Rancher
Joined: 26 Aug 2005
Posts: 1767
Location: TX
PostPosted: Wed Jan 18, 2006 1:00 pm Post subject: Re: Welllll.... Reply with quote Edit/Delete this post Delete this post
pknoeber wrote:
I'll admit right up front that I only read about 3/4 of the first page of this thread so I might be repeating what somebody has already written in their post, but here's my take:
This is the craziest thing I've ever heard of.
There seems to be a fair majority here that believe that the packers are putting the screws to them while making huge amounts of money. Solution: Band together with other like-minded individuals and buy/build your own packing plant. Then you can join in on the gravy train that you think the packers are riding. Quit crying about it and asking the government to change it, be proactive and change it yourself. Guess who the folks were that got USPB going? It wasn't a Wall st. suit, it was the average ranchers that had a vision. Their vision worked in the free markets & they didn't ask the government to hold their hand & help them up, they held each others' hands and helped each other up.
Why does everybody want to go back to the old way of doing it? Doing it just like it's been done for 100 years is easy & comfortable & allows an operator to NOT have to learn new skill sets. With a dynamic & changing market place people will have to continually evolve & develop new skill sets. It's fairly easy to pick out those in the cattle industry that have done this & can keep up. They don't want to rush back to the old way & they will probably admit that some things used to work better then than now, but they will also be able to point out the areas that work much better now than then also. I have a specific individual in mind (a Kansan, not Paul Engler) that has made a mint of money b/c he's incredibly sharp, works very hard, adapts well & is a top-notch businessman. That's made him a multi-multi-millionaire. He didn't rely on the government to do it, he adapted to the marketplace and did it.
Why is the government always the answer?
Phil
No, Phil, it is a little more complex than that. Tyson has beef and its substitutes. They can swing the market with the price manipulation tools they have. They are using these two markets to consolidate the meat markets. All consolidation allows more market power to "put the screws" to the producers and consolidate the meat industries under their control.
There are two distinct time periods:
1. Supply of meat proteins is relatively high. There is a lot of chicken on the market and there is a lot of beef on the market. By using the market manipulation tools in beef, they are able to drive the prices in beef down on the producer level. SH and Jason have already posted (their figures) that the spread during the Pickett manipulation time was $26.00 per head vs. an industry average over time of $3.88 per head. That is a 670% increase in profitability over the time market manipulation was asserted. During this time, chicken prices were in the tank. Tyson was able to use the cash flow from the beef side to continue operating the poultry side in an oversupply situation with low prices. This drives out small competitors that do not have beef to subsidize their operations. If you are in poultry and do not play with the big boys, you get run out of the business. Consolidation in the poultry business.
Next time period:
2. Because of the low prices paid to producers in time period 1, the supply of beef reacts (this takes time) and you go into period 2. During this time period, beef prices are high. Packers do not operate at the same margins, as some have suggested, but operate under what Agman and SH call negative margins. They seem to be losing money on every head sold with this calculated negative margin. How do they remain profitable? The chicken side (and pork). As I have shown on a previous post, the poultry prices have been between 30 and 45% higher. Profit margins are anyone's guess. If the poultry dealers were making 5 cents per lb. when prices were 52 cents then at 70 cents they are making roughly 35 cents more per lb. If all costs are the same for production (grain went down fuel went up, etc... but we are assuming for the point) then the profits on poultry went up 700%. Where does Tyson get cash flow to pay for "negative" cash flow in beef processing? Not hard to figure out. During this period, beef processors are run out of the business because they do not have chicken business to keep them afloat with their cash flows.
Tyson does have one synergy with the chicken and beef markets. They are able to feed their animal by products in beef operations to chicken. Isn't this what initiated the BSE crises in the first place in the cattle markets?
Is this an efficient market or strategic planning? Tyson did not buy IBP for nothing. They want the whole market. If we remain stupid enough to let them have it, we deserve to not be paid for our products. I am afraid if things do not change, that is where we are heading.
