Traders taking a wait and See attitude!

[charliep]

Good strategy.

Would buying corn puts work? Know cost/ability to particate in corn based rallies?

Could you do the same thing with bean oil? Not necessarily today but on the watch list.

[grassfarmer]

Sorry, I like the idea of producer owned plants but I'm not risking the capital required in the current environment (packer status quo and the AB Government backing of them)for a possible measly return of $35 or less extra per animal. Just doesn't make business sense for me.

[wd40]

So.... my question GF. You must have been around the block enough times that you think you know how big of an investment you might HAVETO make.

So how much do think that would be?

Secondly how much would you be willing to make with the right proposition?

[per]

wd, are you propositioning Grassfarmer??? ;o)

[wd40]

Well depends on what you mean by propositioning. However, everybody has a price and to make such a blanket statement actually means very little.

Is someone expecting GF to invest $500,000; $100,000; $5000 or maybe $2000?

He said he “I'm not risking the capital required”. So what does that mean? Build it himself or what.

So again the real question is – If the right business plan was properly developed from good advice, etc, etc; -
What is GF or anyone else willing to “put their money where their mouth is”!

And before someone foams out at the mouth with all the problems and questions about all the how to’s.

Let’s suppose, because we can and have to, because it ain’t gonna happen unless the “If the right business plan” is developed and put onto the table.

So again how much, or rather I should say “how little” an amount would GF or anyone else be willing to invest in the future of the beef industry.

The right plan is not the problem. That just takes effort, measurable effort. The really BIG question is do we have the will and how much will it take.

Would you of GF or other put $1000 at risk or $2000 at risk or $3000. I’d like to know. Because once you know what volume of resources are there you build/match a plan to fit it.

[grassfarmer]

Guaranteed 20% return on my capital. That's the price I would want to enter into a producer plant proposal in the future. I want cash too, not cattle processed in lieu. I am not interested in investing and "possibly" getting an enhanced return for cattle down the line if everything goes well, the plant gets built, and if the Cargills and Nilssons don't run you out of business.
Might not be the answer you want but you asked the question.

[wd40]

I respect your position GF. So what you're saying is NO MATTER WHAT THE PICTURE, you'd never put any cash in the venture.

I know your smart enough to know that you (basically) can't invest any capital in a guarateed ROI.

Just to be clear here. Economics 101 - it takes cash to build something.

And I know darn well that nothing you do from day to day 24/7/365 quarantees a fixed ROI.

So no you're not willing to answer the simple basic question as have most of your peers.

How much cold hard cash would I invest along with my neighbors to see a producer owned competitive plant? All thing being equal.

I don't think that's such a hard question to answer. But it's one very few if any have answered yet.

[wd40]

I should add that I believe that with the right picture Cargill would go home and NB would wish they had not bought that old plant in Brooks!

[per]

Wd, come at it from the other direction if you are trying to raise capital for a plant. How many dollars do you need? Several of us have lost money going down this creek already so present your plan and see who steps up. I have to say though that there isn't much left my pot for these pursuits.

[grassfarmer]

Not really true wd40. If you borrow money from a bank you know what it's going to cost you. If you borrow it from a venture capitalist it will come with an expected return or he won't participate. That's all I'm saying - I would invest as an investor for a given return.
I have wasted too much time listening to consultants who don't know the beef business, don't know the cattle business but claim to know how to structure a business plan. I've seen plenty of them do well out of the farmers initial stake investments and move onto their next project. Don't misunderstand me wd40 - I'm not labeling you in this category, I'm just sick of hearing from guys like that who urge investment from desperate producers with no idea if or how the deal will pan out but assured that their own wages and expenses are paid. To me that type of consultant has done more to scupper producer buy-in than anything else.
I honestly cannot see any form of producer owned or funded packing plant working successfully as long as it can be sabotaged by the existing packers and our own Government. That is partly why I would only invest for a 20% guaranteed return. I suspect that is also why we have not been overwhelmed with venture capitalist offers to fund such plants. In my experience if these guys think it can be done they will back you.
I'm unclear whether the situation changes enough if the cattle herd shrinks and we are left with one packer instead of two to open a new window of opportunity for producer owned capacity. How do you see that one play out?

[wd40]

I'd have to refelect on your last paragraph.

However let me tell you that I to sacrificed a year of my life to the point of laying all I had on the line.

Just cleared up my own BSE issue last March. Was in the service industry at the time so didn't benifit from any BSE funds.

However let me also tell you that the first thing a bunch of producers should do is load a bus and tour Kansas and USPB their value chain menbers and feeders.

We don't have to re-invent the wheel. The model is alreay a shinning light.

[parsley]

fyi

"Weekly comment
Don’t worry about wheat prices: Look at grain stocks
Post a commentBy Mike Stones , 30-Aug-2010

Related topics: Financial & Industry

There’s nothing like a shortage of wheat to send some news media searching for superlatives. Talk of “soaring” wheat prices and “rocketing” bread prices were common, in the British press, after Russia decided to temporarily ban grain exports earlier this month. Three weeks later what lessons can we lean?

Scything through the hype reveals two points. First, grain stocks can moderate short-term supply worries about wheat and the price of flour and related food prices.

Second, the toxic effect of food price speculation and the pressing need to remedy it.

What the headline writers and those who predicted a return to the global food crisis of 2008 failed to consider, or chose to ignore, are the key differences between then and now; particularly larger grain stocks.

Higher production costs

In 2008, all grain prices rose simultaneously and the price of oil was more than $100 a barrel - sparking fears of higher production costs. But this month, it has been mostly wheat that increased in price. Plus, the price of oil has fallen to just over $70 a barrel.

