Canadian Packer Profits

[agman]

Agman, I agree with large part of your points, but there are a couple of things that still urk me. In your economic model you are not considering risk and uncertainty. Did the packers know with 100% certainty, that if they reduced kills to create a large backlog to decrease prices, that the border would not open and all teh backlog would be lost? NO. So instead they took the guranteed profit, and ran at full capacity to maximaize profit. Not to just operate at full capacity "for the benefit of all the cattle industry".

I am not blaming packers, or mad at how they "screwed the industry" they just practiced profit maxization, for their interest, which is fine by me, but a slightly different point than you are selling.

As far as your argument for short term increase in fixed costs at lower slaughter levels, and decreasing prices in the future, we can not make any conclusive statements without solid emperical analysis. How much are they going to cut slaughter rates, what will be the impact on selling and buying prices, for how long will they operate under these different rates to achieve price impacts, etc. Until this is laid out I am pretty sure we can both spin our numbers to get the answer we are looking for.

I respect the civility of your discussion and assesment of this issue. However, if they had chosen to reduce slaughter rates the uncertainty of the border reopening is not as critical as you suggest. Whether the profits were enhanced only in Canada or Canada and the U.S. with the backlog eventually exported the results would be similar. Total profits would have been enhanced.

I did take the time today to make calls to very appropriate people regarding this issue and its associated economic consequences. The answer was positive and the further enhancement of profits would be the result. The decision to run full blast was determined to be in the best interest of the INDUSTRY.

We can debate the issue of marginal profits. I make this assessment weekly regarding existing slaughter rate versus capacity. I have analyzed this issue for the better part of twenty years and I will stand firm on my assessment, conclusion and results. That is said with all due respect that your opinion may differ. Have a great day.

 

[agman]

Agman, "Their view of longterm is not the next three to five years. For starters, you should begin to focus on the next ten to twenty years. Now you are entering into their mindset in terms of time. Have a great day."

I'll agree with you there, Agman. That is why they are expanding into other countries, pushing "free" trade, and fighting COOL.

They see the entire forest as opposed to one tree. Can you demonstrate that trade has not been beneficial? History is replete with the failed results of isolationism.

 

[agman]

Went up to one of our pastures last night and camped over in my little 12 foot motorhome. Heaven I say. Tucked into a little spuce and poplar bush, with only the sound of birds and the cows and calves searching each other out just before dusk.

Then I got home to Agman's dreamworld.

Agman

When the cattle supply was reduced due to aggressive slaughter rates and reduced supplies of cattle on fed did your market not advance? I believe it did. Was the market functional or dysfunctional? Perhaps you will try to convince me that your market did not advance. What changed, did packers ideology change of did the reduced supply positively impact the price relationship? Now that COF are up 18% from year age levels and prices have retreated has the packer once again changed his ideology or is the market responding to an increased fed cattle supply?

The fact remains that what happened as a result of BSE was not the making of the packer any more than it was of the producer's making. It was and remains a very unfortunate situation that all parties wish could be rectified tomorrow.

The markets advanced Agman because the border opened to boxed beef. Do you think that our govenment would have stood by, after paying out millions in bailout money to Cargil and Tyson, and watched Cargil profit from 30 cent fats. Give me a break. Somehow, and nobody including yourself can explain how, a comfortable price was established, maximizing packer profit without embarassing the government of Canada. And it has nothing to to with supply because there has been a major over supply of Fats in Canada for two years caused by a closed border. NOT THE PACKERS FAULT BUT AN OPPORTUNITY TO BE POUNCED APON.

One simple question for you Agman, which you can answer with a yes or a no.

If a consultant had suggested that Cargil slow it's line in Canada after the boxed beef border opening, would he still have a job working for Cargil?Yes or no?

Are you suggesting that cattle on feed remained unchanged during this period. There were 18% fewer cattle on feed one year ago. What branch hit you in the head last night!!

The answer to your second question is I do not know since I know of no company named Cargil. I do know of a company named "Cargill" and my answer is yes, the consultant would still have a job. It is very clear that you do not understand the economics of marginal profits and the potential opportunity that was created which could have been extended.

 

[rkaiser]

Agman -

It is very clear that you do not understand the economics of marginal profits and the potential opportunity that was created which could have been extended

.

Do you really think this concept is that hard to understand. I would agree that extending profit by cutting back could work in a situation that was not as extreme as the Canadian situation. Cutting numbers when supply was unchallenged and customers for boxed beef were returned, and the Rcalf situation loomed would have been a major blunder had it happened. I'd a fired the consultant myself.

The next time you are talking with those fellows who are in the know, ask them how many times supply of fats in Canada has even come close to capacity to kill, which is limited by the closed border, is it not? I would say that the closest we had to this phenomenon was late February of this year.

