How does this work?

[cowman]

Last year I was talking to this large feedlot owner when a group went on a tour of his place where he has built a bio digester. He told me that all their cattle go to Cargill...he said they "have a special arrangement" with Cargill! Now I'm not sure just what that means, whether Cargill owns the cattle or just agree to some sort of special slaughter grid type of deal?
Later in the year another feedlot owner told me that it is Cargills money that paid for this guys lot...he is defacto, an employee or maybe partner of Cargill! I have no idea if this is true or not.
But I wonder? How many of these big feedlots are "maybe" fronted by someone for a big company like Cargill? Don't all of the cattle at Western Feedlots in High River go to Cargill, too?

[smcgrath76]

A couple of thoughts on this.
Many lots enter agreements with Cargill in order to obtain a secure market for their fed cattle. The reasons are somewhat akin to why they deal in the futures market and hedge the dollar. Through BSE, those lots that had agreements in place with Cargill had first dibs on slaughter capacity, etc. This is probably fair game, as they hitch their wagon to large processors. Western and Highland are both examples of this, and both lots feed a similar type of cattle and are targetting a similar consumer. Cargill benefits in that they can manage the line effectively.
The fact that there are only two plants worth mentioning in terms of volume is somewhat misleading as Cargill is targetting a very different market from Lakeside. These plants are not bidding on the same type of cattle.
If you are dealing in the live market, this is a problem., as real bidders for your cattle are reduced by market fragmentation/specification.
Options as I see them are:
1. work with those who want to work with you (possibly Cargill for example)
2. work to move out of the cattle industry and into the food industry either individually (see rkaiser) or through partnerships.
3. cut costs, cut costs, cut costs.

Not the ideal answer, but certainly I think a realistic one.

[cowman]

I think you have a pretty good read on that Sean. I'm sure Bern has probably gone for option number one.