Give ABP a chance

[smcgrath76]

Question...
A producer plant has a couple of options
as I see it.
1. Plant operates at breakeven and value
is accrued to owners of the cattle
2. Plant is operated at profit and value
is accrued to shareholders of the plant
3. a mixed combination of the two.

Is the Balzac approach leaning towards
breakeven operations with producer(s)
doing the marketing, or is the plant
leaning towards marketing the product as
well.
In this case a producer would be a
shareholder and thus accrue value, but
the methodology matters...

[wd40]

What you don't know MGMT is what you'd know if you were on the inside of a packing plant looking out. Our 20 year vetran consultant in Cargils HO Kansas made it clear that they WILL NOT make any major capital investment unless they can pay it of in 3 to 4 yrs. Our 25 yr. vetran consultant sitting under the arm pit of Bob Peterson (Iowa Beef Packers) (pre Tyson) defended their books to the USDA back in the 80's and IBP had a 33% return AFTER TAX. So like i said until you've been on the indside and watched their creative book keeping yoou don't know squat around their "business deals"!

[burnt]

Aw surely the packers wouldn't cook the books, would they? WD40, you don't think they made a few extra bucks when we were practically giving them our cattle after May 20, 2003, with no change in the retail price?

Poor, poor packers - let's pass the hat for them.

[wd40]

MGMT - you have "hostage syndrome" you've married you captors.
Here's some numbers for your poor packers.

If you had bought 100 shares in IBP in August 1968
Sep 28, 1968 split 2 - 1
Nov 15, 1978 split 4 - 1
April 15, 83 split 2 - 1
April 15, 85 split 5 - 2
April 15, 86 split 2 - 1
April 15, 87 split 3 - 2
April 15, 91 split 2 - 1
Feb 15, 97 split 3 for 2,

In 2004 you'd have 36,000 shares worth $855,000. Better fire your broker and hire another one.

[rkaiser]

Sorry Sean.... your question will be answered when we reach the next step. I am personally always leaning toward producer ownership through the levy but how much ownership will be up to the board of directors that settles out of all the dust we are kicking up.

As for profits. I would like to see a significant portion destined to the next plant and the next one after that. If Cargill or the boys decide to bail LOL like ABP is thinking, we could buy them out at a fire sale price, or my preference, build more plants and let the old shit rot.

[smcgrath76]

No worries Randy. I figured that was a
confidential question. I will eagerly
await the answer.

[MGMT]

WD40. I do not see how you arrived at $855,000. One Tyson share purchased at the IPO in 1963 for $10.50 would, today with splits, be worth $7200 giving an IRR or Compound Annualized Growth Rate of $14.57%. The annualized growth rate of the S&P 500 over the same period was 9.85%. For comparison purposes some of the higher priced farmland in Alberta would have generated returns of 13% CAGR during the same period. You will note there has not been a share split since 1997. Tyson shares, now worth about $20, were as low as $8 when Tyson sold the Lakeside division.

There is no question that Tyson, which has been in business for decades, is a profitable investment. The question is whether a new startup, given the realities of todays competitive environment, can even survive much less add value to the investors and the industry.

Surely it must be possible to comment on government dollars going into these ventures without being accused of being “married to my captors”. I think it is reasonable to say that if government dollars are needed to make the venture viable then the purchase price of the packing plant is too high. To my knowledge there is not a bidding war driving up the purchase price of the plant. If the present owners of the Balzac plant wish to dictate a selling price that is too high to make economic sense then maybe the plant doesn’t sell.

The comments made in this thread lead me to question if the people behind this drive are knowledgeable about the packing plant industry. There seems to a profound blindness to the competitive environment they wish to enter. When industry facts and characteristics are pointed out the quick answer is those facts are from the Kool Aid side of the books. The facts remain that a great number of start ups in the packing plant industry fail either before opening the doors or soon after. The facts remain that any participant in the industry must be able to withstand two or more years of very substantial losses. The fact remains that there is presently a lot of unused packing plant capacity in this country, especially in Alberta.

