Does Coke Compete for Producer's Dollar?

[Econ101]

Conman: "When I read both court's opinions, I had an open and critical mind. It was only after finding out that those opinions had some incorrect reasoning (Robinson-Patman example) and left out some of the facts that I made up my mind about the opinions and the case. SH's arguments (which I have shown to be fallacious) stiffen my opinion even more. To overturn the jury verdict, the judges should have had much more than they had in their opinions."

YOU LYING #!%^#@!&%$!

You said you had never read the court proceedings and now you're saying you did.

YOU KNOW DAMN WELL YOU DIDN'T READ THE COURT PROCEEDINGS and you never proved anything I stated to be incorrect.

You're a damn liar and a phony.

Until you provide the proof from the Pickett proceedings or otherwise to back your position, you are nothing but a cheap talkin' counterfeit.




~SH~

SH, this post, as all of your posts, shows us all your reading comprehension.

There is a difference between the trial court proceedings and Strom's and the appellate decisions.

When you call a Texan a liar, you better have something to back it up. Your attempt at reading and understanding once again shows you have nothing between your ears except: "YOU LYING #!%^#@!&%$!"

Church might do you some good. But then again, we might be back at the comprehension problem.

 

[DiamondSCattleCo]

1) Rod, I appreciate a civil debate.

2) Do you know the costs of labor etc to process a cow? You say it can't be $393. I agree but it isn't $50 either.

3) Retailers have costs as well. You allow 20% to cover that and maybe that does it, but from numbers we've seen come out I wouldn't be willing to bet on it. Retailers actual profit margin on beef is usually 1% after expenses. This was confirmed by Macon who used to run a chain of stores.

4) So it becomes a question of do you think packers deserve to make a profit? Is their profit always the same?

5) You said you don't think coke should be allowed to use lawyers to protect their business interests when contracts are broken, how about at the WTO level?

6) Regardless, all businesses have the same options available.

7) What law(s) do you think would benefit the industry?

1) Certainly. I see absolutely no reason to get insulting. This is a simple debate, and I certainly don't win a prize if I'm right or manage to convince someone of my viewpoint. It certainly isn't worth belittling someone over.

2) Other than what the packers themselves have published, I don't have a firm grip on all their costs. I have a pretty firm idea of what it costs to keep the lights on in a similar sized facility, and I know what the trucking costs are to move around the product. But I'll also never trust a company, any company, to give me an accurate breakdown of their costs. Not necessarily because they intend to be misleading, but because there are a huge number of companies out there, including multi-national corporations, who simply don't know what their costs are.

3) That 20% retailer margin falls outside our packer arguement. The 20% markup comes from looking at the price the supermarket was charged and comparing to what they charge the consumer. And I realize that their operating expenses, etc etc all come out of that 20%, which is about the minimum that a retail outlet has to charge to keep the lights on, wages paid, and still post a decent profit.

4) Everyone should be allowed to make a profit. I've never argued that. But the profits should not be made at the expense of the producer (or one of the middlemen for that matter)

5) Easy now. I didn't say Coke shouldn't be allowed to use their lawyers. What I said is that I thought it was unfortunate that Coke had so much market power that they wouldn't attempt to satisfy the consumer. I think this is bad news for the consumer. As companies learn they can push the consumer around, or find cheaper ways to circumvent consumer demand, consumer demand will mean less and less. In our Coke arguement, the way I see it, Coke had 2 options: a) Give in to the consumer and give them their Cane Coke or b) risk ticking off consumers, use their lawyers to whack the bottlers fingers and dry up the competition to the Corn Coke. I simply find it distressing that Coke felt comfortable enough with their market position to do b).

As far as the WTO and lawyers there, we're into an arena that would take dozens of threads to even begin sort that mess out. Just the cultural differences between the countries in the WTO makes trade disputes a nightmare. But I think the lawyers should stick to ambulance chasing and divorce court and allow businessmen to sort the disputes with intelligent government agencies who are actually able to comprehend the rules and regulations.

6) They may all have the same options available, but each company whether it be a privately held corporation, a public corporation, or a private company are subjected to different tax laws, rates of depreciation and allowable expenses.

7) <chuckle> This thread is already way out of control, but I think 2 very important ones would be a) a simplified flat tax structure. No business write offs, just a flat 5 or 10 or 20% tax based on gross sales receipts. I hate accountants and b) Companies, whether they be corporations or companies are not allowed into more than 1 market. I've seen dozens of examples of a company making it big in their initial start up market (and kudos to them for doing it) and then using their position in that market, or simply using their excess cash in that market to buy their way into another market.

Rod

 

[Jason]

Fair enough Rod,

You have some valid points that I do agree with.

I don't just take everything a company says at face value either. How many ag people complain bitterly about how bad they have it while they are talking to their travel agent booking trips to Hawaii or Mexico?

Public companies like Tyson are under severe scrutiny. The fiascos like Worldcom and Enron put all public companies on notice. However remember the most common fraud in large companies is overinflating earnings, not showing shareholders a loss or break evens. What is the benefit to a public company in showing they are just making it?

This brings us to what source can we use to interpret numbers that are available. Agman has a company that tracks numbers and he has proven his predictions here, forcasting the fat market nearly to the cent and nearly to the day, months in advance. That gets my attention. He has indicated what kind of costs are associated with the packing industry, and has told us when their margins are in the red or in the black.

He agrees Canadian plants made money during the border closure, estimating the profits at $65 US. A far cry from the $200 to $400 spouted by critics. He also saw the benefit of having them run wide open instead of backing even more fats up.

I have to run but lets keep this going.

 

[DiamondSCattleCo]

I pointed out the fact that if Coke doesn't meet consumer demands, their product will suffer accordingly.

See my comments to Jason, vis a vis the coke debate.

Why are your fats being stolen? If you don't like the price in Canada, who is stopping you from selling fats in the U.S.????

Fats at 27 cents are stolen cattle in my mind. I can't ship direct to a packer as I'm simply not big enough. Ditto to shipping into the US. Plus economies of scale begin to take effect on the shipment into the US. My certifications, preg checks, vet checks, and the other barriers end up costing me more than I'd gain. Not an option.

BTW, just out of curiosity today, I talked to a few guys around here that ship fats. Gerald shipped a liner load of fat 2 yr old heifers a couple days ago, and got 70 cents on the carcass weight. He took bids from 3 different packers, and, oddly enough, received bids of 69, 69, and 70 cents. Whole lot of price competition there.