_________________
Joined: 26 Aug 2005
Posts: 1767
Location: TX
PostPosted: Wed Jan 18, 2006 1:00 pm Post subject: Re: Welllll.... Reply with quote Edit/Delete this post Delete this post
pknoeber wrote:
I'll admit right up front that I only read about 3/4 of the first page of this thread so I might be repeating what somebody has already written in their post, but here's my take:
This is the craziest thing I've ever heard of.
There seems to be a fair majority here that believe that the packers are putting the screws to them while making huge amounts of money. Solution: Band together with other like-minded individuals and buy/build your own packing plant. Then you can join in on the gravy train that you think the packers are riding. Quit crying about it and asking the government to change it, be proactive and change it yourself. Guess who the folks were that got USPB going? It wasn't a Wall st. suit, it was the average ranchers that had a vision. Their vision worked in the free markets & they didn't ask the government to hold their hand & help them up, they held each others' hands and helped each other up.
Why does everybody want to go back to the old way of doing it? Doing it just like it's been done for 100 years is easy & comfortable & allows an operator to NOT have to learn new skill sets. With a dynamic & changing market place people will have to continually evolve & develop new skill sets. It's fairly easy to pick out those in the cattle industry that have done this & can keep up. They don't want to rush back to the old way & they will probably admit that some things used to work better then than now, but they will also be able to point out the areas that work much better now than then also. I have a specific individual in mind (a Kansan, not Paul Engler) that has made a mint of money b/c he's incredibly sharp, works very hard, adapts well & is a top-notch businessman. That's made him a multi-multi-millionaire. He didn't rely on the government to do it, he adapted to the marketplace and did it.
Why is the government always the answer?
Phil
No, Phil, it is a little more complex than that. Tyson has beef and its substitutes. They can swing the market with the price manipulation tools they have. They are using these two markets to consolidate the meat markets. All consolidation allows more market power to "put the screws" to the producers and consolidate the meat industries under their control.
There are two distinct time periods:
1. Supply of meat proteins is relatively high. There is a lot of chicken on the market and there is a lot of beef on the market. By using the market manipulation tools in beef, they are able to drive the prices in beef down on the producer level. SH and Jason have already posted (their figures) that the spread during the Pickett manipulation time was $26.00 per head vs. an industry average over time of $3.88 per head. That is a 670% increase in profitability over the time market manipulation was asserted. During this time, chicken prices were in the tank. Tyson was able to use the cash flow from the beef side to continue operating the poultry side in an oversupply situation with low prices. This drives out small competitors that do not have beef to subsidize their operations. If you are in poultry and do not play with the big boys, you get run out of the business. Consolidation in the poultry business.
Next time period:
2. Because of the low prices paid to producers in time period 1, the supply of beef reacts (this takes time) and you go into period 2. During this time period, beef prices are high. Packers do not operate at the same margins, as some have suggested, but operate under what Agman and SH call negative margins. They seem to be losing money on every head sold with this calculated negative margin. How do they remain profitable? The chicken side (and pork). As I have shown on a previous post, the poultry prices have been between 30 and 45% higher. Profit margins are anyone's guess. If the poultry dealers were making 5 cents per lb. when prices were 52 cents then at 70 cents they are making roughly 35 cents more per lb. If all costs are the same for production (grain went down fuel went up, etc... but we are assuming for the point) then the profits on poultry went up 700%. Where does Tyson get cash flow to pay for "negative" cash flow in beef processing? Not hard to figure out. During this period, beef processors are run out of the business because they do not have chicken business to keep them afloat with their cash flows.
Tyson does have one synergy with the chicken and beef markets. They are able to feed their animal by products in beef operations to chicken. Isn't this what initiated the BSE crises in the first place in the cattle markets?
Is this an efficient market or strategic planning? Tyson did not buy IBP for nothing. They want the whole market. If we remain stupid enough to let them have it, we deserve to not be paid for our products. I am afraid if things do not change, that is where we are heading.
_________________