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Sandhusker

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Marketing agreements with a base price tied to a cash market price drives prices down. This is a very basic Econ 101 showing captive supply causes lower prices, and not merely coincidental. Consider this simple arithmetic using an IBP (now Tyson) cattle buyer statement to OCM Vice President and cattle feeder Randy Stevenson in 2002:

“… an IBP cattle buyer … looked at high quality cattle we had on our show list for sale. The market was about $66/cwt in the cash market, based on live weight. (He) was very complimentary of our cattle’s quality. He said his hands were tied and he could not offer more for the cattle, despite their above average quality. (He) said ‘In the old days I would have been able to offer $67.50 for these cattle, but now paying more would screw up 20,000 formula cattle.’ It was completely clear to me that (the buyer) was telling me paying a higher price for out cattle would influence prices for cattle bought on a formula contract basis, off the cash market, before the transaction involving our cattle occurred. We lost money in this deal because IBP would not allow its buyer to engage in competitive bidding.”

Suppose that the base price for the 20,000 formula contract cattle was the “top-of-the-market” price. We know such contracts exist. Also suppose that another packer – maybe a very small but competitive packer – had already established the weekly top-of-the-market price at $66.00. If the Tyson buyer pays Randy an additional $1.50/cwt ($18/head) for his pen of 1,000 high quality cattle, then the “additional cost” is the extra $18,000 for Randy’s cattle, plus an extra $360,000 on the 20,000 head of formula cattle. Paying Randy an extra buck fifty on 1,000 head would have cost Tyson an extra $378,000. Offering $67.50 for Randy’s 1,000 high quality cattle in a market with captive supply is the equivalent of offering $117.00/cwt in a cash market without captive supply – both increase Tyson’s cattle costs $378,000.

Captive supply contracts provide packers committed cattle so they are not as hungry to increase bids to fill out their plant capacity, and also create extreme incentives to underbid, costing Randy $18,000 in this illustration and gaining Tyson $378,000. In the jargon of economics, marginal cost of slaughter cattle is higher to the buyer because of the marketing agreements tied to cash price, thus causing cash price to be lower than it would without such captive arrangements. Buyers get it. Independent sellers get it. Why some pundits don’t “get it” remains a mystery. CRT


Cause and Effect - Problem with Base Price Tied to Cash Price: “In the old days I would have been able to offer you $67.50 for these cattle (on a $66 market), but now paying more would screw up 20,000 formula cattle.” Statement made by an IBP cattle buyer to Randy Stevenson, Sept. 17, 2002

___________________

Illustration of the Problem: Base Price Tied to Cash Price

Suppose that the base price for the 20,000 head of formula cattle was the top-of-the-market price
Suppose that the top-of-the-market price had already been established at $66 by another packer
If the buyer pays Randy an additional $1.50/cwt for his pen of 100 high quality cattle
- Then the “additional cost” is NOT just the extra $1,800 for Randy’s cattle
- But an extra $360,000 for the 20,000 head of formula cattle
- Paying Randy an extra $1.50 on only 100 head would have cost IBP an extra $361,800
___________________

Illustration of the Problem: Base Price Tied to Cash Price

If IBP had paid Randy $67.50/cwt in a cash market without captive cattle, the total cost to
IBP would have been $81,000.
But because of the captive cattle, the cost to IBP for Randy’s cattle (at $67.50) would have
been $361,800.
- Cost of Randy’s cattle to IBP would have been $301.50/cwt, not $67.50/cwt
Effect: Softens bids, causes lower cash prices
 

the chief

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Do you suppose people are scurrying to NCBA and AMI headquarters to get a response? :wink:
 

Mike

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the chief said:
Do you suppose people are scurrying to NCBA and AMI headquarters to get a response? :wink:

They'll just call it a deceptive diversion. :wink:
 
A

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Mike said:
the chief said:
Do you suppose people are scurrying to NCBA and AMI headquarters to get a response? :wink:

They'll just call it a deceptive diversion. :wink:

Almost 12 hours and still no response- making the NCBA and AMI boys put in a late shift :wink: Past my bedtime so I'll check to see what they dreamed up tommorrow...

