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!

[grassfarmer]

I tend to agree with cswilson on this one, nice idea but how likely is it ever to happen? Given the total lack of interest / backbone/ leadership shown by politicians thus far I can't see them pushing for this radicle proposal. The packers are unlikely to "do the decent thing" in opting for this deal given their bold faced cheek when dealing with government as seen in the request to look at their books fiasco.

[rsomer]

You are right. This might not happen for a number of reasons. Although governments have about 2 billion subsidy dollar reasons why they would want to see this happen so they don’t need to bail out the industry another time. The feedlot industry has about 2.4 million reasons why they need the markets to work and they all have 4 four legs. I have not heard of any other short term solution other than the border opening that would work.

This falls calf run is approaching, not the mention a backlog of fat cattle just waiting to come onto the market. The market thinks there are about 500,000 calves still being fed on the farm by the original owner. I do not think there is the optimism out any more that the border is going to open before the election and if Kerry wins the election the border may not open for a long while after the election.

We have been fortunate that producers have not been forced to dump cattle onto the market because of drought. We could easily see a situation develop where feedlots are forced to buy hook space by letting the packers have their fats at further discounts. Up to this point producers themselves have supported the market by holding back cattle from sale. That backlog is a tidal wave just waiting to come ashore.

I know my number one choice is to see the border open to live cattle. And being the eternal optimist I always see the possibility that it might. But it is just madness to pin our hopes on the border opening and not look after fixing our marketplace at home if it doesn’t.

[pandiana]

I would strongly agree that we are not in what could be called a 'Free Enterprise' situation unless of course it is defined as the Freedom to sell at a loss now or sell at a loss later and see which is the better loss. We have the freedom to own our land and cattle if the bank doesn't. We are free to sell our cattle at any time if we can find a buyer who will pay an honest dollar. I talked to a farmer the other day that has pens full of fats that can't even get a bid on them.

We are free to sell our natural resources and buy them back value added at 'fair market value'.

Frankly, I don't know what free enterprise means anymore. It certainly doesn't work in the way that it was envisioned by Adam Smith. This always happens when there is an unequal distribution of wealth. Farmers who think they are free enterprisers are delusional.

[cswilson]

Guess I'm delusional but I'm also realstic if the shoe was on the other foot and we were a drastically short of fat cattle I don't think any of us would be dropping the price to help the packers. When the feedlot guys bid big money for calves did anyone say-'that's too high I'll take 20 cents less' not likely. Having only two plants does suck but that is our reality till more are built-trust me two plants are better than no plants. The packing business is tough and cutthroat I guess were getting a bigger taste of it now than any of us would of invisaged.

[jensend]

i agree with cswilson. what's happening now is free enterprise in action. grain farmers didn't offer feed at cut rates when the drought was on and feeders don't raise their prices for calves just to share the profits. we've helped ourselves into this situation and we're the ones responsible for solving it so something like big c is just another step in the evolution of the industry.