Killing old cows

[greybeard]

Farmers_son slam dunks this one. Korea and Taiwan use it as an opportunity for a trade barrier. They spin it up as a food safety issue as it is much easier to justify.
There is no consumer reaction or media outcry because the sky never fell like they predicted early in the British experience. Consumers have assessed the risk and don’t see any. Bears kill more people than BSE. It will be historically regarded as a trade barrier and is generally seen as one now.
Positive tests result in market disruptions. Some make money and some lose money when that happens. It has become very clear who looses. Why do the ones that loose keep feeding the cows into the system?
Forget the “ ours is safer than yours” argument. It just justifies the trade barriers.

[cowman]

grassfarmer: Yea I meant I agree with you...
The other day I had lunch with an older gentleman who is involved in a lot of business deals. He told me that he has invested some money in a company that intends to market a live BSE test! The press conference is tommorrow.
This test has been developed by a group of French scientists and is supposedly 100% accurate...requires 6 drops of blood...takes 20 minutes...and will cost in the neighborhood of $20!
He named some names of Alberta businessmen who are involved and these aren't lightweights!
He said the whole thing is sort of hush-hush until the press conference, but they expect a BIG reaction when they go public! He claims they have some very interested Japanese businessmen looking into it.
If this is legit, it just might revolutionize this whole BSE thing? I'm not saying one way or the other if I think this is the "real deal" or not...because I am a natural sceptic, but I do know this man is pretty savy when it comes to business!
I'll be watching for the press conference.

[grassfarmer]

I think I mentioned this new test a few weeks ago - I was under the impression it was a German team though? I may be mistaken in that part. Like you I heard it from a very knowledgeable guy that reckons this is the real deal.
How do we use it though? Farmers_son and all the other guys beating me up on this thread don't want to identify cases of BSE, ABP/CCA and the packers don't want to test to get new markets - is this breakthrough in vain? Do we outsmart and outmarket the Americans or do we let M.R. Coyote test them all in the bush?

[farmers_son]

From a Canadian producer standpoint, we can never “outsmart or outmarket” the Americans.

The best price a Canadian producer can ever hope to receive for live fat or feeder cattle will be the American price. Unless we individually are somehow vertically integrated beyond the farm gate into the packing side or beyond we will only receive the live price for cattle. Any benefits from any marketing initiatives that might come from BSE testing, finding new export markets and so on to increase the price of beef only accrue down the value chain as far as the packer. Not to us.

The price we as producers receive is not determined by what our beef sells for. Our maximum live price is determined by what it takes to either keep our live fats from going south of the border (when the border is open) or in the case of feeders, a price ceiling determined by what U.S. feeders could come into Canada. At the best of times we are in a North American market for live cattle and given the size of the American herd versus the Canadian herd there is little we as the smaller export dependent country can do to beneficially influence the price of U.S. live cattle. Other than to keep finding more BSE positives so the border remains closed to our live fats and unfortunately we capture none of the benefits from those resulting high prices.

Unless we as producers could somehow participate in the value chain beyond the farm gate no benefits from finding new markets by BSE testing or any other Canadian based marketing efforts, either internationally or domestically, will make into my pocket (assuming I only sell live cattle which by the way is the case as it is for most producers). Therefore I as a producer of live cattle receive none of the benefit from increased testing beyond what it takes to keep our boxed beef flowing into the U.S. but I am taking all the downside risk associated with finding a BSE positive.

[grassfarmer]

I'm disappointed farmers_son that you don't believe in the potential of Canada. Yes, we can accept the same crappy deal we have been getting as primary producers or we can get out there and be the best. All you guys that quote confidently that "Canadian beef is the best in the world" - when it comes down to it you obviously don't believe it as you are happy to be commodity sellers in the US market, even allowing them prior to BSE to retail this great Canadian beef stamped "US BEEF"

Why not have a little ambition? with the image of the Rockies and the vast expanses of clean air Prairies there are people all over the world that would pay top $ for Canadian quality beef.
I've said all along we need to break the US packing cartel that is strangling our industry here - unless we do we are going nowhere in terms of prosperity. Act on that and we have the opportunity to build our own future - producer owned plants, top quality exports to anywhere - the US included. If the product is good enough we will succeed. With the launch of the new live BSE test that promises a cheap test in 30 minutes let's be the first in the world to adopt it - we can outsmart and outmarket the Americans if we believe in ourselves a little. Why go down the road of lowering our standards (by adopting their SSS Bse policy)to crawl in the back door of live exporting to the US where our cattle are worth Nebraska price less $x at the whim of the mega-packers?
A look at the highly successful, export orientated Kiwi's could teach us a few things - producing top quality beef to customers specifications, not to what Cargill deems customers "must buy". NZ exports grassfed table beef that cuts with a butter knife or it doesn't go - have we really got a better product?

[farmers_son]

You mentioned the Kiwis. New Zealand and Australia as well are good examples to illustrate the point I am trying to make. And that point is Canada cow calf producers will not get paid significantly more for their calves as a result of efforts to market Canadian beef, through BSE testing or otherwise.