My guess is "everyone" is a LIAR and a BWWWWWWWWWAAAMMMEEERR :lol: :lol:
 

ocm

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It's hard to respond to evidence of things that happen when they "don't really happen that way."

I remember being told about this shortly after it happened. It's real. It was put into written form shortly after it happened to preserve the accurate memory of it.

Spoken by a Tyson buyer, what else can be added.

This is the way it works!!
 
A

Anonymous

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I better bring this back to the top- still waiting for the other side.....
 

Andy

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If Randys cattle are so good that he thinks he should get a $1.50 over the market, why not sell on a grid and make even more?
 

TimH

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Quote(from the article)- "It was completely clear to me that (the buyer) was telling me paying a higher price for out cattle would influence prices for cattle bought on a formula contract basis, off the cash market, before the transaction involving our cattle occurred. "

I just have a question...... Is the basis for contract cattle derived from NEXT week's cash price, or LAST week's cash price???
The above quote would seem to indicate that it is derived from NEXT week's cash price. Is that how it works?? Are the cattle contracted,one week, and then the basis is set the following week when that week's cash price is known??? :???:
 

RobertMac

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Let me be SH...

All marketing agreements are based on the Futures market!

You got nothing, you bunch of packer blamers!!!!!

...Now do y'all feel better? :wink: :lol:
 
A

Anonymous

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Just look at the desperation in you packer blamers. You post something so elementary and so easily refuted and you think you have finally found the gold strike. LOL!

What a bunch of followers!

If I have learned one thing from these debates it's the extreme lengths that packer blamers will go to have someone or something to blame for lower cattle prices. I didn't believe it was as bad as it is. I thought most producers would want to know the truth.

The normal supply and demand factors that absolutely drive cattle prices are never even discussed in the realm of packer blaming or import blaming.

I suppose this will be puzzling scientists for years.


Quote: "Marketing agreements with a base price tied to a cash market price drives prices down."

The very first statement in the post is false.

Does anyone want to bet me $100 that I can prove that there is just as many times where the formula/grid price is lower than the the following week's cash market?

You packer blamers are all patting yourselves on the back thinking you have found a new weapon and you didn't even get past the very first sentence. LOL!

Unless the formula/grid pricing is always higher than the cash price, the adverse would also have to be true.

For every time that marketing agreements with a base price tied to a cash market price drives prices lower, marketing agreements with a base price tied to a cash market price drives prices higher.

$100 ........any takers?

The bet is that I can prove where the formula/grid price was lower than the cash price the following week?

Hey, COME BACK, WHERE ARE YOU GOING?

THIS IS ONLY THE FIRST SENTENCE!


“… an IBP cattle buyer … looked at high quality cattle we had on our show list for sale. The market was about $66/cwt in the cash market, based on live weight. (He) was very complimentary of our cattle’s quality. He said his hands were tied and he could not offer more for the cattle, despite their above average quality. (He) said ‘In the old days I would have been able to offer $67.50 for these cattle, but now paying more would screw up 20,000 formula cattle.’ It was completely clear to me that (the buyer) was telling me paying a higher price for out cattle would influence prices for cattle bought on a formula contract basis, off the cash market, before the transaction involving our cattle occurred. We lost money in this deal because IBP would not allow its buyer to engage in competitive bidding.”

I'm assuming the words "out cattle" was a typo. I am assuming that "out cattle" should have read "our cattle". I'll proceed based on that assumption. Since Randy was dealing in the cash market, he shouldn't have any "out cattle" which is a term used for those cattle that do not fit a particular grid.

This paragraph is even easier to refute than the opening statement.

Randy has no idea what he's talking about. Unlike Econ., OCM, or Sandman, I'll not just say that Randy Stevenson doesn't know what he's talking about IN THIS PARTICULAR SENTENCE, I'll prove it beyond the shadow of a doubt.

