Question for MWJ and SH

[RobertMac]

I'll be your huckleberry...

1) What happens when Packer G drops their bids in the system?

They get no cattle bought

2) What happens when Packer A drops their bids in the system?

They buy the bottomend(quality) cattle

3) What happens when the supply increases to 60,000 fats? Supply is now outstripping demand.

Everyone gets their cattle bought at lower prices

4) Assuming supply increases to 60,000 fats, what happens when Packer G drops their bids?

They buy the bottomend(quality) cattle

5) Assuming supply increases to 60,000 fats, what happens when Packer A drops their bids?

They buy the bottomend(quality) cattle

RM, I would expect more from you. What in the world makes you think a packer buys the bottom-end of the cattle? There is a distinct difference between "live" cost and "dead" cost. Most times the highest "live" cost cattle are the cheapest "dead" cost cattle. Also the so called bottom-end cattle may not fit into his product line at all. Does he give that meat away if it is not to specs which most often are set by the product buyer? I know of no packer who buys cattle to purposely have the highest dead cost; the opposite is true. If you know of one please feel free to inform all of us readers who it might be. You might present some real facts to support your answer.

At the present time the lowest "dead" cost cattle are in the north.

Agman, my answers are based on one premise...the buyer willing to pay the highest price gets choice of cattle.

Although this thread may be interesting, the truth is that adding value by turning live cattle into a sellable product to the consumer is where money is made in this industry. If this were not true, there wouldn't be the concentration there is in this segment and processors would gladly be custom processing beef for someone else to lose money on.

 

[RobertMac]

The poblems faced in marketing beef are numerous and complex once you learn anything about marketing to consumers.

True, but on the other hand, consumers are "numerous and complex"...isn't the 'art' of marketing matching the consumer to the product?

 

[Sandhusker]

The poblems faced in marketing beef are numerous and complex once you learn anything about marketing to consumers.

True, but on the other hand, consumers are "numerous and complex"...isn't the 'art' of marketing matching the consumer to the product?

Unless you're the USDA! :roll: :lol:

 

[RobertMac]

2) Depends. Are the producers direct marketing to retailers, or to consumers?

Doesn't matter if sales are to end consumer, retail, or food service...producers will be selling the end product and thereby, reaping the benefits of added value!

RM, you have some great points here. Do your, or anyone else, have information on how much beef currently is being marketed direct to either retailers, food service, or consumers right now? And how much is in the pipeline, so to speak, with more producers getting into alliances doing just that?

MRJ

I have no idea, but I know the vast majority(or all) of direct market is something other than commodity beef.

 

[RobertMac]

2) Depends. Are the producers direct marketing to retailers, or to consumers?

Doesn't matter if sales are to end consumer, retail, or food service...producers will be selling the end product and thereby, reaping the benefits of added value!

Robert, I believe Jason was asking who would be hurt, versus who would be helped.

I think feedlots would suffer the most, as they are the true middlemen in our business. If producers sell direct to consumers, the retail industry will feel the bite, especially if it ever gets close to the 40% number that you're mentioning. Packers probably won't notice much of a sting. They'll be losing some of their value add of course, but the producers still need to have their stock slaughtered, cut and inspected which will need to happen at federally inspected plants. You can bet the packer doing the custom cutting is going to add a healthy percentage profit to the cutting costs, and as such, recoup much if not most of their value add loss.

Rod

Rod, I don't think feeders would suffer...some still has to finish the cattle(unless it is done on the ranch...which would be a good marketing point). Retail won't hurt...product still has to be distributed and most consumers don't see the value of buying a half year or years supply at one time. Commodity packers should feel the bite because, if done right, producer marketed cattle would come out of the higher quality cattle. The barrier to getting to 40% is processing capacity.

 

[Jason]

RM, on the profit side, is it easier for a producer to extract the added value by retailing beef or would it be easier for him/her to produce more cattle?

My answer is by adding more cattle.

If we are in a static demand, either someone else produces less so the volume stays the same, or the price reduces to absorb the extra volume so cost per unit has to decrease to maintain the same level of profit.

 

[agman]

You specifically stated that packers could move their entire capacity.

Now your trying to make a case that a packer will step out of the market, without their needs met for that period just to burden the supply side?

