no more packing capacity

[cowman]

Rusty: I suspect if a lot of guys opened up their walletts, there wouldn't be anything there, but you are right that people need to make some sort of effort or throw in the towel.
I also suspect this decision is going through a whole lot of heads right now? What is the average age of cow/calf producers? I believe the average age of Canadian farmers is something like 57 so maybe that would be a good number to consider likely? So by the time the average guy hits 59 they might have a plant up and running and hopefully some profit back in the business?
In any business a person has to have a reasonable expectation of a decent profit somewhere down the road? Even Cam Ostercamp said the profit level was very poor pre-BSE? I believe he quoted something like $50-$75/cow? And basically he wasn't very far off the mark?
Now even 100 cows is a whole lot of work and takes a whole lot of time? Fencing, feeding, calving...even checking the darned things everyday! I mean if you take Cams top price that comes to $7500/year! On a $140,000 investment...just in the animals!
How much are you getting paid now?
There comes a time in everyones life when they have to decide if they want to keep doing the thing they have been doing all their life? It happens to everyone...the doctor, the lawyer, the farmer, even the politician! I would suggest there should be a lot of 59 year olds asking themselves if they want to keep doing this? Maybe take sometime to smell the roses and enjoy life before they are dead?

[rsomer]

The profits on simply killing and packing an animal pre BSE were about $50-$75 per head. The real money however was in adding value through branded beef products that offered convenience and guarantees of quality and taste. A producer owned packing plant would need to capture some of that opportunity to realize the full potential of the producer owning his animal further along the value chain.

I would not think producers should be considering investing in a packing plant simply because they would be expected to be hugely profitable once the market begins to function normally. The benefit I see is that it allows producers the opportunity to sell into the more stable boxed beef market or better yet the value added branded beef market instead of the volatile and unpredictable fat cattle market. The packing plant investment could be viewed as a marketing tool or maybe just another piece of machinery that is required to be profitable raising cattle, just like a stock trailer or loader tractor. I see the producer owning a share in a packing plant in the future as something that is required to be in the cattle business. There is simply no long term future in continuing to feed fat cattle to sell to Cargill and Tyson Foods. That much is certain. There is however a future in capturing more of the profit potential of the beef product through retaining ownership further through the value chain and adding value to our production in the form of a branded beef product that allows a fairer share of the value and profit to flow back to the producer/owner.

BFW: It is in the industry’s best interests to get through this crisis with as many producers still in business as possible. And that means we need to get the border open as soon as possible. The industry will move towards a producer owned packing plants out of necessity for the future. The present crisis merely highlights and focuses our attention on the problem of foreign ownership of our packing plants. However the problem of foreign owned packing plants existed pre BSE and the need for a Canadian packing plant industry will certainly still be there after the border opens.

Cowman: You raise an interesting point when you mention the beef producers investment in a cow. The sum total capital investment of Canada’s primary producers in cows, land, equipment is huge in comparison to the capital investment of Tyson Foods and Cargill. I quickly calculated a minimum of $50 billion dollars producers investment all told. The packing plants versus the producers is a David and Goliath story only the packers are the little guy when compared the capitalization already in the hands of the average producer like you and I. Primary producers can justify further capital investments in packing plants as it offers them price stability, risk management opportunities not to mention profit potential.

[cowman]

Rsomer: I can agree with the idea of investing in packing facilities if there is a reasonable expectation of profit. Especially for the younger farmer who intends to be in business for quite a few years. I will add,however, it needs to have a solid realistic business plan that considers all the likely scenarios...the bad as well as the good? The chances of failure are very real!!! No one should go into this thing wearing rose colored glasses?
I truly doubt that any group will convince cattlemen to invest money out of their own pockets(in a meaningful way). And I get antsy when any group suggests we use a mandatory checkoff to pay for it? Is this still a free country or not? Now if it was a deal like Red Country, in PEI, got I think it could fly? $20 up front, "forgivable loan" for the other $40, for each animal hook? Why is it a province like PEI can swing a deal like that but out here we require $200 or better just to get a study done? Something isn't quite right here? Maybe we need to go down to PEI and hire those boys to come out here and set something up for us out here? Because they sure seem to have the answer?

[greybeard]

I know guys that have $30,000 stock trailers and $120,000 loader tractors .Did they need a solid business plan for that? Rsomer,your right on.
Consider if instead of the stock trailer the money was in a boxed beef plant today.

[rusty1]

"There is simply no long term future in continuing to feed fat cattle to sell to Cargill and Tyson Foods."
Bang on rsomer
I don't understand what's so hard to figure out cowman.
Someone told me not long ago that a cow/calf's capital requirments are $3000 per head. The feedlot capital requirments is $300 per head and I know our capital cost is going to be under $200 per head.
The targeted Return On Investment (ROI) pre BSE has been between $30 and $40 per head. That's a return of between 15% and 20%. I'll just bet that's better than you're cows are bring you and alot better than the money you've got in RRSP or on savings.
And that says nothing of the benefits to you to have another buyer at the ring for you're fats. Or the benefits of the premiums you should be getting paid for you're quality cattle.
Now we may as well quite pinning over the fact that we need a plant "right now". We all know that can't happen. So lets put some energy into making it happen ASAP.
The BIGGER issue is that if we (producers) don't, the multi-0nationals will. Then you might as well sell out and go get some R&R time or become a "surf" of theirs. We will lose our birth right.