Your catle on feed numbers are a bit distorted by this BSE folly as well, as ranchers held cattle normally sent to feedlots, and all kinds of juggling by feeders was going on,speculating and guessing.

Sorry for misspelling Cargilllllllll. I haven't done this much typing in my life.

Too bad you couldn't have joined me at the pasture last night, we could finished this thing off and had a few beers to boot. Now the battle rages on. I did a quick search and we are now up past the record 103 posts on the new ranchers site. Do you feel the same winning feeling that I do Agman?

You still haven't even answered my very first question.

How are Canadian fat prices established?

We used to have what you would call a margin of difference compared to the American price. This is no longer the order of the day. Yet the price paid to Packers is still set by the American consumer due to the open border for boxed beef.

 

[Cattleman]

Thanks agman, I was just about to say that we could end our discussion but I have another question to your statement:

However, if they had chosen to reduce slaughter rates the uncertainty of the border reopening is not as critical as you suggest. Whether the profits were enhanced only in Canada or Canada and the U.S. with the backlog eventually exported the results would be similar. Total profits would have been enhanced.

If the border had opened, are you saying profits would have been enhanced because they would have capteured these animals in the US or because the prices would have increased more than the costs?
If the border would have opened they would have lost some of those profits to Swift and others.

 

[rkaiser]

Don't understand how either of you can talk about creating a backlog.

Whether Cargill and Tyson cut back, or found a way to expand capacity over night, there was, and is, a backlog of finished cattle in Canada. :roll:

 

[Cattleman]

Not sure if I follow you Randy?

There certainly is a backlog, forsure. I think Agman's point is that he believes the packers could have acted even more opportunistically by dropping slaughter rates and sending the price of fat cattle in Canada through the floor. Thus even increasing their profits further, and it would have been even harder on the cattle industry. Hope I am not putting words into Agmans mouth...

I think packers were simply maximizing profit by opperating at full capacity, given the fact they did not know the border would open.

I am sort of in between the two of you in, for how and why the packers were acting the way they did.

 

[agman]

Not sure if I follow you Randy?

There certainly is a backlog, forsure. I think Agman's point is that he believes the packers could have acted even more opportunistically by dropping slaughter rates and sending the price of fat cattle in Canada through the floor. Thus even increasing their profits further, and it would have been even harder on the cattle industry. Hope I am not putting words into Agmans mouth...

I think packers were simply maximizing profit by opperating at full capacity, given the fact they did not know the border would open.

I am sort of in between the two of you in, for how and why the packers were acting the way they did.

You got it right, you are not putting words in my mouth.

 

[agman]

Thanks agman, I was just about to say that we could end our discussion but I have another question to your statement:

If the border had opened, are you saying profits would have been enhanced because they would have capteured these animals in the US or because the prices would have increased more than the costs?
If the border would have opened they would have lost some of those profits to Swift and others.

Your latter point is very valid and critical to the enter equation and result. That is where the curvilinear nature of profits and margin cost/benefit really get sticky. The inforamtion I have, as previously indicated, suggest slowing kill rates would have shown as a net gain on the ledger.

Thanks again for the civility and depth of your undestanding. Your approach leads to much better results than playing the blame game. Enough on this subject. Have a great day.

 

[Sandhusker]

Agman, "Their view of longterm is not the next three to five years. For starters, you should begin to focus on the next ten to twenty years. Now you are entering into their mindset in terms of time. Have a great day."

I'll agree with you there, Agman. That is why they are expanding into other countries, pushing "free" trade, and fighting COOL.

They see the entire forest as opposed to one tree. Can you demonstrate that trade has not been beneficial? History is replete with the failed results of isolationism.

Yeah, yeah, yeah. We both know what is going on.

 

[rkaiser]

Cattleman wrote:
Not sure if I follow you Randy?

There certainly is a backlog, forsure. I think Agman's point is that he believes the packers could have acted even more opportunistically by dropping slaughter rates and sending the price of fat cattle in Canada through the floor. Thus even increasing their profits further, and it would have been even harder on the cattle industry. Hope I am not putting words into Agmans mouth...

I think packers were simply maximizing profit by opperating at full capacity, given the fact they did not know the border would open.

I am sort of in between the two of you in, for how and why the packers were acting the way they did.


Agman siad - You got it right, you are not putting words in my mouth.

Great stuff guys, except that you keep ignoring the fact that the backlog was there no matter what they did or could have done. You keep relating to supply and demand when supply and demand are simply out of the picture. What is the floor Cattleman? I believe the price offered was the floor. Any lower and the competition bureau would have been forced to act.