You don't know what the packer profit margins are in Canada. There was actually a quarter, while the border was closed, that Tyson showed a loss in their Lakeside plant.

But neither do you, SH. You're taking the numbers that the plants are giving to you as gospel. Until you can tell me that you've had a chance to actually sit down and look at the actual bills and actual (versus book) costs of the packing plant, I will maintain that you don't know the costs of the plant.

I suppose you are going to tell me that they are lying to their shareholders to hide their profits huh?

SH, you do need to familiarize yourself with corporate bookeeping a little bit better. Shareholder profit/loss statements, income tax statements, and audit statements often differ depending on the accounting rules used in their creation. I guarantee they didn't report $3.88/head profit in the shareholder summary.

And if the packing plants are so cash hungry, why is it they refused to open their books when the Canadian cattle producers and the Canadian retailers called for an audit to see if they were gouging?

Look at the obvious Diamond S, packer concentration in the United States has never been higher and cattle prices in the United States has never been higher. How do you explain that in light of your beliefs? You can't!

Up until this spring, your market was starving for livestock. Packer demand was high, while supply was low. Wait until the market returns to normal. We're going to see lower prices, because of further packer concentration since the boarder closure.

THE OBVIOUS IS TOO OBVIOUS FOR YOU ISN'T IT?????

SH, I've been nothing but civil to you throughout this entire thread, even though my viewpoint differs from yours. I now ask you to do the same.

Besides, you get yourself all worked up and you're liable to blow a blood vessel in your eye or something. And that wouldn't be nice.

What does that have to do with packer concentration?

You simply asked me to prove to you that cattle prices weren't at all time highs. They aren't, so I posted what I received four years ago versus what I received yesterday as proof that cattle are nowhere near record prices. And the reason for that is because we have no competition in Canada for our beef due to packer concentration.

4years ago you had access to the U.S. market with your cull cows. Today you don't. That doesn't have anything to do with packer concentration it has to do with less demand for your cull cows.

SH, the border closure only stopped the export of LIVE culls into the US. Pre-packaged exports shot to all time highs, including shipments of hamburger. I've seen export numbers all over the map so I don't know what to believe, including some numbers that say our overall pounds of beef exported went up (this one I don't believe). The most common number I've seen was a 3% reduction in total beef pounds exported after the border closed. 3%. That should not, in any way, shape or form lead to crash in the cull or calf markets.

The reason there is very little difference between the cattle prices offered by the major packers is due to their similar costs and similar boxed beef markets.

So tell me this then SH. If there is genuine competition in the market, and prices are simply set by supply and demand, after we had all this excess beef (supply) in the system up here, why was the local Co-op still paying the EXACT same for beef as they had paid the year before? If there was true competition, the selling price to the store would have dropped.

There is no incentive to hide your profits in a publicly traded company.

There certainly is. First, if you don't want to pay dividends that year, you wouldn't want your position to look as strong as it may be. You'd also want to shelter a certain percentage of your profit in order to reduce your tax bill. Shall I go on?

Your brain is still farting. First off, the $3.88 per head profit was for the packing industry, not the retail industry.

Please re-read what I posted. I only calculated the retail profit to knock that off the amount that the animal sold for to the consumer to get an idea of the gross profits of the packing plant. I never once said that the retailer made $3.88.

The $397.99 are the dollars left unaccounted for after the retailer gets his 20% profit margin, and I get my share and the truckers get theirs, etc etc etc. So you say it costs $130/hd to process. This number would include rent on the facility, power and natural gas to run the facility, admin costs, etc etc prorated over the number of animals processed. So that leaves $268 unaccounted for. Jason tells me that SRM removal cost them $150-200. Lets split that and do $175. Thats $93 worth of profit for the packer.

And thats using my phony example where the entire cow went for hamburger. You and I both know that entire cow didn't just make hamburger. Over 80% of that animal gets used for SOMETHING, even its only 8 cents/lb of something. That $93 profit is only going to get bigger now, since you've run out of costs to deduct from it.

Then they sell the boxed beef, they have transportation costs to the retail outlets, they have wage earners that handle the beef, they have retail counter space, packaging, trimming, and retail stores have featured prices (2 for one sales) to move product because they sell it or they smell it. What doesn't sell by expiration date is discarded. Did you factor any of that in? NO! BECAUSE YOU ARE SPECULATING! You don't know and are using elementary math to try to figure it out.

The packer doesn't assume any of the costs you just mentioned. They sell it to the store, who pays for trucking, handling, retail counter space, trimming, and waste due to non-sale.

Other than using your costs for processing ($130/hd) and Jason's costs for SRM removal ($175) head, I have done ZERO speculating. The cheque I got in my paws for $1300 was concrete. Or maybe I need some spectacles and it was actually $13,000? The amount for trucking wasn't speculation. My brother in law owns a trucking company who does alot of work for Excel. I know what his books look like. And I know that the Co-op gets a 20% markup (notice I say markup, not profit) because my aunt does the books for the Co-op and I helped them with their computer systems. One of closest friends owns the local IGA. He doesn't even get 20% because IGA doesn't have as much purchasing power as Federated does. Again, not speculation but cold, hard, concrete numbers.

Go to your local locker plant and find out what it costs to process an animal. They are probably paying someone to haul their ofal away while the larger packer is paying you for it's value.

Actually no they're not. They made a deal with one of the local sled dog owners. The sled dog owner gets all the 'leftovers' as long as he hauls the non-usuable waste to the trucking company who then delivers it to Calgary for neglible cost. Don't know what happens to it in Calgary, never asked.

You didn't even seperate processing and fabrication from retail. Some packers have seperate fabrication plants that break down the carcass.

I separated out the retail, you just didn't read it.

Did you factor in the trim? There is a considerable amount of trim that comes off each carcass during fabrication leaving less saleable beef.

By the time you're done trimming SH, we're only gonna have 10 lbs of beef left from the animal. Remind me not to use you as my butcher :lol: I'd say that the 410 pounds that I used from you is actually a little lower than what would actually make it into the retail bin.

You missed seperating the bone and fat from the meat.
You missed the price because you didn't factor "featured prices" to move product.
You missed the trim.
You missed the transportation costs and handling.
You didn't seperate processing and fabrication costs from retail costs.
You didn't consider discarded prodcuct that was not moved by expiration date.