[cowman]

I was never arguing that we don't need a plant. But somehow or other we do need to get some darned cows killed this fall? Whether that means giving one of the existing packers a sweetheart deal or putting them in the pit doesn't really matter?
And maybe the idea of a $200/animal investment is a bargain, but how come they can do it in PEI for $60? Or maybe it's only $20?
I think if any group could swing a deal like PEI has, they would have no problem getting people signed up? I just don't understand how there can be such a price difference? It's like I go down to PEI and buy a new truck for $5,000 and then I come out here and the same darned truck costs me $50,000! How can that be? Is this the Alberta Advantage?
If PEI can do this(apparently no federal money involved) then why the hell can't Alberta, Sask, and Manitoba? Maybe we need to be asking Ralph, Lorne and Gary that question?

[rsomer]

I agree with the concerns cowman raises about packing plants and he is correct to point out that there are issues that need to be addressed. I clearly see the need for the plants but I also clearly see the challenges that come with producers owning their own processing facility and marketing their beef in competition with entrenched global players like Tyson and Cargill.

Obviously others have concerns as well or else we would see at least some ground being broke somewhere in western Canada where the numbers of cattle are.

However I think we as producers need to realize that it is possible to compete with these large companies. The larger these companies grow the more opportunity there is for a new upstart to enter the marketplace. If these companies are pirates and threaten a competitor then the new upstart can turn that threat into an opportunity because there will be markets out there that do not want to deal with a pirate.

The big players are a lot weaker than most would believe. I do not see any customer loyalty to Tyson Foods or Cargill, either from the producer or the beef customer. Yes, profits can be made by acting like a pirate but you do not win many friends. The big companies can be easily beat on quality, on image, yes even on marketing. A producer owned plant with the right management is a force to be reckoned with.

So why aren’t more plants being built especially when producers are loosing more than enough cash to build a plant with each and every animal they sell into the present market. First there is huge uncertainty in the beef industry right now. BSE yes, but also COOL. But those things are there in our future in any event and we will have to deal with them as an industry. Our cattle industry is not going to disappear the only question is how profitable is it going to be and who is going to get that profit.

Second there is the fear that the plant will fail. It could fail but really so what. We are loosing that money right now on each and every animal we sell. But I guess there is a difference... CAIS makes up 60-70% of our losses when we sell an animal at a loss, CAIS won’t make up our loss if our investment in a packing plant doesn’t pan out. Is that the reason why we don’t see plants going up because it is easier to collect the cheque from CAIS? If so then it is a darn poor reason because CAIS is going to run out for all of us as our reference margins disappear. Still it appears that government is more comfortable subsidizing producers losses than to step up to the plate and help create a profitable beef industry. If that is the case than government has effectively trapped producers in a perpetual loss situation by subsidizing losses but not offering assistance to stop the cycle of loss. And that is a scary situation.

[grassfarmer]

rsomer raises a good point there about customer loyalty. I have spoken to many Albertan urban consumers and they know about the BSE compensation ripoff and do not like the packers one bit. If we had a plant built we could use this consumer dissatisfaction to our advantage by promoting the new producer owned packing plant as the farmers friend - get them to ask at the stores where the meat was killed and that would ensure the plants sucess - at least with the domestic demand.

[kato]

That is so true. Look at the support we have had from our consumers over the last year. I don't think it's a far step to see if they would prefer to buy direct (as possible) from Canadian producers. I bet they would prefer it.
I know I would.

Perhaps we should pay attention to those who are saying there is no future in producer owned packing plants. By attention, I mean find out "where they are coming from". Do these individuals have something to lose if the current situation does not continue? We have to know where our information is coming from in order to make wise decisions.

As far as I am concerned, there never has been and never will be a better time to make a move out from underneath the thumbs of these big packers. When will we ever be more motivated?

As they were saying on Country Canada this weekend, when Cargill and Tyson moved into Canada, we allowed the two biggest predators in the global food industry right into our back yards. First they bought out our cattle industry, now they control it, and the next step is to destroy it.

It's now or never for independent Canadian cattle producers.

[cakadu]

There is great opportunity out there and I for one hope that we can capture it. There does seem to be a part of the equation out there that seems to be missing and that is where is the meat going to go once the animal is killed? Getting it processed can be a timely proposition these days, but that isn't the biggest problem.

If the borders of other countries remain closed to our beef, that will not increase the price of beef, or cull cows for that matter, because there is no place for it to go once it is dead.

The Canadian consumer has been fantastic and support for locally grown and knowing where your "beef" is coming from is on the rise and I am truly grateful that the consumer has remained on side. Having said that though, there isn't too much more that they can eat in terms of per capita consumption, so while having more packing plants is something that we need to change, we also need to be working simultaneously - or even before the meat is available for sale - on markets.

Even for those that are going to be doing more direct marketing, this is an absolute necessity. You need to know who your market is going to be, how much they will pay, what they want to see in cuts, who is going to be your direct and indirect competition and how often they want it.

Direct marketing is not for the faint of heart. It takes a lot of work, doing your homework and forever being one step ahead of your competition. The benefits are great, but they don't come easy.