to change breeds right now,,,,,,or not.

[cswilson]

RP I didn't think you would be for some reason-like I said I just think this basis idea is pretty much unworkable-why not do the Canadian thing and tax the ever living hell out of the packers-I'm sure government would go for that in a second.

[cakadu]

Nice thought cs, but it will likely never happen. The government has it's chance to tax the big businesses, but it doesn't. Take the big 5 banks for example. Of the 5, CIBC, Scotiabank, Royal Bank, Bank of Montreal and the TD, they boast of quarterly profits in excess of a billion and I wouldn't quote me on it, but more than one of those big 5 makes that and then some. Think of what could happen if the government taxed them at even 10%? Wouldn't that change a think or two?

Just remember - before parliament was dissolved for the election - it was the Conservatives who voted down getting the packers to open their books. Essentially it would have amounted to nothing more than posturing, but it would have given big business a run for their money.

I'm not sure the government would ever have what it takes to start getting big players to pony up their share.

[cakadu]

Woops, that should read..."wouldn't that change a thing or two?"

Sorry, got typing too fast.

[rsomer]

Cswilson: The concerns you raise are exactly the concerns I had when I first heard of this solution. With one correction. This has absolutely nothing to with supply management like the chicken, turkey and milk producers have. Prices would go up and down according the markets. There is no absolutely no guarantee of a profit or a loss for anyone. The proposal would just be in place long enough to see our packing plant capacity increased then it would be gone. Fixing a maximum basis level off of the U.S. futures could be compared to creating instant competition for the packers. If Cargill and Tyson Foods had competition to buy our calves, they would be deducting a much smaller basis or the calves would go to the competitor. This does the same thing. I recall that both packers had government assistance is some form or another when they built their plants, it is not unfair to ask them to now be responsible to the industry at this time of crisis.

I am left wondering if this proposal doesn’t fly, if it isn’t acceptable to producers and the packers, then what. Let CAIS look after the industry? Not all producers have CAIS margin left or, if they have, their margins are significantly reduced. Ad hoc payments end up going to the packers and for matter CAIS ends up going to the packers also because it just lets the packers go on taking all the profits from slaughter animals. Subsidy payments do not give the feedlots the assurances they need of a fair market place so they can buy this falls calves. Thing about it, if you were a feedlot guy, what would you bid for calves this fall? CAIS or no CAIS you are not going to loose money again. We have gotten kind of comfortable with BSE but the reality is the future is very uncertain, we may not have seen the worst. The U.S. may not be the next to find a BSE positive, it could be us. What is going to happen when the backlog of cattle that are out there hit the market? How long can producers continue to support the market by holding cattle back?

Yes there are problems with this. But I think we may have to hold our noses on this one because I am not sure there is any workable alternative. At least the market would begin to function again. At least some of the risk of owning cattle would be taken care of. Feedlots could bid on our calves and hedge their risk on the U.S. futures knowing that the hedge would work. That lets them pay more for our calves right there. That is the kind of marketplace based solutions we need because the end of the BSE tunnel might be a ways off yet.