Why would a business step away from what they do to earn income? The only reason as has been explained many times is if they are losing money and it is cheaper to slow the chain than lose the money.

The chains rarely slow down. If beef is moving out the back door it is often cheaper for a packer to sustain short term loss on the cattle they buy (or feed) rather than slow the chain.

How am I pro packer biased because I understand the basics of how they operate and can understand them not wanting to lose money? I thought that was a very simple concept.

I said packers had demand for their entire capacity. I did NOT say that a word about live animal exports and I SPECIFICALLY stated that exports could not increase more than 10% past current levels. When asked to defend that assumption, I stated that current trucking capacity couldn't handle more than a 10% increase.

You're trying to confuse the issue.

You used to be a trucker, or at least I took some of your other posts as though you were. Do you remember the grief it was to obtain trucking permits and licensing for cross border operations? Many truckers don't bother these days, since they can get all the interprovincial hauls they need without incurring additional expenses on cross-border stuff. Hence the trucking shortage causing export grief. And other truckers are leary of the cross-border animal trade since BSE. Live animal exports can't increase all that much due to the shortage of veterinary staff.

I'm assuming that the packer is backing away because they are full from their own owned cattle, not just to increase the supply side. You even said yourself in the other thread that packers will back out of the market occasionally due to full chains. No conspiracy theory here. There are days when a packer just isn't buying. In a two packer marketplace, this is bad news for anyone who wants to sell that day.

I know you think that packer owned cattle are all reported to Canfax and are part of the known supply side, but I know different. I know one of the Mennonites who are currently feeding 2500 head, and my father delivers fuel to another producer who is currently feeding 1500 head. These guys aren't registered feedlots, and in the case of the Mennonite who has no phone, I'm not sure how Canfax would even contact him.

You are pro-packer biased because you won't even consider requiring the packers to report how many head they own and have on feed. This won't cause them to lose money, and would force them to deliver the same information as is required by feedlots in Canada. I don't think levelling the playing field is asking for much, and if they refuse, THEN I say we yank their ability to own stock, period.

So how about it Jason. What happens to the prices when a large packer pulls his bids, in what is essentially a two packer marketplace, and it results in an oversupply situation? What if the system is already oversupplied, then what happens?

Rod

The problem with your scenario is that it is a hypothetical with an apparent lack of real world knowledge. In the real world short term supply and demand can change quite rapidly for many reasons that may be unknown to the casual observer. Thus, it is a waste of time to explain one day or one week of price action. However, if you examine price over an extended period of time you will soon learn that a production change in beef explains approximately 96% of the variation in cattle prices. That observation is true whether they are any packer owned cattle or not. There is at least 50 years of history to support my comment.

The market addresses total supply independent of who owns the cattle. Supply determines the price trend while demand determines the price level long term. Point: Understanding what really drives prices, versus meaningless observations and conclusions, puts you well ahead of the crowd.

 

[DiamondSCattleCo]

There is at least 50 years of history to support my comment.

Just out of curiosity Agman, how much of that history is Canadian? How much "real world" knowledge is of the Canadian industry and its trends in the last 30 years? How much of that is in a system with only two major bidders?

I stuck with a single day in the market so the number of variables could be limited, and one single variable could be changed (the number of bids in the system). That is the basis of microeconomic study. Are you saying that microeconomic study is not a valuable tool? I'm certainly not denying that historical reference isn't invaluable when forcasting prices. Indeed, its probably the most valuable tool. But what happens when something with no historical precedence takes place?

With the above in mind, tell me what assumptions I made in my hypothetical that were wrong and showed a lack of knowledge of the livestock industry? Are there not, on a single given day X number of fed cattle looking for a buyer? Are there not, on a single given day buyers who require Y numbers of livestock to service their needs? Is it not true that on a given day, a substantial increase in exports is simply not possible, especially when there are extenuating circumstances? Is it also not true that a buyer will exit the market for a day or two, having had their needs already met?

Bear in mind that during my hypothetical, I asked for absolutely no long term predictions. Again, this is the basis of microeconomic study. Indeed, its the basis of scientific study. Allow only one variable to change and see what the effect is on the system. Allowing multiple variables to change increases the complexity of the experiment, and calls into question the validity of the results, unless the effect of those other variables is already known.

Rod

 

[Anonymous]

Rod: "With the above in mind, tell me what assumptions I made in my hypothetical that were wrong and showed a lack of knowledge of the livestock industry?"