But perhaps the biggest difference is grain stocks. Two years ago global wheat exports fell to 124m tonnes or the equivalent of 10.5 weeks’ consumption. Earlier this month the US Department of Agriculture (USDA) estimated global wheat stocks at 187m tonnes or 15.4 weeks’ cover.

The latest estimate from the International Grains Council is even more encouraging.

While reducing its estimate of global wheat production by 7m tonnes to 644m tonnes, due to adverse weather in Russia, Ukraine and Kazakhstan, it puts grain stocks at 184m tonnes. Although that figure is down 8m tonnes on last month’s estimate, it is still 16m tonnes higher than the end of 2008/09.

So, with world grain stocks in good health, the Russia export ban, due to end in December, looks a good deal less scary than some pundits suggested.

Meanwhile, the wheat crisis that wasn’t really a crisis also highlighted the corrosive effects of food price speculation.

At the beginning of this month, the European Flour Milling Association highlighted the role of food price speculators, not the Russian export ban, in driving wheat prices up.

Laurent Reverdy, the association’s secretary-general told BakeryandSnacks.com: “We consider that this situation requires a significant reaction of public authorities to fight artificial and detrimental food price volatility induced by market speculation. We are convinced that European coordinated measures by public authorities are necessary to provide a clear signal to all operators on the futures commodity markets.”

Whole cereals chain

Of course, the Russian export ban was always bound to make wheat markets volatile. But the toxic activity of food prices speculators made a bad situation much worse.

Reverdy’s comments to us were blunt: “The rise in cereal prices is (being)………fuelled by statements of speculators exaggerating the current uncertainty over harvest prospects in regions hit by adverse weather conditions. This leads to increased volatility and affects the whole cereals chain.”

EU's internal market commissioner, Michel Barnier was even more outspoken in condemning food price speculation last year. “Speculation in basic foodstuffs is a scandal when there are a billion starving people in the world. We must ensure markets contribute to sustainable growth. I am fighting for a fairer world and I want Europe to take the lead on that.”

So what is the EU waiting for? Surely, not more evidence? Now is the time to take decisive action on food price speculation.

Let the media save its superlatives for the sports industry. Food prices and their media coverage need and deserve more stability." Unquote Pars

[parsley]

Another commentary that may be of interest to you:

Quote:
Food price rise is not 2007 all over again, IFPRI
By Jess Halliday, 15-Sep-2010

Related topics: Food prices, Financial & Industry, Cereals and bakery preparations

Knee-jerk reactions to food prices only make matters worse, warns the International Food Policy Research Institute, which cites a number of reasons why we are not seeing a repeat of the 2007/8 food price crisis.

Last month concerns were been raised over bread prices after Russia decided to temporarily ban wheat exports following drought that reduced production.

But Maximo Torero, director of the markets, trade, and institutions division at the IFPRI said early reflexive media reports caused another global price spike due to the panic they caused. He added that “more thoughtful analysis has followed in recent years”, but only after the worry had made the markets more jittery and set off protectionism.

In 2007/8, around a dozen countries stopped or restricted food commodities in a bid to protect their own domestic markets – but served only to push prices up further.

“Global market stability was sacrificed at the altar of domestic politics,” said Torero.

He listed seven differences between the 2007/8 situation and today’s however.

Global wheat stocks are in better shape

Bad weather has not hit all wheat producers

The FAO food price index shows only a 1 per cent rise since January

The prevailing trend is flat or slightly downward, and recent spikes are not prolonged

The Chicago Board of Trade shows the same relative stability

Production has not been affected for other key commodities such as maize, rice, barley rye and sorghum – and the price of oil is far lower.

Impacts

Although the main concern is that rising food prices will have a devastating effect on the ability of the world’s poorest people to afford basic food staples, the food price picture is important for the global food industry.

Most firms requiring commodities as vital inputs conduct their own close monitoring to try to identify potential pressure points far enough in advance to take action.

When they are unable to do so, higher prices tend to be passed up through the food chain until they finally reach the retail level. However for the impact to be seen on the price of bread and other consumer goods, the higher prices would need to be sustained for some time." Unquote Pars

[smcgrath76]

We invested in a plant and a business
plan and lost our investment. That's
life and that's investing. It's just
money.
For myself, I would consider investing
again, however I have begun to ask, if
it is such a good investment for
investments' sake, shouldn't you just be
able to take the plan public and receive
financing through Bay street or the
general public? I don't see people
lining up to invest in beef processing
capacity. On the other hand, I think
there is some potential for custom kill
for a value chain, or negotiating with
an existing company such as USPB to
operate or come up with a creative plan
to run at least one of the existing
plants in Canada that is currently non
functional.
The chicken and egg, is that a market
has to exist for the beef to obtain a
premium for a producer owner, but the
beef has to exist to obtain a market.

[kato]

Which is why it makes far more sense to take a well run small operation that's already in existence and make it grow. There are more than a few of them around.

Starting from scratch is a difficult thing to do. How many people could start a farm from nothing? If they had to borrow to do it? Zero. Same thing with packing plants. How many people could take a farm that's paid off and has some equity and make it into a bigger farm? Lots of them could. Debt load and cash flow problems are killers.

What we need more than anything is for our government to get it together and restructure the inter-provincial trade regulations, inspection standards, and in general do what they can to encourage a business environment that promotes small processing rather than restricts it.

And guess what? They've already made an announcement about reviewing the inter-provincial regulations. Once we see if they make some good fixes to it, the future of producer owned facilities just may get brighter.

Just my opinion. And yes, we invested in a plant too and watched it scuttled by regulations and financing delays.