SH, you appear to be confusing what I missed with what you didn't read. Separating bone and fat is processing. Trim is nil. Transport costs I handled. Retail costs were broken out. Discarded product I didn't get, but the packers don't discard. They sell the majority to supermarket chains who then grind it for hamburger or sell it in the reduced to clear. And that portion of the market is miniscule.

Don't forget that for ease of calculation, I also didn't bother including the other 40% of the animal remains that the packer sells. Hides, testicals, etc etc etc. That would easily offset any spoilage that the packer themselves has to deal with.

Packer and retail profits run around 1% - 2%.

If they were truly only making 1 - 2%, the company would not be in business. They would have sold the real estate, or utilized it in an industry with a higher profit margin.

Bring me some actual numbers not what you BELIEVE they are.

Just did it SH. Where I didn't have real numbers, I used your numbers that you got from the packers.

Rod

 

[Jason]

Rod, just for curiosity but have you ever calculated your profit margins?

This isn't a trick question, I have talked with lots of ag people, and I fit this group as well, my assets are worth more sold off and invested than they are as a working outfit.

Why do we stay? We love the challenge, we love the country life, we are stupid (financially speaking) but most of us think there is more waiting at the end. Land values climb etc.

Most places are worth 1-2 million and make a cash profit of 20 K per year. That is a 1-2% return on assets. A GIC would yield 2-3%. I have put in many years where I didn't make the 20K profit.

Packers don't make much more on assets. A plant costs 35-50 million to build. Land is ??. Equipment is??. Let's assume 100 million total. $3.88 profit margin long term (they lose money sometimes) would be a 3.88% return if they kill 1 million animals per year.

The research is out there, if there was hundreds of dollars per head profit in killing cows, there would be dozens of plants being built. The lack of producer ventures even though we need them is evidence of this in Canada.

 

[DiamondSCattleCo]

1) Public companies like Tyson are under severe scrutiny. The fiascos like Worldcom and Enron put all public companies on notice. However remember the most common fraud in large companies is overinflating earnings, not showing shareholders a loss or break evens. What is the benefit to a public company in showing they are just making it?

2) This brings us to what source can we use to interpret numbers that are available. Agman has a company that tracks numbers and he has proven his predictions here, forcasting the fat market nearly to the cent and nearly to the day, months in advance. That gets my attention. He has indicated what kind of costs are associated with the packing industry, and has told us when their margins are in the red or in the black.

1) I briefly touched on this in my post to SH. I agree the most common fraud thats caught is to catch companies overinflating their earnings, however its not to say that companies haven't underinflated in the past either. My dividend example holds. A company that wants to buy back some its voting stock would be another good example. And, like I told SH, shareholders statements could always be prepared with different accounting procedures than those used in reporting taxable earnings. Nothing illegal about it, as long as the company is up front about it.

2) I don't know Agman, nor have I seen any of his posts. I'm new to this forum and didn't dig into many of the past posts, especially since I hadn't really intended on ever coming into the bull session portion. I am curious as to the costs that Agman has posted. Did he ever happen to mention whether those costs were cash basis, or accrual costs? Pre or post re-capitilization (a great spot to shelter profit in a Canadian Corportation, BTW)? I would like to see his numbers sometime.

Market speculators often don't need exact costs either, as you can treat it as a little changing black box that is subject to inflation. You set your benchmark fat price to whatever it was 10 years ago (or pick a starting point), and your company costs become an X in the formula. Inflationary adjustments modify the X (which can be effectively back calculated using methods similar to what I posted in the message to SH, only with a few thousand more numbers). But we really never need to know actual X to predict markets accurately as its pretty safe to assume those costs are relatively unchanging. What would throw a wrench into these numbers is new inventions which considerably improve processing efficiency (as an example). Or something that tossed a wrench into the market (such as BSE. No knock against Agman, but I suspect his pre-BSE market predictions were a little off )

Rod

 

[DiamondSCattleCo]

Rod, just for curiosity but have you ever calculated your profit margins?

This isn't a trick question, I have talked with lots of ag people, and I fit this group as well, my assets are worth more sold off and invested than they are as a working outfit.

Why do we stay? We love the challenge, we love the country life, we are stupid (financially speaking) but most of us think there is more waiting at the end. Land values climb etc.

Most places are worth 1-2 million and make a cash profit of 20 K per year. That is a 1-2% return on assets. A GIC would yield 2-3%. I have put in many years where I didn't make the 20K profit.

Packers don't make much more on assets. A plant costs 35-50 million to build. Land is ??. Equipment is??. Let's assume 100 million total. $3.88 profit margin long term (they lose money sometimes) would be a 3.88% return if they kill 1 million animals per year.

The research is out there, if there was hundreds of dollars per head profit in killing cows, there would be dozens of plants being built. The lack of producer ventures even though we need them is evidence of this in Canada.

Yep, definitely have calculated my profit margins, pretty much down to the red cent. My specialty in the corporate world was cost/benefit analyses, which is generally done on a cash basis (although tax savings were always assessed. These gave me a headache as accrual accounting procedures are so varied from company to company.) Cost/profit is considerably easier in a ranching operation bringing in $60K/yr gross receipts than it was in a corporation grossing billions To be fair, my cost benefit analyses rarely went past 8 figures, as I was only cost benefitting a particular system or business process.

Anyway, I refuse to post actual numbers on an online forum, but before BSE my ROI was double digits. My land costs up here are LOW, I utilize old equipment, do my own maintenance, etc etc etc. I could sell everything, but its not worth much, especially with older cows being worth nothing. I'm not even close to 7 digits. By the time I was done, and re-invested in stocks, bonds, securities, or whatever, I _may_ make more money year to year, but then I wouldn't get the pleasure of being tossed over the fence by another one of those short legged little Black aberdeen hos. :lol:

Another thing to keep in mind is that while I've allowed myself to be drug into cost/profits analyses and number crunching, my primary thesis through all of these debates is that my profit margin per animal continues to drop year to year, despite being more and more productive and efficient. Since the cost to the consumer hasn't been reduced, and has indeed went up over the years, where are my profits going? Governments getting more of course, but still not as much as I'm missing. The retail stores aren't getting it. And since the only two real unknowns _for me_ are the packers and the middlemen, that tells me thats where my profits have went. And I feel in a genuinely competitive market, when BSE hit and there was a "supposed" excess of beef in the market, the consumer should have seen a drop in purchase price, but they didn't.

