Still the Apathy

[SASH]

The problem as I see it is that each producer is a small businessman with his own ideas of what needs to be done to best fix the current situation. (See my post on 'Fair Market Beef'). Some want to sue R-CALF, Some want to sue the US government, some are counting on the border opening, some want to build slaughter plants, some want to expand our export markets, some want a massive cull, some want to move to supply management. No consensus. How are the leaders of these organizations supposed to do anything when the membership is so divided?

[farmers_son]

Everything I have seen suggests producers are 100% in favour of producer packing plants. There has been no indication of any opposition to the concept
at producer meetings, in letters to the editor, in conversations with individuals, almost any place producers gather.

Yes, there have been other solutions suggested but they are only patches on a non functioning market that is characterized by high wholesale beef prices and low live cattle prices. It is obvious to me that the most direct solution is to create a mechanism whereby producers can directly access that wholesale beef market, handily sidestepping all the problems with the live fat market controlled by a packer monopoly and their captive supplies.

So I see the consensus as being there on the solution. However I would point out that a lack of consensus amongst grass roots producers has never stopped our industry leaders from acting on issues in the past and I do not believe is the obstacle to seeing action being taken on the packing plant front.

[SASH]

I totally agree that packing plants are the way to go. I also like the whole R-CALF lawsuit but mostly just because of the personal satisfaction I would get from seeing them eat their words and be forced to fold. I guess that maybe the government just hasn't caught up with the shift in producer focus from getting the border open to slaughtering our own beef and marketing it elsewhere. I'm not even sure that all the producers have made that shift yet. Alot around my area still seem to think that the US border opening will be a 'Magic Bullet'.

[farmers_son]

The U.S. border opening will certainly help a lot. I was looking forward to that happening on March 7. However since March 2 things have gone downhill in that regard.

And yes the border could well open before any packing plants get built. The benefits of a producer packing plant go well beyond just more packing capacity in this country however. If simply more packing plant capacity was the answer we producers could relax and let others built it while producers just reaped the benefits of all that new competition.

Unfortunately for producers, the new proposed packing plants presently on the table have all indicated that they do not intend to compete for live cattle and the Cargill and Tyson monopoly will continue to be the price leaders in the live fat market.

A producer packing plant is not just another place to sell live cattle but is in effect an alternative to selling live cattle as the producer is now vertically integrated upwards to the wholesale beef market. The wholesale beef market is more stable than the live cattle market and offers further opportunties through branded beef and value adding. However there are barriers to entry into these markets and a mechanism needs to be created whereby producers can sell beef instead of live cattle.

[greybeard]

Stability of the wholesale market depends on which side you view it from. My friend in retail told me on the week-end that he was glad he had been told beef prices were headed up. He had stocked up on grilling meats. His wholesale on sirloin had gone from $5.50 lb.
to $8.50 lb. due to BBQ demand. Remember, wholesale is still North American.

[farmers_son]

Greybeard: I was most interested by your observation and did quite a bit of digging on the subject. In the U.S. the USDA tracks what is called the farm to wholesale spread which compares wholesale to live prices. Obviously there is price volatility and seasonality of prices at all levels of the beef value chain although the retail level is the most stable.

You might be interested in a document which discusses farm to wholesale spread at:
http://www.ers.usda.gov/publications/tb1874/tb1874g.pdf

In that document "figure 3" shows that over a 37 year period wholesale prices have tracked retail prices very closely rising with the rate of inflation while live farm prices declined. Also the farm share of the retail price of beef has fallen from about 65% in 1970 to approximately 50% today. Although not mentioned in this specific article, other articles point out that this did not happen with hogs which maintained their share of the retail dollar.

The conclusion of the paper was that both farm and wholesale prices are more volatile than retail prices. However the paper noted that excessive packer concentration would lead to packers exercising monopsonistic market power which is what we see in Canada, certainly since May 2003 and I believe before that. Described properly, the packers are acting as a monopsony, (many sellers, one buyer) rather than a monopoly (one seller, many buyers).

As this paper is researching the U.S. situation I believe my comment that, at least in Canada, wholesale beef prices have been more stable than live cattle prices is accurate.

The entire document can be downloaded at:
http://www.ers.usda.gov/publications/tb1874/

[greybeard]

I didn’t mean so much that there is volatility in the wholesale market, but meant to point out that under current conditions packers are in control on both sides of the market. Tight supplies on the wholesale side and ample supplies of live cattle. I wonder if that study would not be more conclusive if done today?
You can access the farm to wholesale price spreads under “markets” on Ranchers-net (R-Calf Heaven) but the R-calf boys mustn’t be watching, as the spread is wider than traditional, even with the high live cattle prices.