Randy's words were "....a higher price for our cattle WOULD INFLUENCE prices for cattle bought on a formula contract basis, off the cash market, BEFORE the transaction involving our cattle occured...."

Based on Randy's "BEFORE the transaction involving our cattle occure", I have to assume that Randy believes that last week's formula cattle are based on this week's cash cattle sales price. This is absolutely false.

READ THIS VERY CAREFULLY GUYS.....The formula cattle price is based on the weekly weighted average THE WEEK PRIOR, NOT THE WEEK FOLLOWING.

On the other hand, if Randy is referring to next weeks formula cattle (20,000 head), which are based on this week's cash price, WHICH I AM QUITE SURE HE'S NOT, those formula cattle are not even purchased yet so how can this weeks cash purchases SCREW THEM UP? IBP has no idea how many cattle they are going to get bought next week on the formula.

I have to assume that Randy is simply mistaken on how formula cattle are priced.

Randy is a heck of a guy when it comes to supporting our troops but he doesn't know what he's talking about on formula cattle pricing.

I'll ask anyone to refute the fact that this weeks formula cattle base price is based on the average price of the cash market the week prior.

Another problem is that this statement is made as if ibp was the only buyer out there. I don't know a single large feedlot in Nebraska that hasn't sold cattle to Swift, ibp, and Excel.

What is far more likely is that ibp already had last weeks formula cattle scheduled for slaughter for this week's delivery. If ibp goes out and buys more cattle at $67 in the cash market, they are going to have to reschedule the formula/grid cattle for slaughter. Hence "screwing their slaughter schedule up on 20,000 cattle.

That makes perfect sense!

This goes right back to suggesting that a company lowering it's price after their needs are met, is market manipulation.

Did you guys honestly believe you had a winner this time?

The fact that last weeks formula cattle were based on the weekly weighted average of the cash price THE WEEK PRIOR, the fact that next weeks formula/grid cattle are not even purchased yet, the fact that there is two other major buyers for Randy to sell to (particularly Swift in Greely, CO), and the fact that next weeks cattle could be bought on the cash market as an alternative to the formula/grid absolutely absolutely shatters Randy's speculation.


Quote: "Suppose that the base price for the 20,000 formula contract cattle was the “top-of-the-market” price. We know such contracts exist. Also suppose that another packer – maybe a very small but competitive packer – had already established the weekly top-of-the-market price at $66.00. If the Tyson buyer pays Randy an additional $1.50/cwt ($18/head) for his pen of 1,000 high quality cattle, then the “additional cost” is the extra $18,000 for Randy’s cattle, plus an extra $360,000 on the 20,000 head of formula cattle. Paying Randy an extra buck fifty on 1,000 head would have cost Tyson an extra $378,000. Offering $67.50 for Randy’s 1,000 high quality cattle in a market with captive supply is the equivalent of offering $117.00/cwt in a cash market without captive supply – both increase Tyson’s cattle costs $378,000."

The opening line in this statement is so easily refuted.

Once again, next weeks formula price will be based on this weeks cash price. If Randy would have received $67.50 for his cattle, that would affect the formula price for next week, NOT LAST WEEK.

Go ahead, any one of you try to refute this point. You won't because you can't.

Next week's feeders have the cash market as an option to the formula market. ibp doesn't care how they get the cattle bought, just so they get enough cattle bought to fill their slaughtering schedule.

If Randy would have sold his cattle at $66 in this weeks cash price and $66 was the bid the entire week, $66 would also be the base price for next weeks formula base price. That is a fact!

With that in mind, how could next weeks formula cattle receive "top-of-the-market price"?

Another conspiracy theory absolutely shattered by the facts.


Quote: "Captive supply contracts provide packers committed cattle so they are not as hungry to increase bids to fill out their plant capacity, and also create extreme incentives to underbid, costing Randy $18,000 in this illustration and gaining Tyson $378,000."