To bad you're giving up Agman.

Enough on this subject. Have a great day.

I don't beleive you.

 

[agman]

Cattleman wrote:
Not sure if I follow you Randy?

There certainly is a backlog, forsure. I think Agman's point is that he believes the packers could have acted even more opportunistically by dropping slaughter rates and sending the price of fat cattle in Canada through the floor. Thus even increasing their profits further, and it would have been even harder on the cattle industry. Hope I am not putting words into Agmans mouth...

I think packers were simply maximizing profit by opperating at full capacity, given the fact they did not know the border would open.

I am sort of in between the two of you in, for how and why the packers were acting the way they did.


Agman siad - You got it right, you are not putting words in my mouth.

Great stuff guys, except that you keep ignoring the fact that the backlog was there no matter what they did or could have done. You keep relating to supply and demand when supply and demand are simply out of the picture. What is the floor Cattleman? I believe the price offered was the floor. Any lower and the competition bureau would have been forced to act.

To bad you're giving up Agman.

Enough on this subject. Have a great day.

I don't beleive you.

It is clear this subject matter was too indepth for you to understand completely. You are still only looking at the surface. For you to suggest a further backlog could not have been generated is simply incorrect. To assume that other action would not have created more or exteded the period of excessive profits is also simply incorrect.

You can continue to talk to yourself. I commend Cattleman for his more in depth discusson and understanding of the situation and basic economics. That makes for a very civil discussion when blame is absent the discussion. Remember the echo you hear will be your voice. I have better and much more productive things to do. Have a great day.

 

[Mike]

Alberta meat packers almost tripled profit over BSE: report
Last Updated Tue, 03 Aug 2004 21:51:56 EDT
CBC News

EDMONTON - Alberta meat packers reported huge profit increases because of mad cow disease, but they didn't make money from provincial BSE aid intended for ranchers, the province's auditor general reported Tuesday.
Profit (before interest and taxes) at three big packing companies, Cargill, Lakeside and XL Foods, rose by 281 per cent after the mad-cow crisis began in May 2003, Fred Dunn said.

The three packers made $79 a head in the before the crisis, and $216.52 a head after.

There had also been allegations "that the packers received program funds destined for the producers. These allegations are not true," the auditor general's website said.

The single case of bovine spongiform encephalopathy discovered in Alberta in May 2003 slashed the Canadian price of cattle. Export markets closed, flooding the market in Canada and driving down the prices packers paid for cattle.

But consumer demand remained steady, so the packers didn't have to cut the price they charged for beef products. Dunn explained the differing price drops by saying "cattle prices form only a small part of the retail price."

Dunn said the Alberta government's BSE recovery programs "were generally well-designed and had clearly stated goals and appropriate controls."

The $402 million paid in BSE compensation and the packers' finances have been a continuing source of controversy.

An Alberta report showed Lakeside received about $33 million, Cargill Foods Ltd. got $9 million, 40 other companies got an average of $5 million each, and 22,000 Alberta producers and companies were paid an average of $18,000.

 

[blackjack]

...its not very hard to figure out who is controlling the industry here in Canada...hey Mike...

 

[Mike]

...its not very hard to figure out who is controlling the industry here in Canada...hey Mike...

Wonder what kind of cut the "Auditor General" got too? :wink:

 

[rkaiser]

Agman -

It is clear this subject matter was too indepth for you to understand completely. You are still only looking at the surface. For you to suggest a further backlog could not have been generated is simply incorrect. To assume that other action would not have created more or exteded the period of excessive profits is also simply incorrect.

You can continue to talk to yourself. I commend Cattleman for his more in depth discusson and understanding of the situation and basic economics. That makes for a very civil discussion when blame is absent the discussion. Remember the echo you hear will be your voice. I have better and much more productive things to do. Have a great day.

How can you say I'm talking to myself Agmen when you just keep on trying to prove your inteligence with a reply.

I think discussion is only cilvil for you agman when someone like cattleman says he agrees with you and deals with your condescending attitude with submission.

You are the one who can only see this situation in one light. There would have been further backlog, but it would not have changed the price. The final outcome would only have been less animals killed, and less profit as a result.

$216.52 times 4000 head per day equals $865,000 per day.

Admit it Agman, if you would have talked Cargill into cutting production to extend backlog your a$$ would have been grass.

Run Agman Run.

 

[Cattleman]

Randy, I don't totally agree with Agman, but I did see things in a similar light to him before I even began posting here. I did not submit to agman because of his attitude, I did not really appreciate that comment.

Anyway....Randy, do you have some specific questions or issues surrounding packer profits which you want adressed? Maybe it is all in here but what exactly are you mad about (in a consice statement, may help you focus a bit)?