You assumed that a large packer would step out of the market BEFORE their needs were filled creating a surplus of cattle.

You assumed that slaughter numbers were relatively constant instead of considering how packers adjust chains speeds and shifts to account for fluctations.

You assumed that feeders that are currently feeding in Canada were forced to sell in Canada instead of joining those feeders who sell to the United States if it was more cost effective for them to do so.

You assumed that a glut of packer owned cattle would hit the market creating additional supply as if those cattle weren't already considered in normal supply numbers.

Your hypothetical was riddled with assumptions.

Rod: "Are there not, on a single given day X number of fed cattle looking for a buyer?"

Yes!

Rod: "Are there not, on a single given day buyers who require Y numbers of livestock to service their needs?"

Y is not a constant number. Fluctuations in Y can be accounted for with additional shifts and varied chains speeds.

Rod: "Is it not true that on a given day, a substantial increase in exports is simply not possible, especially when there are extenuating circumstances?"

What "EXTENUATING CIRCUMSTANCES" Rod? Are you back to trying to adjust your argument to fit a catastrophe (plant that burns down or bse closing the border)?

Rod: "Is it also not true that a buyer will exit the market for a day or two, having had their needs already met?"

That wasn't your argument Rod. A buyer exiting the market AFTER their needs are already met does not leave an oversupply of cattle when slaughter numbers closely reflect slaughter capacity.

Your argument was that a buyer would step out of the market prior to fulfilling their needs creating an oversupply. Your argument was that packers would slaughter packer owned cattle instead of buying them in the open market as if packer owned cattle were additional to the normal supply numbers. A buyer exiting the market after their needs are met does not create an oversupply. Your changing horses again.


~SH~

 

[DiamondSCattleCo]

1) You assumed that a large packer would step out of the market BEFORE their needs were filled creating a surplus of cattle.

2) You assumed that slaughter numbers were relatively constant instead of considering how packers adjust chains speeds and shifts to account for fluctations.

3) You assumed that feeders that are currently feeding in Canada were forced to sell in Canada instead of joining those feeders who sell to the United States if it was more cost effective for them to do so.

SH, no-one is that stupid so you must simply be a liar and like putting words into peoples mouths.

1) Nowhere did I say that they'd step out of market without their needs being filled. Nowhere. YOU assumed that.

2) Nowhere did I say that processing speed was constant. Again, YOU assumed that. What I said is that each packer was capable of processing X thousands of head per day. I also said that each packer was running close to capacity on that particular day.

3) We're back to export markets SH, and you've already demonstrated that you know nothing about shipping across borders. Besides, I allowed for an export market in my initial questions. Are you blind or just stupid?

Now, let Agman answer the questions. You're not bright enough.

Rod

 

[Anonymous]

Rod: "SH, no-one is that stupid so you must simply be a liar and like putting words into peoples mouths.

1) Nowhere did I say that they'd step out of market without their needs being filled. Nowhere. YOU assumed that."

Really?

Allow me to refresh your memory..........

Jason said: "2) If a large packer in either of your supply numbers is full of their type of cattle, the remaining packers compete for the highest return cattle that are left. The remaining packers need to fill with the best cattle they can get. There are less cattle left and they still need them all."

To which you responded........

Rod (in response to above statement): "2) The packer was never in the market that day."

Rod, if the packer was never in the market that day, how did he get his needs filled and where would the surplus come from?

Your hypothetical stated that if packer A stepped out of the market, it would create a surplus. Where would that surplus of cattle come from if they stepped out of the market after filling their needs?

Rod: "2) Nowhere did I say that processing speed was constant. Again, YOU assumed that. What I said is that each packer was capable of processing X thousands of head per day. I also said that each packer was running close to capacity on that particular day."

Here's what you said Rod.......

Rod: "Since Canfax reports less than 1% packing waste, we're safe to assume that the packers are meeting demand running at their given capacity. Even if this isn't full tilt, in the short run, they can't increase capacity since it takes more than 1 day to hire staff, or even start up shut down machines."

Do I really need to explain to you what you wrote?

What do the words "THEY CAN'T INCREASE CAPACITY" mean to you Rod?

Nowhere did you account for additional shifts and varying chain speeds.