But the packers and the middlemen swear they don't have it either. So I guess we're pretty much at a standstill.

Rod

 

[blackjack]

...thanks rod for the great reading... i appreciate your incite of the cattle industry in laymans terms...

...jason... you are so right ...huge investment with low return... but like many others on this site... if we can afford to raise our families there is no life like it...ps...not everyone is made out to be a doctor or lawyer...or even an economist...lol...

 

[Sandhusker]

Jason, "Packers don't make much more on assets. A plant costs 35-50 million to build. Land is ??. Equipment is??. Let's assume 100 million total. $3.88 profit margin long term (they lose money sometimes) would be a 3.88% return if they kill 1 million animals per year. "

I disagree on your annual return figures making $3.88/head profit. That works on a ranch where you get one calf a year, but the packers make that $3.88 in the time fram where they buy the animal, process it, and sent it out the back door - maybe two or three weeks?

 

[rkaiser]

I guess my question for Jason would be, why continue to defend every darn thing that the packers do and ridicule anyone who questions them? You have basically admitted that even though you have become as efficient "in your world" as you possibly can be, your business is still a pathetically economic waste of time.

"Process them yourselves" is your answer to anyone with any questions about packer profits.

Some of us do. And those of us that do, have found out that power weilded by economy of scale is a difficult thing to slam up against to say the least. You will come back and tell me that is proof of competition etc. etc. I say that economy of scale has allowed for manipulation, whether that manipulation be intentional, allowed, or simply accident, as you may beleive.

If you have become one of the most efficient producers in your area and are still a joke in the bankers eye, how can you not question the system that you are a part of? Stop and look at things for a moment and stop telling us so called whiners that you KNOW Cargill and Tyson are RIGHT about everything. Why the continual expansion in Canada and around the world Jason, if they are making a pathetic $3.88 per head.

This group of people here on ranchers has been about extremes. $3.88 come on. $65.00 during BSE in Canada, come on. And you will say the same no matter what numbers I suggest.

Diamond S must be on some pretty good Bi Polar drugs. His numbers are practical and his tone moderate. I think that even Scott could learn something should he choose to listen.

 

[DiamondSCattleCo]

Diamond S must be on some pretty good Bi Polar drugs.

<sigh> I thought those sugar cubes my wife was putting in my coffee looked a little suspicious. :evil:

Rod

 

[Anonymous]

DSCC: "Fats at 27 cents are stolen cattle in my mind."

When did you get $.27 for fat cattle?

When the Canadian border was closed, when Canada didn't have access to the U.S. boxed beef market, when Canadian packers were absorbing the costs of SRM removal, when the U.S. beef exports to Canada increased due to BSE in Canada???? When?

The timing of the $.27 fat cattle is very relevant to understanding the issue.

DSCC: "Gerald shipped a liner load of fat 2 yr old heifers a couple days ago, and got 70 cents on the carcass weight."

That's a far cry from $.27

DSCC: "He took bids from 3 different packers, and, oddly enough, received bids of 69, 69, and 70 cents. Whole lot of price competition there."

Are you suggesting that because the bids were similar that this is proof of a lack of competition??? The exact opposite is the truth.

The reason the bids are similar is because the demand for beef and beef products for each one of these packers is similar, the costs of processing are similar, and the profit margins that each company is willing to accept and compete against is similar. Naturally, this would result in similar bids.

That proves nothing in regards to a "supposed" lack of competition.

Each one of the major packers has to assure that they have enough cattle bought to keep their plants running at capacity. That in itself creates competition. The only way they are going to get those cattle bought againt the other packers is to bid up.

I realize that Canada did not have a competitive situation when the border closed and you found yourself in a situation of more cattle than slaughter capacity. The cattle that used to be slaughtered in the U.S. were stuck with the Canadian packing industry giving the Canadian packer a clear leverage advantage. I fully understand that although, according to the Canadian government's study, the profits were still not to the level that many Canadians thought they were due to the lost value of SRM removal.

You can partially thank the near sighted isolationist R-CULT organization for their phony injunction using BSE as a catalyst to stop Canadian imports. Since you are new to this forum I'll state that I have found nothing about R-CALF that is worth supporting.

DSCC: "But neither do you, SH. You're taking the numbers that the plants are giving to you as gospel. Until you can tell me that you've had a chance to actually sit down and look at the actual bills and actual (versus book) costs of the packing plant, I will maintain that you don't know the costs of the plant."

Well if you admit that you don't know what the profit margins are, why do you speculate with your speculative numbers? You started with over $663 profit and now you are down to $93. LOL! Obviously, you didn't know what you were talking about did you?

What good does it do to speculate what packer profits are if you don't know?

DSCC: "Shareholder profit/loss statements, income tax statements, and audit statements often differ depending on the accounting rules used in their creation. I guarantee they didn't report $3.88/head profit in the shareholder summary."

No publicly traded company is going to try to hide their profits from potential investors. Nobody wants to invest in a struggling company.

You are right. The 5 largest packers did not report a $3.88 per head profit through the ninties. They reported their return on investment to GIPSA and it was a simple matter for Agman to crunch the slaughter numbers and come up with a per head profit. ibp's per head profits, during an era of "supposed" market manipulation, were only $26 per head. That is a matter of court record.

DSCC: "And if the packing plants are so cash hungry, why is it they refused to open their books when the Canadian cattle producers and the Canadian retailers called for an audit to see if they were gouging?"

Because it's none of your business what their profits are if they are not doing anything illegal. If you are convinced there is so much money in the packing business, you need to invest in it.

It's none of your business what other major corporations are making, why should packers be any different?

Unfortunately, the cattle industry is so blame riddent that packers are forced to report their profits to GIPSA which reaks of "socialism" to me.

DSCC: "Up until this spring, your market was starving for livestock. Packer demand was high, while supply was low. Wait until the market returns to normal. We're going to see lower prices, because of further packer concentration since the boarder closure."

Canadian live cattle are only 4% of our total U.S. beef consumption. The market we are enjoying is driven more by and increase in consumer demand for beef than by any reduction in supply.

What more proof do you need than the fact that cattle prices remain high despite the fact that Canadian cattle are once again in our system?

Like I said, packers have never been more concentrated in the U.S. and cattle prices have never been higher. That is an undeniable fact.