Certainly when ibp has a large portion of their needs already filled there will be less incentive to pay the same amount for the balance of their needs. That is simple economics. Any company is more aggressive in pricing when their needs have not been fulfilled.

What's so revolutionary about that? Call another packer, perhaps they don't have their needs filled yet.

Many has been the time when I would call packer A and receive a bid then call packer B and receive a higher bid. The next time, packer A might have the higher bid. Depends on who is needing cattle the worse.

This is not rocket science and it damn sure isn't market manipulation.

If it was, every time the price dropped off at the end of a salebarn feeder calf sale as buyers met their needs, this would be considered market manipulation.

Why do you think ranchers are always upset when their cattle sell late in the sale? MARKET MANIPULATION!

Randy is totally wet on his $378,000 figure based on the simple fact that formula cattle are priced on the weekly weighted average of the week prior, not the week following.


Come on guys, is this all you got?

I challenge any one of you packer blaming followers to contradict anything I have stated in this post.

Now don't get angry just because another of your conspiracy planes was shot down in flames from the truth. You always have eachother for support. LOL!

NEXT!



~SH~
 
A

Anonymous

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RM: "All marketing agreements are based on the Futures market!"

That is a lie Robert Mac. I never said that.

I said MOST forward contracts are based on the futures market, not "marketing agreements".

How many times have I pointed out that the base price for formula/grid marketing agreements is based on the weekly weighted average of the cash market the week prior?

I just said it again in the last post.


The drunks just keep staggering back into the bar to take another beating with the facts.

They have the right to remain silent but they do not have the ability.

NEXT!


~SH~
 

Sandhusker

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Nice try, SH. I expected a whole page of divertionary gargly-gooble that would make Johnnie Cochran proud and we certainly got it.

You spend how many sentences and fragmented paragraphs trying to make an issue on which week prices would be affected, but it doesn't really matter. You're just trying to divert attention from the facts and confuse the issue. Here is the quote from the IBP buyer, "‘In the old days I would have been able to offer $67.50 for these cattle, but now paying more would screw up 20,000 formula cattle."

Whatever week the formula cattle get screwed up doesn't matter. What matters is the fact that they do.
 

Sandhusker

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SH, "Certainly when ibp has a large portion of their needs already filled there will be less incentive to pay the same amount for the balance of their needs. That is simple economics."

OK, we have a basis to start from.

1) Does Tyson fill a large portion of their needs thru marketing agreements that have a price tied to the cash price of cattle? Yes / No

2) We already agree that when they have a large portion of their needs met, they have less incentive to pay the same amount as they have paid previously. We can move on.

3) Let's complete the circle. They now bid less because their needs are less. They also know not to bid over the established high as that will raise the cost of the contracted cattle that are based on the spot. Now, isn't it ovbious that the tool being used to lower cash prices is the marketing agreement, which is what Pickett was claiming all along?

This isn't rocket science - it's simply "connect the dots", and there aren't many dots to connect.
 

Beefman

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Sandhusker said:
Marketing agreements with a base price tied to a cash market price drives prices down. This is a very basic Econ 101 showing captive supply causes lower prices, and not merely coincidental. Consider this simple arithmetic using an IBP (now Tyson) cattle buyer statement to OCM Vice President and cattle feeder Randy Stevenson in 2002:

“… an IBP cattle buyer … looked at high quality cattle we had on our show list for sale. The market was about $66/cwt in the cash market, based on live weight. (He) was very complimentary of our cattle’s quality. He said his hands were tied and he could not offer more for the cattle, despite their above average quality. (He) said ‘In the old days I would have been able to offer $67.50 for these cattle, but now paying more would screw up 20,000 formula cattle.’ It was completely clear to me that (the buyer) was telling me paying a higher price for out cattle would influence prices for cattle bought on a formula contract basis, off the cash market, before the transaction involving our cattle occurred. We lost money in this deal because IBP would not allow its buyer to engage in competitive bidding.”

