Free Enterprise FS ?

[wd40]

MINNEAPOLIS, MINNESOTA, U.S. — Cargill, Inc., announced on April 14 that it had net earnings for the quarter ended February 29 of $1.03 billion, up 86% from $553 million in the same period last year. Earnings in the first nine months totaled $2.9 billion, a 69% increase from $1.71 billion last year.

What a kick in the face with a wet boot.

[per]

It is not against the law to make a profit. That is what we are all trying to do. I don't like that some of that profit is likely at our expense but Cargill is involved in more than the packing industry. Big numbers to be sure. Kinda sucks to be us but we need to find a way not to be dependent on Cargill.

[wd40]

One thing for sure the multi-nationals don't have a social conscience.

[farmers_son]

WD40: By F S I presume you meant me. I am not quite sure what you meant by your post, I am guessing you think Cargill made too much money at producers expense. That may or may not be true, Cargill is a private corporation and they do not publish their annual report. We do not get to see where their profits came from.

I certainly do not intend to defend Cargill, their actions as well as the actions of other beef processors during the period from May 2003 to when live cattle exports resumed was unforgiveable and I have not forgotten.

You may not be aware that I have consistently advocated producers owning their own packing plants. It is not a matter of if that will happen but when and how it will happen. However that is not to say we want to replace Cargill as Cargill does bring considerable resources to the beef industry but there is a need to ensure that these multinationals pay a fair price for our live cattle and for that to happen producers must have an alternative to market their production, for instance a properly structured and properly financed producer owned packing plant. That would truly be free enterprise.

[grassfarmer]

F_S, I note you think the actions of Cargill and other beef processors were unforgiveable "during the period from May 2003 to when live cattle exports resumed"
Do you believe their current actions to perpetuate the captive supply situation by their strategic policies of owning/controlling fed cattle are a factor in holding live cattle prices down in Canada?

[farmers_son]

Are our live cattle prices really down? Please see:

Historical Live CME Futures
http://www.tfc-charts.w2d.com/chart/LC/M

Live cattle futures in the U.S. are at record high levels. In 2001, which is the year most of us Canadian producers would consider to be our last good year, U.S. live cattle futures were as low as 63 cents. Yesterday August futures closed at 97.62 cents and all the trend lines suggest even stronger prices. What has changed though since 2001 is our Canadian dollar which I do not think Cargill can influence and the price of barley which I suppose Cargill can influence but has been mostly influenced by the U.S. ethanol policy. If our dollar was still at 63 cents like it was in 2001 we would be getting over $1700 for a fat steer today. We would have never had it so good. But the dollar did change and high barley prices are knocking at least $200 off of the price of every weaned calf and that comes right out of your and my pocket. Feeder calf prices are down due to high feed costs. That is the market reality we find ourselves dealing with. If you want a kick in the face with a wet boot just buy a load of barley these days.

Packers do own/control cattle. Presently in the U.S. there is a important debate regarding the U.S. farm bill and packer controlled cattle. I hope that debate goes on for a while more because as long as they are arguing about packer controlled cattle it means the implementation of COOL may be delayed, which is what really should be the focus of Canadian producers. COOL is the number one issue before us today.

[smcgrath76]

I don't disagree with you FS. A couple of things I think about...
1) when cargill was recruiting at U of S I heard a statement that "Cargill is the largest family farm in the world". This is actually true, depending on your perspective of things. It is good to have different perspectives.
2) cargill is huge and plays in a lot of arenas including mining, fertilizer, ag inputs, food, transportation, etc. I actually don't think that given the size and depth of cargill's business and the strength in all the commodities that their profits are all that good. I certainly don't think it was built on my back.
3) ag has been the forgotten cousin for a long time. This has allowed groups like cargill and tyson and ADM to develop with somewhat less competition than if the industry were cool and sexy like software, oil and gas, etc have been. While these companies have probably fortified their positions, it is also apparent as ag prices increase, investors are more attracted to the business than at any time in the last 20 years. This will create competition for these mainstay players and new opportunity for those willing to look for it.
4) COOL is a huge concern. I think long term it could help to force differentiation and movement in the Canadian industry, but there are going to be a lot of people hurt in the interim.
5) I think we are going to have to work to get the grain out of our production systems. Like it or not grain costs a lot. I know we had a bunch of feeder calves this winter that should have been on a high gain ration based on their genetics and all they got was hay after we were done with doing math. I think we need to rely on the rumen as it is our unfair advantage.
6) I think traditional agriculture is dead we just haven't realized it yet. The standard business mopdel we have been operating under doesn't work long term in the commodity business, largely because it limits growth rate and economies of scale.
7) We may see opportunity for Canadian owned processing moving forward. It is difficult to say with the Gencor thing, and the JBS aquisition, and several of the other changes to our industry. I get pissy about this one, because everyone talks the talk, but no one seems to want to put up the money. We talk about producer owned plants, but how many have actually sunk $ into one and/or committed cattle? Yet in that same time frame, a lot of producers may have gone and bought a new truck that actually took a larger investment than the plant required.

Kind of a rambling post, but this topic is actually many sided and integrated into a lot of the discussions we have here on agri-ville.

[smcgrath76]

PS. I agree that the dollar is killing us, particularly when inputs like feed are priced locally, and product is priced globally.

[per]

SM76 you nailed the true reality of the industry. Imagine a family that has worked together and included many generations to build a dynasty like Cargill. You talk about unfair advantage and are also correct that the rumen is there already for us to properly utilize. I have been a grass fed producer for several years and using tough selection and observation these cows can live in our environment just fine with out heaps of grain. Our back grounded calves haven't had grain for many years and do very well when they hit the grass. No new pickup here but I have lost money in a failed plant in Armstrong and would be willing to step up to the plate again. Cargills family model could be useful in our industry. Working together is the best way to reclaim our place. Bottom up not top down.