Now that is not to suggest that we have these high prices BECAUSE of concentration. I'm simply pointing out the obvious fact that concentration has not led to lower cattle prices in the U.S.

DSCC: "You simply asked me to prove to you that cattle prices weren't at all time highs. They aren't, so I posted what I received four years ago versus what I received yesterday as proof that cattle are nowhere near record prices. And the reason for that is because we have no competition in Canada for our beef due to packer concentration."

I was talking about U.S. prices and you are talking about Canadian prices. There is also a difference in the price of feeders, fats, and culls within any country. Let's make sure we are comparing apples to apples.

The U.S. has never had higher FEEDER cattle prices than we have right now and the packers have never been more concentrated than they are right now. That is a fact.

I can understand why Canadian fat cattle prices are not any higher than they are. First, the Canadian packers have the costs of SRM removal on cattle under 30 months of age. Second, correct me if I am wrong but as I understand it most Canadian beef is consumed in the U.S. which adds transportation costs.

Your cull cow prices are lower because, as I understand it and correct me if I'm wrong, you don't have access to the U.S. market with the beef from cattle over 30 months of age.

You just admitted that you don't know what packer profits are so you cannot say that you know that lower cattle prices in Canada is due to packer concentration. You are simply repeating what you hear instead of basing that opinion on factual information.

DSCC: "SH, the border closure only stopped the export of LIVE culls into the US. Pre-packaged exports shot to all time highs, including shipments of hamburger. I've seen export numbers all over the map so I don't know what to believe, including some numbers that say our overall pounds of beef exported went up (this one I don't believe). The most common number I've seen was a 3% reduction in total beef pounds exported after the border closed. 3%. That should not, in any way, shape or form lead to crash in the cull or calf markets."

I think you are confusing the numbers. As I understand it, again correct me if I am wrong, but I am under the understanding that the United States is not importing any beef from Canada from cattle over 30 months of age. Wouldn't that explain a reduction in the value of cull cows in Canada considering that the U.S. was always your historic market for beef?

DSCC: "If there is genuine competition in the market, and prices are simply set by supply and demand, after we had all this excess beef (supply) in the system up here, why was the local Co-op still paying the EXACT same for beef as they had paid the year before? If there was true competition, the selling price to the store would have dropped."

Once again, I am talking about the U.S. situation and you are talking about Canada's situation. If I am getting your question right, you are wondering why beef prices have remained relatively stable while cattle prices have fluctuated IN CANADA.

You cannot simply look at the value of one aspect of the carcass. When you ask "why was the local Co-op still paying the EXACT same for beef...", what products are you talking about? Ground beef? What blend of ground beef (70/30, 80/20, 90/10, etc)? Middle meats? Chucks and rounds? Beef is not beef! Is the Co-op paying the EXACT SAME for the EXACT SAME beef products?

If so, then you must consider whether the value of the rest of the carcass has changed. SRM removal valued at over $100 per head is certainly one reason. What about the value of the hides, edible ofal, etc. etc.

You can't look at one aspect of the carcass and assume packer profits have increased.

DSCC: "There certainly is. First, if you don't want to pay dividends that year, you wouldn't want your position to look as strong as it may be. You'd also want to shelter a certain percentage of your profit in order to reduce your tax bill. Shall I go on?'

Come on Rod? These are tight margin operations. How many potential investors are you going to attract if you are hiding your company's profitability? Who wants to invest in a failing company? Besides, GIPSA has access to the financial records of these large packing companies. Did that stop the conspiracies? Of course not. The conspirators now believe the government is being paid off by the large corporations. LOL!

BEWARE OF THE CONSPIRING MIND!

If you are absolutely convinced that there is so much money to be made in the packing industry, get out your checkbook and invest in it. The packers don't owe you a living.

DSCC: "Please re-read what I posted. I only calculated the retail profit to knock that off the amount that the animal sold for to the consumer to get an idea of the gross profits of the packing plant. I never once said that the retailer made $3.88."

I never said you did say the retailer made the $3.88 per head. I am simply point out to you that the AVERAGE packer profits reported to GIPSA for the 5 major packers through the 90's was $3.88 per head. That has nothing to do with retail profits.

DSCC: "The $397.99 are the dollars left unaccounted for after the retailer gets his 20% profit margin, and I get my share and the truckers get theirs, etc etc etc. So you say it costs $130/hd to process. This number would include rent on the facility, power and natural gas to run the facility, admin costs, etc etc prorated over the number of animals processed. So that leaves $268 unaccounted for. Jason tells me that SRM removal cost them $150-200. Lets split that and do $175. Thats $93 worth of profit for the packer."

Hahaha!

Rod, look where you started from:

DSCC: "My local Co-op gets a 20% markup on beef. Which means they paid $945 for that animal or $190 profit. So that leave $663 profit made on that animal."

If we've established on thing in this thread, it's that you don't know what it costs to process cattle. I truly wish more producers would understand that side of the industry. It would put a lot of these "HUGE PACKER PROFIT" conspiracies to rest.

DSCC: " And thats using my phony example where the entire cow went for hamburger. You and I both know that entire cow didn't just make hamburger. Over 80% of that animal gets used for SOMETHING, even its only 8 cents/lb of something. That $93 profit is only going to get bigger now, since you've run out of costs to deduct from it."

You've already dropped it $570 from your original figure. Now you only have another $37 to go to end up at the Pickett vs. ibp reported profits of $26 per head. LOL!

That doesn't mean that figure applies to Canada's situation. I'm not as tuned to Canada's situation as I am to the U.S.'s situation but you obviously aren't either.

This has been an enjoyable debate for me because I see enough intelligence in your posts that I believe you really do want to know the truth and I commend you for that.

You are correct in that you have to add values to the carcass also but you obviously have some more expenses too. Those values are hide, edible and inedible ofal (excluding SRM removal) which would include tongues, livers, tails, rectums, etc. Not sure if tongues, livers, and rectums are included in SRM removal? I believe brains and spinal columns are.

DSCC: "The packer doesn't assume any of the costs you just mentioned. They sell it to the store, who pays for trucking, handling, retail counter space, trimming, and waste due to non-sale."

That's true. I didn't mean to suggest they did. I was simply pointing out the expenses and the losses (bone, fat, ofal, hides,) between the retail beef price and the live cattle prices.