Rod: "3) We're back to export markets SH, and you've already demonstrated that you know nothing about shipping across borders. Besides, I allowed for an export market in my initial questions. Are you blind or just stupid?"

Here's how you allowed for an export market in your initial questions Rod........

Rod: "When responding, assume that exports can and will move around about 10% to accomodate excess supply or excess demand. But never more than 10%, since exports require other static resources that cannot increase on a daily basis (shipping is a big one)."

Yup, you really allowed for it Rod!

Never more than 10% huh?


You better go console Little Sandcheska because I can see how you two can relate to eachother.


~SH~

 

[Sandhusker]

Rod, what led you to believe that you could actually have a rational exchange with SH? Are you back on the sauce? :wink:

 

[Anonymous]

That's ok Rod, even if you change horses, which everyone knows you did and which I just proved with your own quotes, you can rest easy knowing little Sandcheska, "the master of illusion", will be there as your support group because he can relate.


~SH~

 

[DiamondSCattleCo]

1) Rod, if the packer was never in the market that day, how did he get his needs filled and where would the surplus come from?

2) What do the words "THEY CAN'T INCREASE CAPACITY" mean to you Rod?

3) Never more than 10% huh?

1) From already owned cattle being fed in producer lots which don't report to Canfax. I guess your memory is faulty, as that's what spawned this entire thread from the other thread.

2) In a single day they could not possibly ramp up production. Perhaps in a couple days, or a week. I have historical reference if you'd like: When BSE hit, it took over a week for the packers to begin ramping up production. So you think they can do it in a day?

3) And again we're back to you knowing NOTHING about exports and what it takes to export. Prove the 10% wrong. Prove it. Bring some evidence to the table. For once.

We're done SH. You are incapable of understanding the simplest statements and you are no longer worth responding to.

Rod

 

[DiamondSCattleCo]

Rod, what led you to believe that you could actually have a rational exchange with SH? Are you back on the sauce? :wink:

One of my faults is that I'm overly optimistic about people and their capabilities.

Rod

 

[Anonymous]

Rod, what led you to believe that you could actually have a rational exchange with SH? Are you back on the sauce? :wink:

Bad thing is I don't even feel like picking on him or insulting him since his mother said it is a problem of his mental disability.....

 

[Anonymous]

Oh how sweet. The support group of fellow blamers is gathering again to console one another. Won't be long and the topic will once again change to "THE MANNER IN WHICH I POST". The ultimate diversionary tactic from the blaming crowd.

Would you guys like to be alone? LOL!


Rod you are amazing. I showed you exactly what you had said and you ignore it like it never even happened.

Rod:"1) From already owned cattle being fed in producer lots which don't report to Canfax. I guess your memory is faulty, as that's what spawned this entire thread from the other thread."

Already owned cattle would not create a surplus Rod. A surplus is additional cattle.

You clearly said that Packer A was never in the market that day. That was your "supposed" surplus.

Rod: "2) In a single day they could not possibly ramp up production. Perhaps in a couple days, or a week. I have historical reference if you'd like: When BSE hit, it took over a week for the packers to begin ramping up production. So you think they can do it in a day?"

Ramping up production for packer owned cattle and the Canadian/US border is hardly comparable. Your example had nothing to do with bse, it had to do with packers "suppposedly" stepping out of the market which you can't begin to defend.

Packers can increase chain speeds and add additional shifts to accomodate increases in slaughter numbers on a short enough time frame to account for surplus cattle.

Rod: "3) And again we're back to you knowing NOTHING about exports and what it takes to export."

What is so obvious is that many Canadian producers are shipping cattle South. DO THEY HAVE EXCLUSIVE RIGHTS TO THE US MARKET or does any Canadian feeder have that option?

Rod: "Prove the 10% wrong. Prove it. Bring some evidence to the table. For once."

I don't doubt the 10% figure Rod but that's not the issue. The issue is not whether Canadian exports DO increase above the 10% level, THE ISSUE IS WHETHER OR NOT THEY COULD TO ACCOMODATE A SURPLUS.

Rod: "We're done SH."

Obviously we're not done or you wouldn't have asked me to prove the 10%. You really can't keep your stories straight can you?

Let me give you a tip Rod, don't open up your mouth if you don't know what the heck you are talking about. In this case, you don't have a clue.