[smcgrath76]

I have not lost my money yet, but there is a producer owned plant in SK that I have invested in that is still in business and struggling to make a go. They are very flexible and are open to custom killing for interested groups, selling shifts, or inviting new shareholders. They are federally inspected and EU certified. They have also been screwed over by CFIA, CBGA, XL, etc. and are doing it with no Gov't help (Albertans take note).
I think they have potential to work with/for groups such as Canada Gold, and others if they are interested.

[grassfarmer]

F_S, I don't understand this dollar issue. If as you claim US fat cattle were bringing US$63 in 2001 and it took CDN$1 to buy 63 US cents didn't that make the fat cattle price in Canada $1/lb less the "basis" or whatever you would like to call it?
If cattle were worth $1/lb in 2001 then the low to mid 80 cents they are bringing now certainly are lower prices.
I sell my cattle in Canada, in CDN dollars and buy my inputs with the same. The fact the US dollar has collapsed in value in the interim is a rather weak scapegoat isn't it?

Sean, What kind of kill capacity does the Sask. plant have? Could they handle big numbers on a seasonal basis? I may know someone who might send some work their way in the future.

[smcgrath76]

They are currently limited by boxing capacity. I expect on a straight kill with a break down to 1/2 or 1/4 they could do 500 on a shift easy. With further breaking and boxing they are probably limited to around 250 per day.
I know they have not found their upper limit on straight killing and quartering yet, and I don't believe they have been pushed on breaking and boxing either.
Give me a call. my number is on our website ranchingsystems.com

[farmers_son]

Grassfarmer: I was responding to your comment "Do you believe [Cargill's] current actions to perpetuate the captive supply situation by their strategic policies of owning/controlling fed cattle are a factor in holding live cattle prices down in Canada?

Yes Canadian live cattle prices are lower today than they were in 2001. But it would seem to me the reason for that lies more with the changing value of the dollar than any strategic policy of Cargill or any other packer. The sad fact of the matter was we were playing with Monopoly money in 2001 when you consider the Canadian dollar was only worth 63 cents.

While we have seen a 138% increase in live cattle futures since 2001 that does not compare to the 400% increase in the value of Brent Crude futures, the 180% increase in Alberta Barley futures, the 280% increase in Corn Futures, 350% increase in value of Soybean Oil futures, or the most dramatic of all a 500% increase in the value of Minneapolis Wheat futures since 2001. I guess if you want to you can say that shows Cargill’s strategic policies re capitive supplies are holding down live cattle prices (however that does not follow that Cargill would have had a similar policy re holding down wheat futures which is a bigger part of their business) but what I think that shows is live cattle futures are due for a upwards correction and our Alberta live slaughter prices will follow. If I am correct using a conservative assumption that we could see a 200% increase in the value of CME Live Cattle futures from 2001 levels simply based in the general trend of the market this could mean that Live Cattle Futures would reach $125 within a year which would translate into Alberta slaughter steer prices of about $.90 or more by this August and $115-118 cwt, or higher, by this time in 2009. I would add that this brave prediction would depend upon our live cattle prices not being dramatically impacted by whatever comes out of COOL in the U.S. and that the U.S. economy does not get worse.

[grassfarmer]

Farmers_son, I see you didn't really dispute the fact that cattle were $1 in 2001 and are now mid to low $.80s in Canada in Canadian money - which is what I would call a decline in price. This was my point about the "blame the dollar" syndrome it is a convenient policy for ABP/CCA to blame all our problems on things that are outwith the control of producers/Government and themselves. It leads to a culture of leaders doing nothing instead of leading.
If the US dollar is the problem why not aggressively search for other markets? "Oh but we can't do that the US is our best customer" Why not BSE test for market access in foreign markets? "Oh but we can't do that it would upset the packers, the US or consumers"
If grain fed beef is uneconomic to produce because grain prices are too high investigate grass-fed beef "Oh no we can't do that, it's better to concentrate on growing higher yielding barley varieties so we can maintain our "advantage" over US producers by being the cheapest producers on the continent"
What happened to the supposed "can do" culture off the west, particularily Alberta? more like a "can't do" culture.

As for your price speculation of substantial increases in cattle prices, well have to wait and see. The NFU will be publishing an analysis of the beef sector shortly and it will contain some interesting reading.
Adjusted for inflation, current prices for cattle in Canada are approximately half what they were for a long period from the early 1950s until the 1980s. Throughout that time period they fluctuated very little when adjusted for inflation. The big change that led to the current catastrophic decline in profitability coincided with the arrival of the two US mega packers to Alberta and the elimination of competition from the marketplace.
If you choose to ignore the implications of this, like the leadership of ABP/CCA do we will continue to struggle to be profitable. Even if US cattle prices rise substantially why would they rise in Canada? there is not a competitive marketplace here and the two players would not need to bid higher for cattle. This is why the issue of packer domination and captive supply are very real issues - unfortunately the "leaders" can't see the wood for the trees.

[smcgrath76]

FS, i think you are on the right track. A couple of thoughts-
at some point in time someone is going to capture higher input costs (eg: grain) and is going to raise the price of the product. This may translate a couple of different ways that I can see...
1) demand could remain constant or decrease, thus pressuring the price of live cattle further downward.
2) the increase in price could reflect in live cattle prices if demand remains steady
3) I think a lot of pig guys are saying the same prayers only harder.