New Zealand/Australia are islands. Other than some breeding stock they would not import live cattle into their markets. Therefore producers in New Zealand or Australia effectively could increase demand for their live cattle by increasing demand for their beef either domestically or internationally. Packers are forced to have a supply of live cattle to keep their plants going and since their packers have no where else to go for supplies at some point packers would be forced to bid up. Live cattle prices in New Zealand and Australia would rise in the short term until domestic cattle producers increased their herd size. Prices would then fall to just slightly above cost of production to ration supplies.

Yes, Canada can promote its beef, Canadian producers are spending their checkoff dollars promoting Canadian beef right now and we could spend double, triple or more. We could BSE test every animal, we could go hormone free, we could do lots of things. And while those promotional efforts may well be successful in selling more beef, other than a small shift in basis between Canadian live cattle and U.S. live cattle, we would not see an significant increase in the returns to Canadian live cattle producers. Profits would remain in the hands of the packers.

Unlike New Zealand and Australia, Canada is not an island. Canada is part of NAFTA but even before NAFTA there was movement of live cattle both ways between Canada and the U.S. We would have to somehow short the supply of live cattle in Canada to drive up our live prices significantly above the price of U.S. live cattle to realize any benefit from those marketing efforts and the associated costs. Sure the price of beef would rise but the packers would not be forced to pass along any of those profits to cow calf producers, they would simply import more U.S. live cattle.

It is not a matter of a better product, or not enough initiative. It is a matter of being a part of a North American market. In normal times that means we have access for our live cattle to the largest beef import market in the world. The downside is the Americans have access to our market with their live cattle. Other than shifting the basis, Canadian producers will not be successful in increasing the price of our live cattle above the U.S. price as long as U.S. feeders and fats are free to come into this country to top up our supplies.

On the flip side of the coin U.S. producers who support COOL will not see increased prices for live cattle either as the U.S. system will find ways to access live Canadian cattle to keep from being forced to bid up for U.S. fats and feeders. Viewed this way, COOL would actually give Canadian producers a competitive advantage since we would not have the costs of COOL but would still have access to the U.S. market. Attempts by either U.S. producers of live cattle or Canadian producers of live cattle to somehow gain a competitive advantage over the other will never be successful as long as there is trade in live cattle between our two countries and any dollars or other resources spent in that endeavor will be ultimately wasted.

Now if you are talking about integrating up the value chain so producers sell beef not live cattle that is a horse of a different color. Then we could increase our profitability. But right now we sell live cattle and any benefits from marketing Canadian beef by BSE testing for foreign markets will not raise the Canadian price of live cattle.

[grassfarmer]

Farmers_son, you know very well that I am all for producers securing a better return from the market by getting involved "further up the value chain" or whatever you like to call it. Fundamental to this is tackling the packer monopoly - without Government intervention on this issue we will not make progress and longterm I think the efforts of most that are trying to build independant slaughter plants at the moment will be wasted. Unfortunately Government and most of the industry organisations refuse to accept this, continuing to wecome every expansion by Cargill and Tyson. This is unforgivable and I think the lot of them should be turfed out on their ears.
That aside Australia and New Zealand are islands - but I think because Australia is big enough to be called a continent it's not really any different than North America being an "island". I don't see the import of live cattle as being the definative thing that makes or breaks the economics of a beef producing country. To say that you can control your destiny by not allowing imports of live cattle isn't really true. The market can be controlled equally by retailers importing enough boxed beef to rig the market and get live cattle prices down to where there is no profit in them for producers.
In Scotland in the early 1990s we built a tremendous trade with other EU countries in top quality branded "scotch" beef. We supplied the top restraunts in the cities of Italy, Belgium and several other countries because the product was good enough and the marketing was good enough. At the same time retailers in the UK were importing ever greater amounts of beef to replace the top price stuff we were moving overseas. Over time they were able to reduce prices paid for live fat cattle - again because there was a monopoly of retailers able to price fix. It showed me that you can sell premium product overseas, even into other beef producing countries if you are good enough at it. I am convinced the biggest problem here is not BSE, it is packer control - if we tackle that then we can start to build a secure future. We certainly have the advantage over NZ/ Australia of being closer to markets with a large population.

[farmers_son]

I certainly agree that BSE is not the problem. I never said we should attempt to control imports from other NAFTA partners or even non NAFTA imports like the U.S. is doing to increase their domestic price. I was saying the opposite, that imports are going to happen and it is a waste of resources to attempt to stop them. Those imports are always going to put a cap on our live prices.

The comment that prompted my replies was “Do we outsmart and outmarket the Americans or do we let M.R. Coyote test them all in the bush?” I firmly believe that we cannot create a made in Canada live cattle price that is higher than the U.S. price no matter how much marketing we do. If Canadian producers BSE test to gain Asian exports the benefits of those resulting beef sales will stay in the packers pockets and not make it to the producer. We will simply displace those export sales with imports of U.S. live cattle, we can never short the Canadian live cattle supply. The best we can hope to do is narrow the basis between the U.S. and Canadian live price. Therefore we cannot outsmart and outmarket the Americans, we would just end up selling their cattle for them.

