• If you are having problems logging in please use the Contact Us in the lower right hand corner of the forum page for assistance.

What factors affect cattle prices?

  • Thread starter Thread starter Anonymous
  • Start date Start date
A

Anonymous

Guest
What factors do you readers believe have the most affect on feeder and fat cattle prices?

It's a simple question that should elicit simple straight forward answers.

I recently heard a major spokesperson for R-CALF USA, while giving the local cattle market report, actually say, "I don't know what's driving this market".

I have to admit I was really taken back by that comment when I stopped laughing. Why was I laughing? Because this is the same person that supposedly has all the answers for every time the cattle markets drop. Go figure!

Wouldn't the same factors that apply to falling cattle markets apply to any rise in cattle prices?

You still with me? Seriously, just stop and think about this.

Was his statement an admission to what I have been saying for so many years about the misinformation being put out by some self proclaimed industry experts regarding what factors really affect cattle prices?

Every time the cattle market has dropped, this person has blamed it on packer concentration, captive supplies, and imports.

Wouldn't common sense suggest that if these three factors were the only factors that could lower cattle prices, as would seem to be the case since no other factors are ever mentioned, that one or all of these factors would have had to change to allow cattle markets to go higher? If not, then wouldn't common sense also suggest that there is more factors playing on falling cattle markets than these three factors?

I asked this same question on a radio talk show one day to Bill Bullard, Johnny Smith, and Mike Callicrate. They each responded with different diversionary statements. Then I called back in and asked the same question again since they hadn't answered my question. They all changed their answers. LOL!

Shouldn't that tell you something?

Don't shoot the messanger, I simply asked a question hoping to prove a point in the process.

Again, if packer concentration, captive supplies, and imports are the reasons for lower cattle prices wouldn't one or all of these factors have to change to allow cattle markets to go higher?

Is that an unfair question? Is that question "hitting below the belt" by pointing out the obvious?

Now don't get mad at me for asking such a straight forward question.

What was the level of captive supplies, packer concentration, and imports when fat cattle prices recently broke $1.00?? Do you know?

What was the level of captive supply at that time?

Were packers less concentrated at that time?

Were imports reduced at that time?

If you don't know, then how can you suggest that these factors are responsible for lowering cattle prices?

What impact do you think corn price has on feeder cattle prices?

What impact do you suppose cattle supplies have on the markets?

What impact do you suppose pork and poultry have on the cattle markets considering that cattle prices are driven by beef and beef by product demand or don't you believe that?

Incidentally, you always hear how cattle numbers are down. Do you know how this drop in cattle numbers corresponds with the increase or decrease in carcass weights? What impact do you think carcass weights have on beef supplies in comparison to lower cattle numbers?

What impact do you think our export markets have on cattle prices?

What impact do you think imports have on our cattle prices?

Do you believe changes in beef prices correspond with changes in cattle prices?

When shoppers find more value in chicken than beef do you suppose this affects beef demand which in turn affects cattle demand?

What affect do you think corn prices have on feeder cattle prices? If corn prices at the feedlots move from $2.50 to $3.50 per bushell, how does that affect calf prices?

If you believe that a $1.00 change in corn prices affect cattle prices, then why would you not mention corn prices when determining what factors lowered cattle prices?

How much do you think a $1.00 change in a bushel of corn affects feeder cattle prices?

How many of you actually concern yourself with the factors that affect cattle prices?

I found it very interesting that Harlan Hughe's data from NDSU showed a difference of $250 per head between high cost and low cost cattle producers yet the industry is focused on the level of profit in the packing industry which in ibp's case, based on court records, turned out to be only $16 per head in their most profitable years to sell everything from the rectum to the tongue and price cattle accordingly. Go figure!

I guess the real question I am asking is this, when SOME OF YOU are so busy coming up with reasons for lower cattle prices, do you forget your common sense when cattle prices go higher?

I shudder to think what would happen if some of today's so called market experts were placed in a situation of having to justify their statements rather than having them remain unchallenged.

I believe the biggest threat to the cattle industry currently is the lack of good information on what are the biggest threats to the cattle industry.