Suppose that the base price for the 20,000 formula contract cattle was the “top-of-the-market” price. We know such contracts exist. Also suppose that another packer – maybe a very small but competitive packer – had already established the weekly top-of-the-market price at $66.00. If the Tyson buyer pays Randy an additional $1.50/cwt ($18/head) for his pen of 1,000 high quality cattle, then the “additional cost” is the extra $18,000 for Randy’s cattle, plus an extra $360,000 on the 20,000 head of formula cattle. Paying Randy an extra buck fifty on 1,000 head would have cost Tyson an extra $378,000. Offering $67.50 for Randy’s 1,000 high quality cattle in a market with captive supply is the equivalent of offering $117.00/cwt in a cash market without captive supply – both increase Tyson’s cattle costs $378,000.

Captive supply contracts provide packers committed cattle so they are not as hungry to increase bids to fill out their plant capacity, and also create extreme incentives to underbid, costing Randy $18,000 in this illustration and gaining Tyson $378,000. In the jargon of economics, marginal cost of slaughter cattle is higher to the buyer because of the marketing agreements tied to cash price, thus causing cash price to be lower than it would without such captive arrangements. Buyers get it. Independent sellers get it. Why some pundits don’t “get it” remains a mystery. CRT


Cause and Effect - Problem with Base Price Tied to Cash Price: “In the old days I would have been able to offer you $67.50 for these cattle (on a $66 market), but now paying more would screw up 20,000 formula cattle.” Statement made by an IBP cattle buyer to Randy Stevenson, Sept. 17, 2002

___________________

Illustration of the Problem: Base Price Tied to Cash Price

Suppose that the base price for the 20,000 head of formula cattle was the top-of-the-market price
Suppose that the top-of-the-market price had already been established at $66 by another packer
If the buyer pays Randy an additional $1.50/cwt for his pen of 100 high quality cattle
- Then the “additional cost” is NOT just the extra $1,800 for Randy’s cattle
- But an extra $360,000 for the 20,000 head of formula cattle
- Paying Randy an extra $1.50 on only 100 head would have cost IBP an extra $361,800
___________________

Illustration of the Problem: Base Price Tied to Cash Price

If IBP had paid Randy $67.50/cwt in a cash market without captive cattle, the total cost to
IBP would have been $81,000.
But because of the captive cattle, the cost to IBP for Randy’s cattle (at $67.50) would have
been $361,800.
- Cost of Randy’s cattle to IBP would have been $301.50/cwt, not $67.50/cwt
Effect: Softens bids, causes lower cash prices


Sandhusker, I of course will take great issue to this post. I know Randy S is a fine person. If he said this is how the conversation went, fine. If the ibp buyer actually said he can’t offer more because "it screws up pricing on 20k head of formula cattle"…….poor choice of words.

However, the math and wrap up comments of “the effect is this (captive supply / formula cattle) softens bids, and causes lower cash prices” is incorrect. Anytime the word "suppose" and "maybe" is used as many times as this argument, the scrutiny will be heavy.

As of Sept 17, 2002, live cash prices and the CH / Sel spread had increased 6 of the previous 7 weeks. Looks like ibp did a pretty poor job of depressing live prices leading up to 9/17/02. For your assumptions to be correct, you have to assume the ibp buyer was NOT negotiating with Randy. You don’t know that, nor the current dynamics that were in place…..other packers bidding on the cattle, etc. Beauty lies in the eye of the beholder, and top quality to Randy may not be what the buyer had in mind. There’s lots of good looking cattle out there that producers expect to grade 80% CH, and the buyer knows from previous experience they don't won't hit 50. Instead of wasting time arguing about live animal quality, just price yourself out of the market. Case closed. Isn’t the job of the buyer to get the targeted cattle as cheaply as possible?