You talk about the economics of a beef producing country. We need to remember that the cow calf guys are cattle producers not beef producers. For certain, the marketing initiatives you have pointed out will translate into higher beef prices. I have absolutely no doubt Canada can sell beef into international markets. But I would point out that higher prices for beef do not translate into higher prices for live cattle or else we would be getting record prices for our live cattle right now. The live cattle market is obviously different from the beef market and that difference is where the packers make their profits.

I am going to throw out a comment that I know is outrageous and inflammatory but I think it helps illustrate the reality of our market. Assuming the border between Canada and the U.S. returned to normal, if Canadian producers of live cattle wanted to positively influence the prices they receive for their live cattle then they would receive more bang for their advertising dollar if they advertised U.S. beef than Canadian beef in an attempt to short the supply of live cattle in the U.S. We can never short the Canadian cattle supply but it is possible to short the U.S. live cattle supply, raise the prices in the U.S. and sit back in Canada and watch our prices go up in lock step. Along those lines, the best way to force the Americans to open the border to our live cattle is to encourage exports of U.S. beef, short their market so bad they have to let our cattle in. Actually they are at that point now.

Go ahead and shoot me everyone for saying something like that. But I hear people in the U.S. who are beginning to appreciate that cattle producers in each country benefit far more from cooperation than by becoming competitors internationally. We do not want to outsmart or outmarket the Americans. What we really want is to raise the price of our live cattle. More than anything, more than finding new export markets, that means increasing our ability to force the packers to pay us a fair price for our live cattle. That will take cooperation between all cattle producers in the NAFTA island or else the packers will just go around us and buy the other guys cattle cheap and keep all the benefits from any beef marketing initiative for themselves. Low cattle prices in either Canada or the U.S. do not help the cattle producer in either country, it just lines the pockets of the packers.

By the way, I appreciate your comments Grassfarmer. You have highlighted an important topic that I find very interesting. I hope others find it interesting too.

[grassfarmer]

I don't think that is an outrageous comment farmers_son but I don't fully understand some assumptions you make. Why is it possible to short the American beef market by boosting their exports if it isn't possible to short the Canadian market in an open border scenario? Afterall our herd is too small to influence what happens in the US isn't it? - of less consequence than a severe drought in the northern great plains or Texas?

It is unfair to dimiss any idea of Canadian producers benefitting from potential additional Asian sales as a result of BSE testing on the grounds of unfair packer profiteering but in the next breath say that Canadian producers would benefit from US offshore exports increasing. We need to compare apples to apples.

Transnational corporate control of the beef processing (and increasingly production) capacity across North America is our number 1 problem. This will not be resolved by an open border.
BSE is really just a distraction from, not the cause of our current problems. It is being used as a tool by the increasingly desperate and financially bankrupt Bush regime.

As far as advertising bang for your buck I have serious doubts as to the wisdom of CBEF, despite a few useful people, as they are simply spending Canadian producer's checkoff dollars to gain market share for Cargill and Tyson with no return of the profits thus realised, to primary producers.

We could be successful exporters of quality beef and have the genetics, landbase, science, attitude and traceability to outmarket the Americans - if we can break the stranglehold of the two US packers who are alledgedly going to control 87-89% of our UTM kill by this fall. Can no-one see the ****oos in our nest? or are the politicians and cattle industry leaders all getting a kick back from corporate America? why else would they act the way they are?

[farmers_son]

Good point about Texas. The State of Texas has more cattle than all of Canada.

I was basing my theory, if it could be called that, that a dollar spent promoting beef in the U.S. would earn a greater return to producers through higher live cattle prices than a similar dollar spent promoting beef in Canada would benefit our producers on the notion that packer concentration in the U.S. is not quite as bad as it is here and that the U.S. has some laws in place that at least pretend to limit packers acting as monopolies. If someone wanted to argue the point that the situation is just as bad in the U.S. as it is here and that none of the benefits of a dollar spent promoting beef would make its way back to higher live cattle prices in either country I would accept that argument.

The challenge for cow calf producers throughout North America is to get paid a fair price for our live cattle. And while producers are wise enough to see the benefits of attempting to increase the demand for beef through BSE testing or other marketing efforts internationally we are only just waking up to the fact that none of those benefits make it back to us.

Certainly within NAFTA any attempt by producers in either Canada, U.S. or Mexico to somehow gain an advantage over the others only results in creating a source of cheaper live cattle in that other country that the packers can access to drive down the domestic live cattle price. If this line of reasoning is correct, any attempt by R-Calf to gain an advantage for their producers will only result in costs for their members with any benefits negated by creating a pool of cheaper cattle in Canada that sooner or later are going to make their way into the U.S. Likewise any attempts by Canadian producers to take over the Asian market by BSE testing would simply result, if those attempts were successful in actually changing the price of our live cattle, in increased imports of U.S. live feeder and fat cattle and beef into Canada. Any benefit, if there was any, would be limited to a slightly lower basis which may or may not be enough to recover the costs associated with the action. It is the packers who benefit from producers in the three NAFTA countries fighting with each other. The producers end up worse off.

We need to improve that situation.