Incindentally, the Canadian border was closed to cattle under 30 months in 2004. In 2005 the Canadian border was opened to cattle under 30 months. Check your calf checks for those two years. Doesn't that make you scratch your head when you compare the facts to what you have been told?

Let's see if anything has changed here. Will the responses divert from the questions as they normally do or can we actually have an objective discussion on the factors that truly affect cattle prices and to what degree?


~SH~
 
93 views and nobody has an opinion or facts to support which factors affect cattle prices?

Isn't this an important topic?


~SH~
 
Thanks for the greeting but I'm just stopping by. I didn't expect anyone from the blaming segment of the industry to engage in a civil discussion on what factors affect cattle markets because that would only serve to cloud their conspiring minds.

I'm real serious about this. I think all cattle producers should strive for a better understanding of which factors affect cattle prices.

Drovers Journal lists some of the following market indicators:

Production costs - corn being the big driver here at $3.44.

The last I worked with these figures, if I remember correctly a $1.00 change in a bushell of corn results in a $20/cwt change in the price of feeder calves. In other words, all other things being equal, if corn goes from $2.50 to $3.50, this constitutes a $110 difference in the price of a 550 lb. calf.

What the heck does that have to do with packer concentration, captive supplies or imports?? Not a thing!

Other production costs can have some impact on markets but corn is the big driver.

Performance and margins - performance in the feedlots plays two important roles. It helps determine profits and losses independant of the markets. In other words, if you locked your fat cattle price in on the back side, your profits or losses in the feedlot will be determined by how well the cattle gain and convert which can be both genetically and environmentally driven.

The second aspect is that better performing cattle will result in more pounds of beef being placed on the market.

Also on the supply side of the equation is the number of cattle being placed in feedlots at any given time and the number of cattle being fed at any given time. Then, in addition to performance, the question is whether or not those fat cattle are being marketed when they are ripe or are they being backed up in the feedlots for a higher market resulting in heavier carcass weights which adds tonage to the market which is usually far greater than the changes in cow numbers. Recent change in cow numbers are a small factor in comparison with recent changes in carcass weights.

Packer profits and feedlot profits will both serve to determine the markets. Optimism in the markets are driven by profit and visa versa.

Imports can have an effect on the market but you have to identify what those products are and to what level they are competing with domestic product. As an example, importing cheap 90/10 lean ground beef from Australia and New Zealand to blend with our surplus 50/50 trim is not competing with domestic production because the supply of domestic 50/50 exceeds the supply of domestic lean ground beef that is used for blending with it. Only a fool would devalue the chuck and round to blend with 50/50 trim when we can add value to those products and import the lean trim to add value to the surplus 50/50 trim. When determining the affect of imports you have to identify the product and the price it's being offered at. At the same time, when looking at the affects of imports, you also have to measure the affect of our export markets and whether we are exporting more dollars worth of beef and beef by products than we are imoprting. Trade is not a one way street.

On the demand side of the equation you have boxed beef prices and the value of edible and inedible ofal. This can be partially driven by exports and the value of competitive meats.

If there is tons of cheap chicken dumped on the markets, this lowers the price of beef which in turn lowers the price of fat cattle. Neither has anything to do with packer concentration, captive supplies, and imports.

With so many factors affecting cattle prices, how can anyone isolate one factor or three factors such as captive supplies, imports, and packer concentration and credit it for a change in the markets without considering all the other factors that affect the markets? The answer is simple, you can't. Only a fool would!

~SH~
 
Sand: "I'm not really in the mood for hog wrestling right now."
Click to expand...

I'll take that as an admission to not understanding what factors affect cattle prices.

I honestly didn't expect any earth shattering market revelations from you.

Did you miss me? Haha!


~SH~
 
~SH~ said:
Sand: "I'm not really in the mood for hog wrestling right now."
Click to expand...

I'll take that as an admission to not understanding what factors affect cattle prices.

I honestly didn't expect any earth shattering market revelations from you.

Did you miss me? Haha!


~SH~
Click to expand...

Just as much as I missed that boil on my arse....
 
