packer structure...

[smcgrath76]

The packer profit chain got me thinking about corporate structure of these packing giants.
Tyson is publicly traded with many shareholders. According to econ 101 theory their main goal is to maximize shareholder returns/value. This is somewhat of a short term goal.
Cargill (which could be called the world's largest family farm) and to a smaller extent Nillson's are owned by relatively few private interests that could readily take a longer term view to profitability. In other words, give up a bit today to make a real killing down the road.
I think this is reflected in their business dealings as well. Tyson (at least in Canada) has always seemed to work on the commodity market, while Cargill/NB have moved towards more captive/integrated supply.
Do you see any differences in corporate strategy by these companies based on their ownership structure?
What are the impacts going to be?

[Willowcreek]

But you have to remember that even tho Tyson is a publicly traded Corporation, the Tyson Family own over 50% of the stock and control the Board and all management decisions....

[kpb]

Also, although maximizing short-term shareholder value seems to be common in these days of day traders, the best, longest-lasting companies have to take a long-term view in order to keep making money and keeping their share price up. If you consider how long it takes to build a plant, establish a business in a new country, etc. it is easy to see that the large multi's must take a long-term view.

In view of Tyson's ownership structure, the Tyson family will likely take a long-term view as well. Most dynasties do.

As an overall packer strategy in this country, I think you will find more and more captive supply. I believe that is the way of the future for the packers so that they lessen their market risk (by effectively owning the raw material longer). If I owned shares in Tyson--which I do not but probably should--I would want them to own the animal as far back as they could. It will be tough for the cow-calf guy to accept that onerous situation but it will also be a way for him to survive--much like the hog farmers.

Remember when there was a viable hog industry in this country? Say 10 years ago? Those guys who were hog farmers mostly just quietly disappeared unless they were prepared to work under contract to the factory hog operations. Some do but most couldn't stomach it. I doubt that most of today's ranchers could stomach being contracted out to Cargill either. But enough will and that will happen more and more in our industry over the next generation in my humble opinion.


kpb

[cowman]

kpb: I agree with you almost totally on this one. The family hog farmer is pretty well obsolete. The family farms types that are still operating are usually large. The fact is if you don't have a contract...you don't have a market!
All the experts have told us we need to integrate up the value chain. Isn't that exactly what the likes of Cargill and Tyson are doing? Integrating both up and down the value chain?
Western feedlots and Highland feeders are both "integrated" into the Cargill value chain? How long until they "integrate" their own suppliers of calves...if not already?
When/If the days come that the packing/feeding industry fully integrates they will be setting the agenda for how the cow/calf producer raises and breeds his cattle? You will use the chosen genetics and meet the weights required or you won't get a contract.

[PureCountry]

Maybe YOU will Cowman, or your son(hopefully not), but I sure as hell will not. I will not be told what to breed or how to do it. I raise my stock a certain way now to fit the Galloway beef supply, but I'm doing what's in the best interest of producing a healthy, nutrient dense product, as opposed to Cargill/Tyson's 'contract' herds producing what's in the best interests of profit.

[kpb]

PureCountry, I appreciate your passion and certainly agree with your position. I didn't become a rancher many moons ago to have someone tell me what to do either.

But I feel that is the direction the industry is already going. Western, for example, has a very close realtionship with Cargill (Cargill has an ownership position in Western, or at least they used to). Western aims to meet the Cargill grid with its fats and sources feeders from herds that it has researched and know will meet the grid. That's a pretty short step from a captive supply, I'd say and I think the day is coming in the not too distant future when all of Western's calves will come from the same herds that supply them with calves every year.

Now if the big three packers handle 80% of the capacity in the country and could source all of their cattle from feedlots that meet what they want--year after year--you can bet that is what they will do. And those feedlots will source their calves exclusively from producers who produce animals that the feedlots know will satisfy the packers. And they are aiming for that right now. I think it's just a question of time before you meet their standards or they won't buy your calf at all. You can call that meeting the market but, to me, it's working under a contract that will dictate, closely, what sort of cows you have, how they are fed and what your bull will be.

You and I can both say we won't take that but if your calf is going for half price at the market because you don't have a slaughter contract, I wonder how long anyone will stay in business. The hog guys used to have a viable buiness too and then one day most of them disappeared because they had no decent market for their product.

kpb

[kpb]

PureCountry, I appreciate your passion and certainly agree with your position. I didn't become a rancher many moons ago to have someone tell me what to do either.

But I feel that is the direction the industry is already going. Western, for example, has a very close realtionship with Cargill (Cargill has an ownership position in Western, or at least they used to). Western aims to meet the Cargill grid with its fats and sources feeders from herds that it has researched and know will meet the grid. That's a pretty short step from a captive supply, I'd say and I think the day is coming in the not too distant future when all of Western's calves will come from the same herds that supply them with calves every year.