You're hypotheticals are so riddled with ignorance it's almost sad. This is just like your crediting the entire carcass to a retail beef value without considering the bone and fat. Then you arrogantly try to defend your ignorance by changing horses.

Run away Rod, you are a waste of my time.



~SH~

 

[Jason]

Rod, canfax calling feedlots is not the only way we know fed cattle inventories. In fact as I have stated before, some feeders give false information on the telephone interview.

Number 1 we know the cowherd size.

Number 2 we know weaning ratios.

Number 3 we know auction market numbers.

Number 4 we know average gain.

Number 5 we know export numbers.

Number 6 we know packer capacity and volumes.

Number 7 we know retail volumes.

Number 8 we know cull rates.

Number 9 we know heifer retention rates.

Number 10 we know feedlot capacity.

Number 11 we know average deathloss.

I'm sure there are more, but you hopefully get the idea.

The average rancher with 20-100 cows probably doesn't have a clue, or even give a rat's butt about most of the above.

However people like Agman track all these things so they can make educated guesses about the trends and direction of the markets.

Yes he is based in Colorado, but the Canadian industry has been expanded based on the US model, and affected by US prices.

The system is so similar the new head buyer for a major Colorado packer is a Canadian. I bet very few even knew that.

The packers don't have the ability to make calves disappear out of the system until they need them. Even if they could, you estimated their owned cattle at between 3 and 15%. How can you even make an estimate if you have no numbers to base that off of?

Given the big packers capacity of 5000 hd/ day and let's use 20 kill days per month. That's 1.2 million head per year. 3% is 36,000 15% is 180,000.

3% would be 7.2 days 15% would be 36 days. Somehow they are sharp enough to only buy the calves that will finish exactly on the 7.2 to 36 days the cash market is the highest? And not only 1 packer does that, both major packers do it?

Put those numbers in a spreadsheet and try to determine the odds of them being able to do that. They could win the lottery every week if they could do that.

 

[DiamondSCattleCo]

1) Yes he is based in Colorado, but the Canadian industry has been expanded based on the US model, and affected by US prices.

2) The packers don't have the ability to make calves disappear out of the system until they need them. Even if they could, you estimated their owned cattle at between 3 and 15%. How can you even make an estimate if you have no numbers to base that off of?

3) Somehow they are sharp enough to only buy the calves that will finish exactly on the 7.2 to 36 days the cash market is the highest? And not only 1 packer does that, both major packers do it?

1) Our buying structure is close to the same as the US structure, however we only have TWO major buyers in our system, whereas they have FIVE. And of course its not just number of buyers in the system, but processing capacity that really counts. And they've got us blown out of the water on that front.

2) Ah, my point exactly. No-one knows exactly how many packer owned cattle there are. Even the guys who are supposed to estimate those numbers can't deliver anything closer than 3% to 15%. Helluva swing, ain't it? With the all knowns that you've listed, we still have an unknown in the mix. So now the feedlots have this unknown on their hands. Its tough enough for them to make money, why should we make it harder?

3) You said that they've finished when the cash market was the highest, not me. I asked what would happen if they had animals finishing at a time when feedlots would typically have animals finishing, such as during summer months when demand is high? And it isn't rocket science to feed a group of animals for a target date.

Rod

 

[Jason]

Nice try Rod. You totally ignore 11 points on how packers CAN NOT hide their owned cattle.

You think the entire industry forgets about those calves because they are in the middle of nowhere Sask.?

What would be the point of packers feeding for a date when there is a surplus of cattle? Too many cattle means too much beef. The cattle have to be sold as beef for them to make a profit. If beef demand is high during the time when their cattle are ready, what's the problem? They can't depress a market if there is demand. Other packers would be making money from the demand and they would bid higher to own profitable cattle.

If you had really investigated, one of the problems in the beef industry is that too many cattle are ready near the same time... and that time isn't when beef demand is highest.

The only arguement against packer ownded cattle is that they are used to depress the price. If that were true, they would be targeting the periods when the margins are the lowest.

How about the last few months when packers were losing money? Why didn't they just use their phantom inventories? If they weren't losing money, why did the Canadian packers back off the UTM cattle to kill cows?

A theory needs to work at all times of the market, and be consistant in all situations. Packer owned cattle being this mysterious force to harm feedlots doesn't hold up under that scrutiny.