Packers are making too much money? Have you thought about anyways to address this? (The ironic thing is that I think the best way to deal with it is to do exactly what you are doing and building relationships and creating your own markets. I have been direct selling as well and liking the results)
My frustration is so many people are mad at the packers but they are not willing to do anything about it, so I get frustrated trying to help people who won't help themselves. Just trying to understand a bit of what makes you tick.

I am here in Canada with you Randy, I know the frustration, I have some extra 2 year old bulls I am taking a big licken on, but I am trying to move on, I think everyone needs to do that.

 

[whiteface]

How many bulls are you overstocked on Cattleman and what happened there? Just not enough buyers around or did you keep them for yourself and now just don't need them? Where abouts are you in Alberta also and what will you do with them? Direct market or auction? Just curious. I have a yearling that is nice but just isn't selling because his pedigree is just too common for all the traffic I've had on him so far, or so the potential buyers keep saying anyway. So I wonder if I pull the plug on a bad investment now and hang him or "wait" and "hope" that his "very common and popular pedigree" has at least one more buyer out there that wants it rather than suffering the constant rejection of guys who "like him, but want an outcross." Just wondering what others are doing with thier no-longer-useful-bulls these days. Auction or direct market. Have a good day all and thanks for reading from Canada. BTW, the one nice thing about this new forum is that when the threads get long you just go to the page that you know you haven't read yet rather than scrolling forever!!!

 

[rkaiser]

Cattleman -

Cattleman wrote:
You didn't respond to my above post agman, where is your economics now? Are you admitting I am right and you are wrong?


I did not think it deserved a response since I had already answered the same question? For starters, I am quite certain that I know the fixed cost and marginal cost structure of packing plant operations much better than you. Your response implies that is not the situation. Margins are curvilinear. Well, perhaps sometime you and I will me on an open panel and you can educate me with you knowledge of plant operations. Of course you will allow for some questions and rebuttal from me.

You might not call this kind of arrogance condescending Cattleman, but I do. Sorry I called you submissive. I beleive our thoughts on packers profitting while they can are the same.

Agman cannot listen to reason from anyone who challenges the packers free wheeling ways without degrading them. Claiming that I am blaming the packers for the plight of the ranchers of Canada is all he can see. Challenging his notion of the packers helping the industry by killing at full steam ticks me off. It is not true, and he can explain it til hell freezes over but it is not true.

Why are you not asking Agman what his fight is about? What is it that makes him so upset, and quick to degrade anyone with a challenge to his way of thinking. Why is he so obsessed with proving the packers to be good corporate citizens. Watch him pick a sentence or two out of this post, and cut the heck out of me again.

I'm not so mad as you think. I'm only upset with the inability of a market analyst to see outside of his packer loving box.

 

[agman]

Agman -

It is clear this subject matter was too indepth for you to understand completely. You are still only looking at the surface. For you to suggest a further backlog could not have been generated is simply incorrect. To assume that other action would not have created more or exteded the period of excessive profits is also simply incorrect.

You can continue to talk to yourself. I commend Cattleman for his more in depth discusson and understanding of the situation and basic economics. That makes for a very civil discussion when blame is absent the discussion. Remember the echo you hear will be your voice. I have better and much more productive things to do. Have a great day.

How can you say I'm talking to myself Agmen when you just keep on trying to prove your inteligence with a reply.

I think discussion is only cilvil for you agman when someone like cattleman says he agrees with you and deals with your condescending attitude with submission.

You are the one who can only see this situation in one light. There would have been further backlog, but it would not have changed the price. The final outcome would only have been less animals killed, and less profit as a result.

$216.52 times 4000 head per day equals $865,000 per day.

Admit it Agman, if you would have talked Cargill into cutting production to extend backlog your not nice would have been grass.

Run Agman Run.

You are wrong again RK-par for the forum. Cattleman did not agree with me. He was just intelligent enough to see the possibility I discussed. We may disagree on the outcome. What you clearly demonstrated is that you were in over your head and did not even fully understand the discussion. You remain in over your head. As far as run-hardly. I am just wise enough to know not to continue a discussion with someone who lacks a basic understanding of economics and virtually no understanding of packer operational costs. On either issue you would and could not offer a challenge now or most likley ever.

People like you are at every auction; full of accusations and no facts. It became increasingly evident of your total lack of supply/demand analytical ability when you failed to acknowledge that an 18% reduction in COF had no bearing on the advance in the market-the backlog continues to exist. So I must conclude that packers bid up prices to just help producers. Is that not the only alternative remaining? Sorry young man, but you have been shot out of the saddle so far that you may be the only one remaining who fails to see the fallacy of your position.