I do think any comments to the effect that the present packers are at risk of leaving are misguided. The financial statements all show that 2011 was a profitable year. Yes declining North American cow numbers are a concern. It appears to me that the marketplace is taking care of that as the primnary cow calf operation enjoys record high prices. I repeat myself. I wish the people looking into starting up the Balzac plant all the best in their venture. I would add I am impressed by the perseverance of Rkaiser.

If the Balzac plant is such a profitable opportunity then why the need for government dollars? If allowed to work the market based economy will make the right decisions. If the regulatory environment does not allow a startup a fair opportunity then fix the regulatory environment. When government dollars come into the mix that opens up a lot of very uncomfortable questions about who is the actual beneficiary of those dollars.

[per]

I was leaving this thread alone so as not to be accused of being ignorant of the facts and history and future and so on. But as usual I can't help but pop in for a quick question. Note that I am not taking some sort of official position or trying to divert the thread.

"If the Balzac plant is such a profitable opportunity then why the need for government dollars?"

Couldn't that question be also asked of past government handouts? Cargill and IBP/Tyson/Neilsons certainly participated in public monies over the past including a large chunk of change to bring Cargill to High River in the first place.

OK back to quietly observing and learning for me.

[rkaiser]

I thank you for your perspective MGMT, but will challenge your "knowledge of the packing plant industry" statement.

Your knowledge is obviously limited as well. Then again, you are not try to start something --- just doing the typical lobster pot routine trying to drag anyone in who tries to get out.

Your statement about the value of the plant are a perfect example. Do you know the value of our offer to purchase. Hell no. You know the asking price obviously cause you want to prove some kind of weird point about limitations and fear. Is this how you got to where you are business wise bud. Fear and worry and so called facts about problems that are damn well going to occur...LOL I will bet your banker has been all over that kind of thinking for years. LOL

You keep trying to mislead readers of the thread and talk about government handouts? where are you getting that thought. From the past obviously. We are simply exploring the idea of financing from the government bud and are working parallel with numerous private investors to see who will come to the plate first.

The question I would like to ask you is simply this. Is there room in this province, or this country for a third packer?... in your professional or private opinion. And maybe -- do you think that taking product off this continent like we are planning to do will cause a rise in price for cattle while eliminating the basis that has the two major packers in our country blowing away even there Northern State counterpart packers - profit wise?

How deep is this industry knowledge of your MGMT?

[MGMT]

Per. I think that is a fair question. Economic texts tell us that government dollars are justified in times of market failure. BSE and the resulting loss of markets did cause a market failure. Even with COOL we are not in the midst of a market failure now. Have we, as an industry, become so accustomed to injections of government money that we have forgotten that our industry is market driven? I would question how much government money actually went to the average producer who is the back bone of this industry. There have been far too many multi million dollar cheques cut to large, influential friends of the government. My opinion only but I see that as a problem.

Rkaiser. My take on your first post was to berate ABP for not supporting a bridge financing plan for a packing plant project involving the bankrupt Ranchers Beef facility at Balzac. The ask was for low interest rate bridge financing (open or closed?) made to the then Minister of Agriculture. Or else a $40 per head levy? The purchase price was indicated as being less than $20 million dollars which, assuming $20 million, is $8 million over the 2008 selling price of the plant determined by the receiver Algers and Associates Inc. through an open tender process.

Please Google bridge financing to learn more. Bridge financing is not a simple secured loan. Typically bridge financing is more expensive because of the risk the lender, in this case the Province of Alberta either through AFSC, AVAC, ATB etc., may be assuming if the venture fails. ATB had nearly $30 millions in the Balzac venture when it folded. Some of that would have been recovered, largely through the sale of the facility to Sunterra, but most would have been lost and picked up by the taxpayer.

Rkaiser may simply be exploring government financing bud but anyone who dares to question the need for government dollars in their proposal is subject to attacks. Get the purchase price of the Balzac facility right, get the business plan right, get the management team right and the need for government involvement disappears.