Well in my thinking feed is always my number one factor. Cost of production is the one thing I have some control over if the cost to produce a fat is to much I choose not to do it in turn selling my calves for less money. In my thinking every sector of this industry has to make money for any of us to be viable. Margins are tight in every industry.My margins in the welding shop were terrible the last 2 years so I did'nt build anything now things are better so I'll build some same differance for the most part.Play the cards your dealt and blame knowone Walmart is always hireing.
 
Sand: "Just as much as I missed that boil on my arse...."
Click to expand...

I understand how much you hate being introduced to your factually void positions. It can't be easy!


~SH~
 
~SH~ said:
Sand: "Just as much as I missed that boil on my arse...."
Click to expand...

I understand how much you hate being introduced to your factually void positions. It can't be easy!


~SH~
Click to expand...
What did Andy teach us...all dollars come from the consumer. Demand from the consumer with respect to supply of product determines prices. The packer bottleneck controls the dollars going back to the cattle sector.
 
Scott, then are good honest questions. I don't think you can expect a good well thought out answer. You may as well drop your arguement.

Supply is probably the main reason for price fluctuation. We still need our domestic production to supply our market demand, so prices has raised.

Imports, packer concentration, foreward contracts, captive supply, and all the other things can sometimes be used as levers to control prices. The rule in thumb in business is buy as cheap as you can and sell as high.

We always look for a scape goat, something or someone to blame. It depends on where you are setting. The man with 2,000 cows looks through different eyes then the man with 200 who is trying to make a living and pay for his land. The man setting on a pile of money looks at things different then the man who picks up his pay check on Friday, gives it to his wife, she give him back enough for beer money then spends the rest on family and the home.
On top of that we all have different philosophies, or different ideas about ecconomics.
I don't think, at least right now, that demand is as much a facter as some believe. If you look back 30 or more years I believe you will find that for the main part demand has increased. It has been more constant then cattle prices. It is true that pork and chicken are our competiters but I don't spend much time worrying about them either.
 
Just some quick thoughts.......don't forward contracts and maybe even "captive supply" (whatever that may mean to an individual) have a place in marketing decisions by seller as well as buyer? I mean, why would a seller use them, "forward contracts" that is, unless it was to his own advantage for whatever reason? And don't both mechanisms assure the packer of constant supply in an orderly manner???

The other troublesome thing is that just maybe retailers have more influence on prices received by producers than do the packers.

Another problem is that too many producers really don't want to MARKET what they produce, but simply take them to the sale barn and ask the owner, "what can you get for me?".

It has to be helping that more producers are taking more responsibility for the quality of the animals produced. Beef Quality Assurance programs from proucer right through sale barns, truckers, and packers have had some good results......when they are not 'fudged' on by a few. And what a chore it was to get sale barns to do that!!!!

Getting more information to consumers has helped, and we still need more work on medical and dietary workers.....which takes time.

Clarencen, hasn't it been a very long time since the guy with 200 cows could support his family AND buy land? We have heard for years that if one only raises beef cattle, it takes about 300 cows to actually make a living, and I'm sure it would be pretty hard at that, depending upon whether one had to buy into a family operation, or simply inherit it........and even then, there likely would have been at least federal death tax if not state as well. It isn't just the biggest outfits like some groups like to tell us who pay the Death Tax on farm/ranch and other small businesses!!! Sometimes the 'too big' outfits just get to handle more money, but they also have bigger bills to pay and it isn't all 'gravy' unless someone wins a real big lottery, these days, IMO.

And, you are exactly correct about how we love scape goats and the blame game. .....but just how that really benefits us escapes me, unless it is to vent frustration.....but look out if you start to actually believe it!!!!

mrj
 
MRJ,
I used the 2.000, 200 head thing just as an example. I suppose you called attention to the 200 as not working, to point out that when margins get smaller number have to increase to receive the same income.
Never the less, we still do have some operators in my area with 200 to 300 head. I guess you would call them Mom and POP operations. They managed to live quite well and put their kids through school. they are pretty efficient, they may drive cars and pickups that are ten years old, and tractors that are 25. They fairly well up to date on modern technology, they use the local veterinarians, they are fairly knowledgable about minerals and animal nutrition. MRJ, they don't give shots in the butts. Yes mostly they market at the sale barn, that is where they can get more people to look at their cattle and bid on them. There are other options too, but these have their pros and cons. These are a little slower to expand because of the limitation of available land, and often they do not have enough assets to substain them for the years it takes to pay for expensive land.