Now if the big three packers handle 80% of the capacity in the country and could source all of their cattle from feedlots that meet what they want--year after year--you can bet that is what they will do. And those feedlots will source their calves exclusively from producers who produce animals that the feedlots know will satisfy the packers. And they are aiming for that right now. I think it's just a question of time before you meet their standards or they won't buy your calf at all. You can call that meeting the market but, to me, it's working under a contract that will dictate, closely, what sort of cows you have, how they are fed and what your bull will be.

You and I can both say we won't take that but if your calf is going for half price at the market because you don't have a slaughter contract, I wonder how long anyone will stay in business. The hog guys used to have a viable buiness too and then one day most of them disappeared because they had no decent market for their product.

kpb

[cowman]

And I think that was very apparent when about five years ago Western came out very clearly that they would not be buying any Simmental cattle? Those big Sim calves went from top of the market to a big discount?
That has sorted itself out now, because the Simmental breed rapidly changed! Not very many of those big long geared calves today!
I think there will always be a niche market for all types of cattle. Just like there probably is for different types of pork, but bottom line...the hog farmer of today better have a pig that meets the packers specs consistently or he won't have a contract. And to do that he does need to feed a specific way and breed the genetics that will get him there. Practically all the commodity pigs are the same genetic composite.

[coppertop]

And the consistently produced pork has no flavor to speak of !!!

[cswilson]

Is it really any different than a branded beef purveyor saying to participate in my value added beef enterprise you have to use my genetics. Most of people don't understand that to move in to the packing industry and beef merchandising you are gradually going to become alot like the packers that they love to hate. There is a very large range of breeds that can produce cattle that work well on Cargill's grid-heck I even know a set of Galloway cattle from up here do very well on it lol. I don't love or hate packers but they are a necessary evil. I've gotten alot worse rapings at the Auction Mart than I ever did by retaining ownership.

[PureCountry]

Let's say for argument's sake that we were all 'suppliers' of same-type cattle for Western Feedlots, or Highland, or whoever. Does that really guarantee a market? Are you still not a price-taker? I am not quite that dillusional to think that just because I breed their 'type', that they will buy them at the price I need. They'll buy them at the price THEY need, which is always as low as they can get, which in turn pads their pocket with more profit.

I will not believe for a second that the Cargill's or Tyson's of the world are intimately concerned with the well-being of the producers they source cattle from.

The programs these feedlots have and the prices they offer can be quite good, and they've worked well for some of you on this board. We're not where we want to be, and haven't found a real solid, consistent market for our product either, but, we'll continue doing what we're doing. We'll keep looking for a better way, trying to market a food product we're proud of.

Selling cookie-cutter calves to meet the demands of the feeders and/or packers is something totally different than what I want. They don't know how nutrient-dense their product is, only that it's tender and tasty. And I firmly believe we need to be able to tell consumers how nutritious their food is. Maybe it'll mean we have to market our beef directly from the farm, but so be it.

[whiteface]

Best of luck to you Pure Country! There aren't enough people like you running around with that much passion and love for what you do. Have a good day!

[PureCountry]

Thanks Whiteface. Rkaiser and I have talked this one over many times over many...coffees.lol I do get pretty passionate about these things. We're not just talking about our own health here, but our children's and grandkid's as well. What more motivation does a body need to start doing something about the way you produce your food?

Making a profit in some program with some corporation may be agriculture, but it's not my kind. J.M.Unhumble.O.

[smcgrath76]

While I certainly agree with PC on a lot of this, I am moreso in the CS camp on this topic. I do think that as producers move into the food chain, rather than the cattle chain that they will be forced by consumers to produce a consistent product. That may mean a tasteless chicken like product, or an especially nutritious on a local on individual farm basis.
There is a lot of neat work going on in the heritability of fatty acid deposition and so far it looks like the ability to select for non saturated fatty acid deposition could be as strong as the ability to select for milk. There are some other neat components that also show the same potential. In other words, breeding beef cattle that make you healthier for having eaten them. I suspect the big players will be on this like flint within a few years.
I think that no matter what scale, an individual operation is either going to have to produce a consistent product, or else be extremely aware of their diversity and search out a lot of different markets in the future.
Again, to back what CS is saying, most research I have seen by people I respect shows that roughly 8 out of 10 years the returns are better by owning your cattle longer. If you want to be rewarded for breeding and managing better beef cattle, it is best to own them until they are beef.
One good example that is getting up and running is natural valley in SK. I am sure they will have struggles, but they are working to price beef back from retail, moving their farmer shareholders into the food business and out of the cattle industry.
Will it work? Who knows.

[rkaiser]

Thank goodness that one good thing has come out of this BSE thing so far Sean. Just wish it was something BIG enough to help out more than a few producers. Every one of these initiatives helps, and the ranchers beef thing at Balzac is one more even larger step. Just wish that more of them would have kept things going.

You can all think I'm just a sour packer hater if you like - but my contention is that producers must not only become packers, but retailers as well if they are to survive.