Downwards Price Pressures Of Cash Basis Contracts

[pknoeber]

Could Tyson take a $500,000 hit to their books? Yes. How many feeders could do the same? Not many.

Yes, Tyson can take that hit. But how many feeders does Tyson buy from? As a SWAG I'd say at least 50. Now they each take a $10,000 hit. Do you finance any $5 million operations that can't take a $10,000 hit?

Reletive costs are different for each feeder and each packer.

Exactly. And a competitive market place will easily identify the true low cost producer. It's incredibly easy to identify the low-cost producer in any industry. They're the ones with the largest market share. They acheive this b/c they can sell their product cheaper than anybody else.

Right now we are in a state of flux b/c we're caught in the transition period. What everybody needs to do is identify where their operation fits in the industry and start working to position it for the future. Not fight to bring the past to the present.
I'd bet that your bank's operations/structure only vaguely resembles what it was in the 1970s, but nobody's screaming there. That's b/c it's understood that it's a business & not a lifestyle. The business of cattle is changing & that's the nature of everything in life.

You are also forgetting that feeding cattle longer put more pounds on the market, which has a negetive effect on prices.

Very true and a good point. An example of the unique nature of perishable products. But that's the business that everybody involved has chosen to be in, so they should know the pitfalls of their decisions.


And Sandhusker I'd like to add that it's nice to be able to read your posts and easily identify your arguments & not have to wade through all the personal attacks. I do appreciate reading your posts, if everybody always agreed it sure would be boring! :wink:

Phil

 

[Sandhusker]

Phil, "Yes, Tyson can take that hit. But how many feeders does Tyson buy from? As a SWAG I'd say at least 50. Now they each take a $10,000 hit. Do you finance any $5 million operations that can't take a $10,000 hit?"

You've got a point.

Phil, "Exactly. And a competitive market place will easily identify the true low cost producer. It's incredibly easy to identify the low-cost producer in any industry. They're the ones with the largest market share. They acheive this b/c they can sell their product cheaper than anybody else."

I'd say competition identifies the low cost guy to a point. It works if you have a truly competitive system. Cow/calf yes, feeders yes, packers no. The truth is that you don't have to be competitive to gain market share, you can buy it. Look at Tyson. They had 0 marketshare before they bought IBP.

Phil, "I'd bet that your bank's operations/structure only vaguely resembles what it was in the 1970s, but nobody's screaming there. That's b/c it's understood that it's a business & not a lifestyle. The business of cattle is changing & that's the nature of everything in life."

I'll agree with you on the changes. Generally, however, the changes have been positive and reflective of correcting problems, adapting and using new technolgies, etc... Most changes have also been internal. I see many changes in the cow business being caused by external factors and being non-beneficial.


Phil, "And Sandhusker I'd like to add that it's nice to be able to read your posts and easily identify your arguments & not have to wade through all the personal attacks. I do appreciate reading your posts, if everybody always agreed it sure would be boring!

Thanks. I also appreciate your civility. I don't see how anybody can use childish name calling and expect any degree of credibility.