We have family operations here too, these are larger, or at least look larger. then there are the ones with 100 head or less, they are usually working for someone. They say, "I don't want to be a hired man all my life".

There are people, up on their high horse, that say these small operations don't work, they are not effecient, let me buy them out. These are the people who will lead our country into socialism, not the peopl in Washington. We have to provide oportunities for the determined small guys.
 
We are evidence of what Clarencen is talking about. We're a mom
and pop operation and never owned
more than 200 cows, ever. Nothing was given to us, we had to do it on
our own. We've been ranching since
1965, and on at least an owned land base since 1975. We had to do some things to make that work,
but we were never sorry. We've had to lease land too, but that worked for us. We always heard we weren't big enough
to make it...yet here we are...in our mid 60's...
 
Lot's of outfits here under 200 cows seams like the bigger outfits have 3 or 4 families drawing off 800-1000 cows so in a numbers deal it's not a whole lot different than a 200 cow single family deal.The bigger guys have more land ,machinery, and mouths to feed. I think being effiecent can be accompolished on any size operation as can waste.
 
Denny said:
Lot's of outfits here under 200 cows seams like the bigger outfits have 3 or 4 families drawing off 800-1000 cows so in a numbers deal it's not a whole lot different than a 200 cow single family deal.The bigger guys have more land ,machinery, and mouths to feed. I think being effiecent can be accompolished on any size operation as can waste.
Click to expand...

Exactly.
 
Denny said:
Lot's of outfits here under 200 cows seams like the bigger outfits have 3 or 4 families drawing off 800-1000 cows so in a numbers deal it's not a whole lot different than a 200 cow single family deal.The bigger guys have more land ,machinery, and mouths to feed. I think being effiecent can be accompolished on any size operation as can waste.
Click to expand...

Yep one of the big outfits around here ran far fewer cows per man then I do and that was before their big dispersion sale.
 
I can agree with most of all that has been posted since mine, however, some people reading this may not be knowledgeable about ranching and too many of those believe anyone with a few cows is wealthy beyond belief, especially if they own a few acres of land. Tho there still are too many people who believe grass and water are free so there is little cost in raising cattle.

Clarencen, don't you think there are MANY reasons for operations getting bigger and margins getting smaller? Often, it is claimed to be because others are squeezing 'the little guy' out. HOWEVER, with modern equipment, from horse trailers and pickups to even our 30 and 40+ year old tractors, one man can do so much more than in years past. Modern cows, even smaller ones, produce more pounds of calf/beef. Ag bioscience has taught us better pasture management, brought us better hay crops, minerals and winter feed, etc. All make it possible for a family to take care of more cattle/land, and I'm sure there are many more reasons. I do tend to look at a glass as half full rather than half empty, tho, so maybe I'm more optimistic than I should be.....unless I think about our 'leaders' and the tons of added taxes on the way for us all!!!!

And we did probably have an easier start than some, being in a family operation. I would challenge anyone claiming to have worked harder for lower wages while building our herd, and we have achieved quite a lot in our 53 years of marriage, plus years of hard work before that. We never got anything free and clear, tho few people outside the family will believe that. The experience and mentoring were invaluable.

We have, and do lease land, but that isn't very secure, either. We have and are making the necessary sacrifices to allow family to continue in the business into the future and they have worked their butts off to help for the past 30+ years, too, so their families have the same opportunity. We operate with little, and OLD, machinery and few 'toys', certainly none that aren't needed for work. Maybe that as compromised our haying operation, but we don't need a lot, and it doesn't have to be 'dairy quality' either.

The one thing we haven't compromised on is care of the land, and maybe we erred on the side of caution there, because we hear about places that run more cattle on fewer acres and seem to get along about as well when the drought ends. And I do wonder if we had farmed along with the cattle if it would have been better, but we will never know! We just don't believe this prairie should be broken up on the land we have.

ANyway, good discussion.
 
Good posts Clarence and MRJ. As usual, I find myself in agreement with everything MRJ has stated here. Lots of great comments by both of you. Thanks!

