• If you are having problems logging in please use the Contact Us in the lower right hand corner of the forum page for assistance.

A Race To The Bottom

Help Support Ranchers.net:

HAY MAKER

Well-known member
Joined
Feb 13, 2005
Messages
8,789
Reaction score
0
Location
Texas
A Race To The Bottom -- by Lee Pitts
A publisher in a prominent western livestock newspaper suggests that we should not be celebrating R-CALF's victory to keep the Canadian border closed because of the damage it will do to packers. He says we're all in this together. In the same boat, so to speak. And when one end of the boat sinks the other will too. He says that the packers and large feeders have the same goals as ranchers, to which we say . . . horse pucky! Their goals could not be more opposite. The packers and their strategically aligned feeders want to buy your cattle as cheap as they can and you, no doubt, want to sell them as high as you can. Do those sound like common goals to you? No, this is a war and the packers were winning, cruising along in their armor plated battleships, while ranchers were paddling upstream against heavy winds in kayaks and canoes.

And then along came a mad cow and R-CALF.

The Packer's Plan
Corporations, by nature, tend to have lots of meetings. It's what they do best. And in those meetings they come up with five-,10- and 15-year plans and business models to find ways to reduce input costs, manage volatility, acquire greater control over the supply chain and to be more competitive than their competition. Years ago the business model in the beef business was that cow calf ranchers, stockers, feeders, packers and retailers operated independently of one another in a production system that, for the most part, produced consistent profits for the good operators. But such a system also presented problems for the packer and retailer. For one, because the parts were independent, with little communication between the segments, it also produced cattle that were not consistently good to eat. This coincided with a time in which public consumption of beef plummeted. Granted, there were other factors, significant ones like diet/health issues, but clearly ranchers were not producing a consistently good product. The beef packers looked around and saw an industry that was producing a consistent product and whose consumption was skyrocketing: the poultry industry. So, as businesses often do, they tried to incorporate the chicken model into the beef business through contract production.

Some ranchers signed on with packers in strategic alliances and most cattle publications and industry observers hailed these early ventures as the way of the future. The cattlemen's national organization, the NCA, was infiltrated by packers and their protégés in order to push such programs. Never once did these folks stop to consider all the power they'd be handing over to the packers if all ranchers became strategically aligned. Gradually the cattle business began to go down the same path as the chicken pluckers and as a result Bill Bullard of R-CALF says here's what happened:

According to USDA data, Bullard says the average return on investment among cow-calf producers in the U.S. was a negative $30.40 per bred cow per year for each year of the 1990s. "Your industry suffered staggering losses measured in the billions of dollars," says Bullard.

"We lost over 10 percent of the total number of beef cattle operators in the United States. We've lost over 108,000 producers since 1993," he said. As a result rural communities all across America have withered. The cow counties in Nebraska are among that state's poorest, for example.

While the ranchers were facing tough times the packer was enjoying heady days. "In 1998," says Bullard, "the average retail price of beef in the United States was $2.77. In 2002, when cattlemen were getting $10 cwt. less than they did a decade before, retail prices were $3.32 a pound. The retailer certainly benefited from these very favorable economic indicators and the packer did, too. In 1992, the average packer margin was $62 a head. By 2002, that more than doubled to $142 a head."

In 1994 Bullard says the rancher received the majority of the consumer's beef dollar: 56 cents for every buck the consumer spent on beef. But by 2000, the producer became the minority recipient. "Your share fell to 49 cents," Bullard said. "By 2002 it had fallen to 44 cents." But the packers got greedy and wanted even more so they had more meetings and decided to copy yet another business model.
 

agman

Well-known member
Joined
Feb 10, 2005
Messages
1,664
Reaction score
0
Location
Denver, CO
HAY MAKER said:
A Race To The Bottom -- by Lee Pitts
A publisher in a prominent western livestock newspaper suggests that we should not be celebrating R-CALF's victory to keep the Canadian border closed because of the damage it will do to packers. He says we're all in this together. In the same boat, so to speak. And when one end of the boat sinks the other will too. He says that the packers and large feeders have the same goals as ranchers, to which we say . . . horse pucky! Their goals could not be more opposite. The packers and their strategically aligned feeders want to buy your cattle as cheap as they can and you, no doubt, want to sell them as high as you can. Do those sound like common goals to you? No, this is a war and the packers were winning, cruising along in their armor plated battleships, while ranchers were paddling upstream against heavy winds in kayaks and canoes.

And then along came a mad cow and R-CALF.

The Packer's Plan
Corporations, by nature, tend to have lots of meetings. It's what they do best. And in those meetings they come up with five-,10- and 15-year plans and business models to find ways to reduce input costs, manage volatility, acquire greater control over the supply chain and to be more competitive than their competition. Years ago the business model in the beef business was that cow calf ranchers, stockers, feeders, packers and retailers operated independently of one another in a production system that, for the most part, produced consistent profits for the good operators. But such a system also presented problems for the packer and retailer. For one, because the parts were independent, with little communication between the segments, it also produced cattle that were not consistently good to eat. This coincided with a time in which public consumption of beef plummeted. Granted, there were other factors, significant ones like diet/health issues, but clearly ranchers were not producing a consistently good product. The beef packers looked around and saw an industry that was producing a consistent product and whose consumption was skyrocketing: the poultry industry. So, as businesses often do, they tried to incorporate the chicken model into the beef business through contract production.

