Grassfarmer, you said “Unless there is a clear margin to be made by being involved further up the chain why would a producer want to buy shares in a plant?...I have firmly believed that being involved further up the line is the way ahead but now i'm questioning it - it depends on the price the producer plant is able to secure for it's produce or am I missing something?"
Is there a clear margin by staying with the status quo?
There is a market for beef, a different market than for live cattle. The market for live cattle is characterized by many weak suppliers and two strong buyers acting in concert to fix prices. The market for beef is characterized by a few strong suppliers selling to many strong buyers. Therefore there is a real functioning market at the beef level while there is not a functioning market at the live cattle level. Which market would you prefer to be in?
Definitely we want to be selling beef not live cattle. But presently we are denied access to the national and international beef markets unless we can get our live cattle processed at a federally inspected plant. The 13 federally inspected plants in this country will not custom kill our cattle for us which would allow us access to the beef markets thereby forcing producers to sell live cattle to the big packers. That is why producers are looking to build their own plants.
At a strategic level we know there is a market for our beef, nationally and internationally. And although the big packers effectively have a monopoly when it comes to buying our live cattle they do not have a monopoly on the packing plant process or the markets beyond the packing plant. I think what you are saying is that before a packing plant is built that those markets need to be lined up. Once that is done a price can be worked back to the live product. I would caution people against comparing that price to the “market price” established by the packer monopoly. Not only is that an artificial market but it ignores the opportunities available to those who have integrated further up the value chain and now can profit from value added branded beef products. It’s a little bit like comparing apples and oranges, isn’t it?
Is there a clear margin by staying with the status quo?
There is a market for beef, a different market than for live cattle. The market for live cattle is characterized by many weak suppliers and two strong buyers acting in concert to fix prices. The market for beef is characterized by a few strong suppliers selling to many strong buyers. Therefore there is a real functioning market at the beef level while there is not a functioning market at the live cattle level. Which market would you prefer to be in?
Definitely we want to be selling beef not live cattle. But presently we are denied access to the national and international beef markets unless we can get our live cattle processed at a federally inspected plant. The 13 federally inspected plants in this country will not custom kill our cattle for us which would allow us access to the beef markets thereby forcing producers to sell live cattle to the big packers. That is why producers are looking to build their own plants.
At a strategic level we know there is a market for our beef, nationally and internationally. And although the big packers effectively have a monopoly when it comes to buying our live cattle they do not have a monopoly on the packing plant process or the markets beyond the packing plant. I think what you are saying is that before a packing plant is built that those markets need to be lined up. Once that is done a price can be worked back to the live product. I would caution people against comparing that price to the “market price” established by the packer monopoly. Not only is that an artificial market but it ignores the opportunities available to those who have integrated further up the value chain and now can profit from value added branded beef products. It’s a little bit like comparing apples and oranges, isn’t it?
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