This thread started out by addressing the factors that affect cattle markets yet, as many threads do, has changed directions into producer profitability. That is a great topic and one I will respond to later in this thread as time allows but for now I am going to stay on the topic of the factors that affect cattle prices.

Warning: This post is going to be lengthy and could be hazardous to what some of you may want to believe.

RM: "What did Andy teach us...all dollars come from the consumer. Demand from the consumer with respect to supply of product determines prices. The packer bottleneck controls the dollars going back to the cattle sector."
Click to expand...

Robert,

Andy is absolutely correct but your level of concern with the "bottleneck" is for the most part unwarranted. What part of the $16 per head to sell everything from the rectum to the tongue from the ibp court records do you not understand or believe? Do you think $16 per head is too much per head profit for the most efficient packer in their best years?? I don't! Heck, I could affect my per head proft by that much just by source verifying my cattle.

Of all the members of this board, you are the one that constantly has me scratching my head. On one hand, you are not afraid to step outside the box and try new innovatie ideas to increase your profit such as marketing your own beef. To that you have my respect. Based on that, you obviously are not entirely driven by blame like some are. On the other hand, you still can't get past some of your conspiring ideas about the packing industry no matter how hard I've tried to convince you otherwise based on the facts that contradict what you want to believe. So (heavy sigh) here I am, once again, trying to gain a little ground with you. Why? Because you, like so many others, have a good mind and you waste a lot of your thought process on baseless conspiracy theories that facts cannot support. So lets really stop and analyze the packing industry.

A good starting point is what Clarence pointed out and I know you realize this RM .......

Clarence: "The rule in thumb in business is buy as cheap as you can and sell as high."
Click to expand...

On that, I know you and I agree. The point with you that I can never seem to get past is your unwillingness to admit or understand how Excel, JBS, Tyson, and USPB as well as many level two packers such as Caldwell packing are in competition for the same cattle.

Let me repeat, these packers are all in competition for the same cattle.

That is an undeniable fact which is as evident as the movement in the cattle markets. A controlled price would not fluctuate. So, no matter how badly the packers want to lower the price they pay to the feeder/producer, they are still going to have to pay up to near the same level as the other packers or they are not going to get the cattle bought, period. Most feeders realize this and that is why you don't see a lot of feeders joining in on the baseless packer lawsuits coming from the blaming segment of the cow/calf sector of the industry in their feeble effort to save the feeding industry from themselves.

BTW, I welcome any thoughts and ideas to the contrary of what I will present here but be prepared to back your positions with supporting facts.

The rest of this post is not necessarily directed at you RM ......

Now lets talk about "competition". I believe that the blaming segment of this industry incorrectly defines "competition" solely by the industry having more bidders for their fat cattle than are currently available. Competition is not defined by having more bidders than we currently have, competition is defined by the BUYING POWER OF TWO OR MORE PACKERS BIDDING FOR THE SAME CATTLE. That is also a fact. The dictionary defines "competiton" as "the act of competing". The dictionary defines "compete" as "to try to get what others also seek and which all cannot have." Competition is created by the ability of two or more to buy rather than simply having more bidders.

If you don't believe that, then answer this. Which situation would you rather have when selling your calves:

1. 2 - 4 feeders bidding on your calves that are very efficient, that have reduced their per head feeding costs, are very innovative with their marketing, that increased their feed efficiency and cost of gains by innovative rations and lowered feed costs, and because of this they have more money to spend.

or:

2. 20 feeders that are very inefficient, that do not market their fat cattle when they should, that have higher costs of gains and reduced feed efficiency, that have higher overhead costs contributing to higher per head costs, and therefore have less money to spend on feeder calves?

Seriously, which situation would you rather have?? If you chose #1, then how can you support the idea that more bidders in the packing industry would be better? You can't!

The point is, in this case, there is always going to be feeders that can find ways to reduce their costs of gain and improve their markets allowing them to pay more for your feeder calves and still show a profit. The packing industry operates the same way. The more efficienty packers and feeders expand their market share due to these efficiencies and that is how industries become concentrated.