Some ranchers signed on with packers in strategic alliances and most cattle publications and industry observers hailed these early ventures as the way of the future. The cattlemen's national organization, the NCA, was infiltrated by packers and their protégés in order to push such programs. Never once did these folks stop to consider all the power they'd be handing over to the packers if all ranchers became strategically aligned. Gradually the cattle business began to go down the same path as the chicken pluckers and as a result Bill Bullard of R-CALF says here's what happened:

According to USDA data, Bullard says the average return on investment among cow-calf producers in the U.S. was a negative $30.40 per bred cow per year for each year of the 1990s. "Your industry suffered staggering losses measured in the billions of dollars," says Bullard.

"We lost over 10 percent of the total number of beef cattle operators in the United States. We've lost over 108,000 producers since 1993," he said. As a result rural communities all across America have withered. The cow counties in Nebraska are among that state's poorest, for example.

While the ranchers were facing tough times the packer was enjoying heady days. "In 1998," says Bullard, "the average retail price of beef in the United States was $2.77. In 2002, when cattlemen were getting $10 cwt. less than they did a decade before, retail prices were $3.32 a pound. The retailer certainly benefited from these very favorable economic indicators and the packer did, too. In 1992, the average packer margin was $62 a head. By 2002, that more than doubled to $142 a head."

In 1994 Bullard says the rancher received the majority of the consumer's beef dollar: 56 cents for every buck the consumer spent on beef. But by 2000, the producer became the minority recipient. "Your share fell to 49 cents," Bullard said. "By 2002 it had fallen to 44 cents." But the packers got greedy and wanted even more so they had more meetings and decided to copy yet another business model.

How long will these fools make these phony arguments? These claims have been shredded so much and so often they are now down to nano size.
 

Silver

Well-known member
Joined
Mar 23, 2005
Messages
5,150
Reaction score
26
Location
BC
Maybe I'm greedy. I phone around for pricing before I buy feed, tires, fuel, you name it. If I can save $20.00 I will. If the guy I'm talking to is high, I tell him he is and I carry on. I know he wants to get as much for his product as he can, and I want to pay as little for it as I can. It certainly doesn't make us enemies, or have different goals. In fact, I would guess our goals are pretty similar; we both want to improve our bottom line. That's business. But I guess I'm greedy.
 

Tam

Well-known member
Joined
Feb 10, 2005
Messages
12,759
Reaction score
0
Location
Sask
Do those sound like common goals to you?
I guess the goal of survival only matter to the grassroot producers in the US and not to the Feedlot operators and packers. Could this be the common goal Haymaker survival?
 

Brad S

Well-known member
Joined
Feb 15, 2005
Messages
3,017
Reaction score
0
Location
west of Soapweed
Hay Maker, if you think about things for a minute, you realize the breeder, calver, grower, feeder , and processor all want a steak on every plate. Now that is a hell of alot more alike than a short term adversariaal relationship is different. I just paid for a bunch of seed corn, and yes I swindled and chisled just like the feeder will do if he can. BUT, me and Pioneer both want that seed corn to do the best it possibly can. Yet another analogy to show the flawed reasoning of your post.: What if you sell me a pot load of bred heifers. I'm still going to try to buy them as cheaply as possible if I feed them or calve them out. Upon buying the bred heifers, are we now against eachother? Hell no, this is just flawed reasoning. A steak on every plate at the highest price moving the most product, we all want the same thing. When Subway runs a commercial making hamburgers look bad, feedres, cowmen, and beef processors get riled up.



That whole spchiel about processors and vertical integration , its horse ****. Do you remember the celebrated "cattle types" for best profitability released by ibp in the mid 80s? That study really ended the exotic de jure craze of the 80s and puyt us down the path we're now on. That, Hay Maker, IS COOPERATION. The packers had to usurp the adversarial relationship between the feeder buyers and feeder sellers, you see a feeder buyer needs to control shrink and health and play hide the ball with the cow man, so ibp got out their cattle type to the cowmen and chamged the biz.


As for return on caoital, yes cow ranching struggles. There is a saying in the feedlot industry "there ain't no snow capped peakes in the feedlot." This means people feed cattle to make money, just like processors. Do you realize half the cattle born in the US are from herds smaller than 50 head? How many of them need to make a profit? about one of them. Ranchland is unprofitable because investors are seeking the psychic income at the expense of real income. So this analysis may show what you want it to, but it too is flawed. It happens that I own some grass/cows, feeder space, USPB packer shares. I'm not saying this to suggest I'm friggin MAYOR mCcHEESE or anything like it, but I have return on investiment numbers. USPB has been good, but feeder space is better as far as roi. To me, grass and cows is a high safety, low profit venture like a CD.


There may be a causal relationship between packer consolidation and price allocation, micro theory would suggest there should be, but the 10% movement noted by Bullard is insufficient to present as a prima facia case as he does. If you don't like the consolidation, buy USPB shares. When ibp tires of losing money in the present economy, watch them slow chain speed, and see if they are price takers or price makers.
 
A

Anonymous

Guest
Lee Pitts: "Some ranchers signed on with packers in strategic alliances and most cattle publications and industry observers hailed these early ventures as the way of the future. The cattlemen's national organization, the NCA, was infiltrated by packers and their protégés in order to push such programs. Never once did these folks stop to consider all the power they'd be handing over to the packers if all ranchers became strategically aligned."

Spoken like a true "keep my sale barn commission dollars rolling in" supporter.

That's where the fight between LMA and NCBA began. NCBA was looking out for the producers best interest while LMA was looking after their commission dollars.

Speaking from personal experience, if you are paying top dollar for high quality genetics, you cannot afford to sell your cattle in an average based price taking system of marketing where everything is "fancy", "outstanding", and from "reputation outfits". There is such a huge value difference between cattle that gain 2.5 and convert 7 vs cattle that gain 3.5 and convert 5.5. I personally averaged $75 more per head by retaining ownership which includes the savings of commission, yardage, trucking, shrink, and unnecessary sorts.


~SH~
 

Latest posts

Top