The single greatest error and where the argument looses creditability is the assumption that a “top of the week” bid on 1000 head triggers that same price on 20k formula cattle. You can’t possibly believe that ibp would have a procurement practice in place where the price on 1000 cattle means 20k also get that same price. If this was so, who wouldn’t want to sell formula? You have no idea how ibp mathematically arrives at a formula price. Randy also has two closer plant options, Swift at Greeley, CO and Excel at Ft Morgan. CO IBP at Lexington, NE is a good distance from Wheatland WY. Clearly, ibp has lots of cattle options closer to Lex than Wheatland. Whether you're buying green beans, corn or cattle, the farther from home you are, you have to consider freight, and adjust your bids accordingly.

Beefman
 

Sandhusker

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First of all, Beefman, the buyer said what he said. Who knows how IBP was situated that week with contracts or whatever, but the buyer clearly had his hands tied because of them.

I expected SH to come up with the "sell to the competition" arguement. He's about the only one who claims there is competition. Here's the way I see it, Beefman. IBP (Tyson now) is clearly the big boy in buying fats and everybody knows it. Because of their size, they can't help but move the market either way whatever they do. You can bet their actions are watched closely and heavily scrutinized by everybody - buyers and sellers alike. Everybody knows what they are bidding and can figure out where their top is. If you're Swift and you know the outfit that buys 1/3 of all the fats is not going to give anybody more that $66, and you're trying to buy as cheap as possible as well, why would you bid any more?

I watched the K-St. game last week. Geeeeeeeze. Snyder better have spent most of last week in church, because for as many bullets as he dodged, my only explanation is divine intervention!
 

HAY MAKER

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Beef man,are you gonna start that Kansas State Bool Sheist again this year? :D :D ...........good luck
 

Beefman

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Sandhusker said:
First of all, Beefman, the buyer said what he said. Who knows how IBP was situated that week with contracts or whatever, but the buyer clearly had his hands tied because of them.

I expected SH to come up with the "sell to the competition" arguement. He's about the only one who claims there is competition. Here's the way I see it, Beefman. IBP (Tyson now) is clearly the big boy in buying fats and everybody knows it. Because of their size, they can't help but move the market either way whatever they do. You can bet their actions are watched closely and heavily scrutinized by everybody - buyers and sellers alike. Everybody knows what they are bidding and can figure out where their top is. If you're Swift and you know the outfit that buys 1/3 of all the fats is not going to give anybody more that $66, and you're trying to buy as cheap as possible as well, why would you bid any more?

I watched the K-St. game last week. Geeeeeeeze. Snyder better have spent most of last week in church, because for as many bullets as he dodged, my only explanation is divine intervention!

Yes, Tyson is the largest. There size does NOT mean there's not competition out there. In past three years, there's probably been just as many weeks someone other than Tyson led the charge on trading live cash cattle. When "trading starts", everyone else falls in line, and it's over quick. The competition is very stiff, and the regulation and government invervention is as heavy as any ag industry there is. Nor do any of us know the dynamics of the negotiations between Randy / Tyson. He could've gotten flat out marketed.

Yes, KSU tried to give the game away last Sat against Marshall. Fortunately, Marshall wanted to give it away worse, so we won a butt ugly game. I guess winning butt ugly is better than loosing pretty.

BTW, it was good to see the Huskers actually score an offensive touchdown against WF. The kinda forgot to do that against Maine.

KSU has the day off tomorrow.....N TX State next week, then OU the following.

Have a good w/e.

Beefman
 

Beefman

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HAY MAKER said:
Beef man,are you gonna start that Kansas State Bool Sheist again this year? :D :D ...........good luck

Sure! Why not? We beat each other up over everything else, why not football?

BTW, which Jr college team do you cheer for? Are you an Aggie or Horn? Or do you just cheer at the game at Huntsville when you return for family reunions?

Every man a Wildcat.

Beefman
 

Econ101

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SH, You still have not answered my questions about the perjury or lying charge that you made on both Mikes. Did you perjure yourself on this forum?

Please answer with an answer that contains more than, "You can eat dirt."

Exact words of the testimony will you described will do. If you do not have the transcripts of the trial then maybe you can get them from someone else.

Your credibility is at steak or are you chicken?
 

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