DSCC: "Other than using your costs for processing ($130/hd) and Jason's costs for SRM removal ($175) head, I have done ZERO speculating."

The fact that you changed your RED MEAT YIELD from 50% to a more reasonable 36%, the fact that you added SRM removal costs, and the fact that you have added processing costs from your original $663 dollars proves your whole hypothesis was based on speculation. Heck, your "PERCEIVED" profits have dropped from $663 to $93.

If you learned from this excercise, it has been well worth my time. I'm glad you're not one of these idiots that tries to defend something that is totally indefensible. I commend you on your intelligent approach to this topic. It's refreshing!

DSCC: "The cheque I got in my paws for $1300 was concrete. Or maybe I need some spectacles and it was actually $13,000? The amount for trucking wasn't speculation. My brother in law owns a trucking company who does alot of work for Excel. I know what his books look like. And I know that the Co-op gets a 20% markup (notice I say markup, not profit) because my aunt does the books for the Co-op and I helped them with their computer systems. One of closest friends owns the local IGA. He doesn't even get 20% because IGA doesn't have as much purchasing power as Federated does. Again, not speculation but cold, hard, concrete numbers."

The problem is not with what you know, the problem is with what you didn't and still don't know.

I wish Agman would weigh in on this discussion. He is more familiar with these costs and the value of edible and non edible ofal than I am.

DSCC: "Actually no they're not. They made a deal with one of the local sled dog owners. The sled dog owner gets all the 'leftovers' as long as he hauls the non-usuable waste to the trucking company who then delivers it to Calgary for neglible cost. Don't know what happens to it in Calgary, never asked."

Ok, I stand corrected. The ofal value at your local locker plant has been reduced to sled dog food.

What I would like is for you to account for what your local locker plant is allowing a local sled dog man to haul away that is sold by the larger more efficient packing company and figured in to the price they pay for cattle.

DSCC: "I separated out the retail, you just didn't read it."

If you call a 20% markup on "BEEF" (which was not defined by product type) seperating it out?

DSCC: "By the time you're done trimming SH, we're only gonna have 10 lbs of beef left from the animal. Remind me not to use you as my butcher"

Hahaha!

As Crocodile Dundee would say, "THAZ NOTE A NOIFE, THEES EES A NOIFE"

Seriously, there is more trim than you would expect. Clots, lesions, bruises, extra fat, irregular shaped meat pieces, etc.

DSCC: "I'd say that the 410 pounds that I used from you is actually a little lower than what would actually make it into the retail bin."

A 60% CARCASS yield from an 1140 pound animal would end up as a 684 pound carcass. Of that 684 pound carcass, I believe you would yield about 60% red meat. Now I could be a little off on that number because I am going on memory here. I am more familiar with the carcass yield than the red meat yield. The 410 pounds of red meat yield is figured at 60%.

JASON? Am I close on red meat yield at 60% for an 1140 pound 2 year old heifer?

DSCC: "If they were truly only making 1 - 2%, the company would not be in business. They would have sold the real estate, or utilized it in an industry with a higher profit margin."

That's about what it is. What they lack on per head profits they make up for on volume.


Your respectable style is refreshing and I hope that I have responded in kind. This has been enjoyable and you've shown integrity. Hope you stick around.


~SH~

 

[Sandhusker]

Geeeeze, Rod, you got nearly two dozen things wrong in one post! :wink: That beats Bill Bullard's record of 19! :lol:

You're the new Blamer Champion!!!! :lol: :lol: :lol:

 

[Econ101]

SH, was the lack of competitive forces good or bad for consumers in the coke example? Did the lack of real competition reduce the consumer's choice(absent bootleg coke) in the market with the company dictating consumer demand?

Was it good or bad for coke?

Was it good or bad for lawyers?

Was it good for consumers?

Was it good for economic efficiency(not company efficiency)?

You brought up coke as an example of a market with market concentration. I am waiting for your reply.

 

[Anonymous]

Conman: "SH, was the lack of competitive forces good or bad for consumers in the coke example? Did the lack of real competition reduce the consumer's choice(absent bootleg coke) in the market with the company dictating consumer demand?"

Consumers have multiple beverage choices if Coke doesn't meet consumer needs.

Conman: "Was it good or bad for coke?"

If Coke doesn't meet consumer's needs, it will be bad for Coke.

Conman: "Was it good or bad for lawyers?"

That would depend on whose lawyers you are talking about. Defense or prosecution?

Conman: "Was it good for consumers?"

Consumers have other beverage choices if Coke doesn't meet their needs.

Conman: "Was it good for economic efficiency(not company efficiency)?"

That depends on whose economic efficiency you are referring to.


The fact remains, concentration is not unique to the packing industry.



~SH~

 

[Econ101]

Conman: "SH, was the lack of competitive forces good or bad for consumers in the coke example? Did the lack of real competition reduce the consumer's choice(absent bootleg coke) in the market with the company dictating consumer demand?"

Consumers have multiple beverage choices if Coke doesn't meet consumer needs.

Conman: "Was it good or bad for coke?"

If Coke doesn't meet consumer's needs, it will be bad for Coke.

Conman: "Was it good or bad for lawyers?"

That would depend on whose lawyers you are talking about. Defense or prosecution?

Conman: "Was it good for consumers?"

Consumers have other beverage choices if Coke doesn't meet their needs.

Conman: "Was it good for economic efficiency(not company efficiency)?"

That depends on whose economic efficiency you are referring to.


The fact remains, concentration is not unique to the packing industry.



~SH~

The fact is that it is not good for any industry and that is why we have laws against it and the market power it brings in certain industries. The fact that it is not unique to the packing industry is the reason we have several laws applying to different industries and to all industries.

Economic efficiency is the efficiency for the market, not whose. In the coke example it was clear to see that consumers did not win, bottlers were not allowed to compete, and the market was not operating at its highest economic effciency. IT NEVER DOES IN A MONOPSONY, MONOPOLY, OLIGOPOLY, OR OLIGOPSONY WHENEVER MARKET POWER IS BEING EXERTED.

I see you avoided answering all of the questions.

 

[Jason]

Rod you said your effeciencies have gotten better but return per animal has dropped. You say the packers must be to blame for that, as middlemen.

Has your utilities, insurance, fuel, twine, repairs, medicine, vaccines, living expenses gone up?

If I could rent ground, I could make an awesome return on cows. Rented ground changes deals far too often to base a business on.

