Question for MWJ and SH

[DiamondSCattleCo]

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

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

3) 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.

4) 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?

1) I never ignored any of your points. I asked how market analysts, given the knowns that you posted, are still unable to generate an accurate picture of how many cattle are packer owned. Obviously, those 11 knowns can get them down to 3% - 15%, but thats still a helluva swing.

2) The industry certainly doesn't forget, thats why analysts and feedlots attempt to ascertain what the percentage is. Unfortunately, they aren't able to.

3) Point taken Jason, however you are still ignoring my point that its not difficult to feed an animal for a target date.

4) Phantom inventories? So you deny that packers own cattle and have them custom fed?

As far as your point about too many cattle during times of lower demand, I understand that. Perhaps if we had better transparency in our market, everyone could make use of that information and attempt to deliver a product at the appropriate time.

Rod

 

[Jason]

Rod I gave you the benefit of the doubt by using the 3-15% numbers.

I have seen better estimates, closer to 9-11%. Not so much of a swing.

None the less, it still doesn't matter as they are part of the total fed inventory that is tracked.

If packers have the ability to feed to a certian end date, so do independant feedlots.

If they have lost money selling at a certian time they can switch that time. Everyone tries to feed for the highest return. If they all did such a good job, they would force the highest return down.

Who has the bigger incentive to do a really accurate job of feeding, the guy that owns the inventory he is feeding, or the guy just getting paid to feed some packer cattle?

 

[DiamondSCattleCo]

Who has the bigger incentive to do a really accurate job of feeding, the guy that owns the inventory he is feeding, or the guy just getting paid to feed some packer cattle?

Depends on the contract. The guy who owns the inventory _may_ not be as heavily penalized by the market as the guy who busts his contract.

Rod

 

[agman]

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.

Are you suggesting that all producers lose money if packers make money? If that is your contention their is a lot of history to prove you wrong.

I agree adding value to product is where the money is. Added value product in many cases has 3X the margin of commodity product. Why should producers who provide product to packers that allows packers to maximize added value not get paid for it? Why should producers or packers not be allowed to form alliances to the benefit of each other?

I will say this again "the previous or old way of marketing cattle encouraged and produced a surplus of below average product which consumers overwhelmingly rejected". Those who benefited from the old system were those who produced the below average product. Their existence was being subsidized by the producer of above average product. The latter group tired of the "old" way and entered alliances to get paid for the quality of product they produced. That is the way it should have been all along. agman

 

[agman]

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?

You are exactly right on that one RM. Why then is their opposition to those who foster and pursue that practice?

 

[Sandhusker]

Agman, "You are exactly right on that one RM. Why then is their opposition to those who foster and pursue that practice?"

Ahem.....Creekstone? :shock:

 

[Jason]

Agman, I have a question about something you mentioned.

You said larger carcasses are producing cuts that are difficult to use in some situations, ie steaks too thin to prepare well.

What size carcass is ideal? Is it a rib eye area that matters more than weight?

The way to select for that target has to be economic. Are the premiums for spec'd branded products enough to reduce carcass size or will packers need to penalize those oversized animals?

Thanks.

 

[Anonymous]

Give it up Sandcheska!

What Creekstone wanted to do was capitalize on consumer fears using consumer fraud with a test that would not reveal bse prions in cattle under 24 months.

Creekstone my ash!


~SH~

 

[agman]

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

With all due respect there are many more variables that influence a market on a daily, weekly, monthly and annual basis than you are aware of. That is apparent from your many posts.

The data I have complied for Canada parallels similar supply/demand results as in the U.S. In addressing the Canadian situation you must not confuse total production levels with per capita consumption. The results of the recent BSE event (supply shock) is needless to say unfortunate and not comparable to prior periods. The supply shock was devastating and prices were out of the historical norm as a result.

We experienced a similar situation in the 1954-57 period as a result of extreme drought. The supply shock saw prices fall sharply below the previously existing demand curve. Once the supply glut cleared the market prices returned to their previously existing supply/demand relationship and remained on that demad curve until demand "improved" during the 1969-1973 period. Also, the glut of hogs in the fall of 1994, which exceeded all slaughter capacity, saw prices fall much below the expected historical price parameters. That period, although of much shorter duration, would have similarities to the Canadian BSE incident.

 

[DiamondSCattleCo]

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?

With all due respect, I find it interesting that you state I have no idea what influences the markets on a daily basis, yet you failed to answer my questions about what was wrong with my hypothetical problem. Granted I've left out imports adding to the supply, feed costs, costs of competing proteins, consumer demand, and other important factors that influence prices on a daily basis, however you've been at this a long time and also know that those other factors generally have longer term influences than 1 day in the life of the market, unless of course, something radical happens on that day or the previous day (such as your hog example).

I've left the original questions in the above quote, in case you decide to address them.

Rod

 

[Anonymous]

Rod,

You failed to address why a major packer would exit the market outside of a catastrophe and create an oversupply of cattle.

Your hypothetical is totally unrealistic.


~SH~