I support any one that wants to process their own cattle. I just think they better have their stuff in order before they go head to head with the big boys.

Looking for a gov't mandated advantage to get into packing is not a likely option.

If we use Randy's example of getting underbid by Cargill, what can be learned?

1) Stay with independant resturants, chains can open you up to more competition than you are ready for.

2) Make sure you can offer a competitave price, this will mean knowing your prices, and those of competitors.

3) Make sure what you offer is clear to the customer. Never mislead a consumer as to what they are getting.

4) Be realistic with profit expectations.

The only thing I know Randy didn't do was #1, this isn't a shot, but a learning curve.

Anyone in Ag has to become informed, more informed than most industries. If we know where all the money is, we can better prepare for the future.

One of the other things that affects our outlook on packers can be the buyers. Some of these guys are truely dumb, and don't even know much about the beef industry other than their specific job.

I asked one about the rate of marbling in the Angus cattle they were killing. He said he had a load that went only 5% AAA (Choice). I asked if they were Angus or Black Simmentals, Limos etc...he was dumbfounded..they were black he said.

Back to costs, I have talked with guys in a big cattle area (Brooks) and their costs are so high compared to mine they shouldn't even try to compete, but they say they are too old and dumb to do anything else but run cows. At least they are looking at their costs.

 

[DiamondSCattleCo]

When did you get $.27 for fat cattle?

2 of those culls I mentioned were 2 yr old heifers that would have graded. I don't feed out alot of animals here, 4 or 5 per year, but I've never had anything grade less than A, including 2 year old heifers that just didn't make the cut for breeding stock. Maybe I shouldn't have used the term fats, as thats usually used in reference to feeders, but since those heifers would have graded, they weren't culls anymore either.

DSCC: "Gerald shipped a liner load of fat 2 yr old heifers a couple days ago, and got 70 cents on the carcass weight."

That's a far cry from $.27

He was paid 70 cents on the carcass (rail), my 27 cents was live weight at the sale barn. He had a 55% carcass yield, that equates to 38 cents live weight. His animals were a few months younger, and he has a history with the packer so they'll know a little better what his animals are going to grade, so he gets more.

DSCC: "He took bids from 3 different packers, and, oddly enough, received bids of 69, 69, and 70 cents. Whole lot of price competition there."

That proves nothing in regards to a "supposed" lack of competition./quote]

I disagree. In a genuine competitive market, where the packers would be hungry for animals, there should have been a broader gap in the bids.

I fully understand that although, according to the Canadian government's study, the profits were still not to the level that many Canadians thought they were due to the lost value of SRM removal.

The government study was a joke, as we still never learned what the true packer profit margin was.

Well if you admit that you don't know what the profit margins are, why do you speculate with your speculative numbers? You started with over $663 profit and now you are down to $93. LOL! Obviously, you didn't know what you were talking about did you?

I started out at $663 profit. Now I made an error on the amount of hamburger that animal would have made, and corrected it. I freely admitted to that error. But that still left us with $400 profit. It was obviously gross profit, as I hadn't done a single bit of calculation on processing. Well I thought it was obvious that it was gross profit anyway. The $93 that was left over was net profit.

And the entire exercise was based on the cull being used for cheap hamburger. The 20% retailer markup was on pre-pack hamburger, however it is also the average markup on "beef". Some beef products have a couple more points in them, some have a couple points less.

What good does it do to speculate what packer profits are if you don't know?

Because you are quoting $3.88 cent/animal average profit, and I am refuting your (and the packers) claim by using calculations based on real world numbers. And this is on an old cull cow who wouldn't have had ANY premium cuts of meat on her. Premium cuts = even more profit.

Now even if you take that $3.88 US, double it for exchange rate, 8 bucks, and triple the margin to $24 Cdn/animal, we're still a far cry from the $93 minimum that I'm forced to conclude is in the packers pocket.

I've started a genuine breakdown on a fat steer grading AA. Its going to take a bit, as I've got a whack of work to get done over the next month or so, but I'll get carcass and cut percentages from a few local butcher shops, and I'll do a survey of the local retailers to determine retail pricing. The store wholesale pricing is going to be a little more limited, as I've only got access to couple stores wholesale costs. At the very least, it will give us a decent estimate of gross profits the packers are making on a AA beef coming into my area.

No publicly traded company is going to try to hide their profits from potential investors. Nobody wants to invest in a struggling company.

Assuming they are seeking investors and have outstanding shares to be sold. Once a company has issued its shares, and they are sold, the share price really only reflects what the market believes the company to be worth. So if share price drops, it really only hampers the companies ability to secure credit. Publicly traded shares on the stock market don't net the company any additional cash. Indeed, if the share value drops, dividends decrease. Net savings to the company, as long as they didn't require any credit.

Because it's none of your business what their profits are if they are not doing anything illegal.

Then we're into a Catch 22. The only way we can prove they are doing something illegal is by having their books opened for public scrutiny. I personally feel that a publicly traded company should be required to have their books fully open at all times, and not just shareholder reports, but their accountants reports and their tax reports too.

understand it most Canadian beef is consumed in the U.S. which adds transportation costs.

Transport costs on pre-pack beef is neglible. A few pennies/lb.

Your cull cow prices are lower because, as I understand it and correct me if I'm wrong, you don't have access to the U.S. market with the beef from cattle over 30 months of age.

Just live animals over 30 months. Inspected, packaged beef over 30 months is allowed into the US. Until RCalf's initial court case got shut down, they were going after the packaged beef on the basis that the over 30 month stuff was dangerous, even though SRMs were removed.

I think you are confusing the numbers. As I understand it, again correct me if I am wrong, but I am under the understanding that the United States is not importing any beef from Canada from cattle over 30 months of age. Wouldn't that explain a reduction in the value of cull cows in Canada considering that the U.S. was always your historic market for beef?

This is why I say the poor cull market is from lack of competition. We were exporting packaged, over 30 beef into the US. In essense, we had virtually no reduction in our net beef exports, however we had a huge reduction in the amount of dollars the producers were receiving.

You cannot simply look at the value of one aspect of the carcass. When you ask "why was the local Co-op still paying the EXACT same for beef...", what products are you talking about? Ground beef? What blend of ground beef (70/30, 80/20, 90/10, etc)? Middle meats? Chucks and rounds? Beef is not beef! Is the Co-op paying the EXACT SAME for the EXACT SAME beef products?

I'm talking about virtually all beef products. Steaks, hamburger (it doesn't matter which), roasts, stewing meat; all of it remained at a pretty stable price level both in the retailers cabinets and on the wholesale market. In a truly competitive market, if the supply was so excess that it could drive the price of feeder animals down by as much as 40%, we should have seen SOMETHING in the stores. Even 20%. But no, it was pretty stable. A friend of mine in Regina asked me last year why he wasn't able to buy a steak cheaper since I was whining and snivelling about the price of my feeders.

You are correct in that you have to add values to the carcass also but you obviously have some more expenses too. Those values are hide, edible and inedible ofal (excluding SRM removal) which would include tongues, livers, tails, rectums, etc. Not sure if tongues, livers, and rectums are included in SRM removal? I believe brains and spinal columns are.

Don't know about the US, but many of those hides become profit items for the packer, not expense items. Ofal is usually sold for cheap dog and cat food, from my understanding. Tongues used to go into weiners, rectums for fido chow. Some liver gets consumed, the rest goes for burger and other processed meat foods (Can anyone say McCain hungry man dinners). The packing plant gets paid for 80% of the animal (and I'm trying to check on this number. I think its even higher now). The other 20% is waste that costs the packer for disposal.

The fact that you changed your RED MEAT YIELD from 50% to a more reasonable 36%, the fact that you added SRM removal costs, and the fact that you have added processing costs from your original $663 dollars proves your whole hypothesis was based on speculation. Heck, your "PERCEIVED" profits have dropped from $663 to $93.

Again, I made an error on the red meat yield. I don't think 36% would be close on an animal that went to hamburger, but I'll get firm numbers when I survey the butcher shops. The $397 and some odd cents that I had left after correcting the red meat yield was GROSS profit for the packer, with ZERO speculation. After that, I started working on net profit using your numbers. We got down to $93 net profit, and I was asking you to give me more deductions off that.

But we can fire and massage numbers all night. Like I said, as I have the time, I'll make the proper calls and get firm numbers. It'll be Canadian numbers, as I have virtually no contacts within the US.

Seriously, there is more trim than you would expect. Clots, lesions, bruises, extra fat, irregular shaped meat pieces, etc.

When I was a teenager, I worked in a grocery store that had its own butcher shop. They brought in cheap sides of beef, which I unloaded for them, and I used to cart the trimmings and waste home for my dogs. On 4 sides of beef, I used to get a part of a banana box full to drag home. About 30 pounds. These were cheap, oversized sides, so there isn't that much trimming waste with a good butcher.

Rod

 

[fedup2]

{SH writes: "I am simply point out to you that the AVERAGE packer profits reported to GIPSA for the 5 major packers through the 90's was $3.88 per head. That has nothing to do with retail profits."}

Do you put much weight on those voluntary reported numbers from the 90s SH? The following is from the GAO:

"For many years, producers have relied on the U.S. Department of Agriculture's (USDA) livestock market news reports, which until 2001, were based on livestock sales information obtained voluntarily from producers, packers, feedlot operators, and others. However, over the past several decades, producers and packers increasingly have made livestock sales through contracts that were not covered in USDA's livestock market news reports. By 1999, about 35 percent of cattle and 60 percent of hogs were sold through such contracts. "
--------------------
I would think that with 35% of cattle marketed not even figured, the reported numbers would be pretty much worthless. Am I missing something here?

{SH writes:"Besides, GIPSA has access to the financial records of these large packing companies. Did that stop the conspiracies? Of course not."}

I don't have any answers SH, but I wouldn't use access or monitoring by the USDA or GIPSA as proof of anything. More from the GAO site.

"Furthermore, GAO found that GIPSA monitors cattle and hog markets by analyzing publicly available livestock market news reports—an approach that has limitations because it lacks the company-specific information that would be useful for detecting anti-competitive behavior. "
---------------------------

"In addition, GAO found the accuracy of USDA's livestock market news reports is not fully assured. About 64 percent of 844 USDA audits of packers—conducted over 36 months ending in April 2005—identified packers' transactions that were inaccurately reported, unsupported by documentation, or omitted from packers' reports. "
----------------------

Just trying to share a little information in an excellent discussion. Thanks all.

 

[DiamondSCattleCo]

1) Rod you said your effeciencies have gotten better but return per animal has dropped. You say the packers must be to blame for that, as middlemen.

Has your utilities, insurance, fuel, twine, repairs, medicine, vaccines, living expenses gone up?

2) If we use Randy's example of getting underbid by Cargill, what can be learned?

3) Back to costs, I have talked with guys in a big cattle area (Brooks) and their costs are so high compared to mine they shouldn't even try to compete, but they say they are too old and dumb to do anything else but run cows. At least they are looking at their costs.

1) <chuckle> I saw that coming. Of course, typical inflationary pressures has pulled everything higher. Again, not enough to completely make up for my missing profit/head. But since inflation is pushing up the prices of everything else, why hasn't it pushed up the price of my feeders?

In a "perfect free market", an increase in production efficiency should translate into increased disposable earnings. I dunno if you remember what you and I were discussing in a thread a couple weeks back, but I was disappointed that the world had changed to the point where my family could run half as many animals and have a better standard of living 30 years ago.

I've increased production efficiency to the point where I can run twice as many animals at the same or less work load, grow them to be 40% bigger in 10% less time, yet my profit/animal is shrinking all the time.

I wish producers weren't so damned hard headed. Its tough to get 5 producers into a room and have them agree on 5 things ag related. We should be price makers, not price takers. If all the cattlemen banded together and formed 4 or 5 producer co-ops (better make it 4 or 5 to "preserve" competition) and forced the packers to deal with us, we'd be much stronger and the packers would then learn it takes more than 4 or 5 entities in a large market like this to be truly competitive.

2) I'm staying away from Randy's situation, as I haven't followed it. I would be curious what kind of quality guarantee Cargill was offering, and whether they lived up to their end of the deal. It sucks being underbid by an inferior quality good, especially when the only reason they were able to underbid was economies of scale. Randy, do happen to know what the bid price was? Any chance of price leading?

3) If all we concentrate on is efficient production, we'll be in serious trouble. People need to eat, and since world population isn't exactly shrinking, we need all the food production we can get our mitts on. Maybe not today, but in the not so distant future? I watched Grey's Anatomy tonight. You can't live on paper.

Rod