I don't care how many bidders you have at any auction, the person who buys the item is the one who can afford to pay the highest price. Those that pay more than they can afford can only do that so long before they fall by the wayside. Having more bidders will not increase the price we receive for our cattle nearly as much as having a few bidders who can afford to pay more for those cattle than the others. Anyone want to debate that?

Now let's elaborate on "concentration". It's wrong to assume that a concentrated industry is not competitive. It is an undeniable fact that there is many industries around us that are concentrated into a handful of companies. Concentration is not unique to the packing industry so one has to wonder why consumers are not crying about concentration in all the other industries? Look at Coke and Pepsi, they control the lions share of that industry so why isn't anyone whining about that? COMPETITION LEADS TO CONCENTRATION AS OPPOSED TO CONCENTRATION REDUCING COMPETITION. Anyone want to debate that?

Why do you think there is less packers than there once was? It's simple, someone else was more efficient and could pay more for cattle and they increased their market share to the level of concentration we currently have. Smaller less efficient packing plants could not compete against the larger more efficient packing plants. The larger plants could pay more for cattle and still realize a profit. The larger more efficient plants eventually bought out the smaller less efficient plants and that is why you have concentration in the packing industry AND MANY OTHER INDUSTRIES. The bottom line on "concentration" is this. Larger more efficient packing plants can and do pay more for fat cattle than smaller less efficient plants. With that in mind, how could anything but reduced cattle prices come from breaking up the larger packers into more smaller packers?? Do you still wonder why there is so much disention in this industry between NCBA members who want to work with packers to increase beef demand and the R-CALF packer blamers that want regulations that will inevitably lead to lower cattle prices???

How many times do you hear the word "monopoly" used to describe the packing industry? A monopoly is one company controlling the industry. Doesn't matter whether you have 4 packing companies controlling 80% of the industry or not, the packing industry is still competitive with 4 major packers because its not a monopoly. Do you doubt me that the packing industry is competitive? THEN HOW DO YOU EXPLAIN RECENT FAT CATTLE PRICES AT $1.00??? If you want to debate me on the "supposed" lack of competition in the packing industry, you better be prepared to explain how fat cattle prices recently got to $1 and why they would move at all if those prices are being controlled.

The thing about competition is that any time you have a company making too much money, it opens the door for another company to do the same thing more efficiently and still realize a profit. How did Walmart compete against K-Mart and Target? ALWAYS LOW PRICES!! That's how. They did it more efficiently with more volume.

Back to the packing industry. What determines how much packers can pay for fat cattle?? The formula is simple. You take the value of beef and beef by products minus the cost of processing per head minus what level of profit per head you can live with and still keep your doors open which equals what you are willing to pay for fat cattle. It's that simple.

A packer does not have a lot of influence on what consumers, both foreign and domestic, are williing to pay for beef and beef by products or the value of ofal. The price of beef and beef by products, being the primary driver in the demand for fat cattle, is influenced by what consumers are willing to pay for beef and beef by products RELATIVE TO THE BEEF SUPPLY AND RELATIVE TO WHAT THE CONSUMERS DETERMINE IS THE VALUE OF COMPETITIVE MEATS.

I can guarantee you that you do not have to look past the shopping habits of your own immediate family to see how the value of competitive meats (primarily poultry and pork) affect the demand for beef which in turn affects the price of cattle. If the shopper in your family tells you that you are eating chicken for supper because of the price it was offered at relative to the price of beef, your own family just affected the demand for beef which affect the demand for cattle. Want to blame someone, blame the shoppers in your family that bought chicken instead of beef. This is just like all the hypocrites that cuss Walmart then shop there. "Oh what tangled webs we weave".

I want to divert here for a minute and explain one of the primary differences between the philosophies of NCBA and R-CALF. The biggest difference that I see, is that NCBA members tend to have a better understanding of how consumer demand for beef and beef by products, both foreign and domestic, affects the price of cattle. They also tend to have a better understanding of the profit levels of the feeding, processing, and retail sectors of our industry in contrast to what some claim are the profit levels in those sectors. That is why NCBA is focused more on the consumer and how they can work with the packer and the retailer to increase the demand for beef through the beef check off. I'm sure some will take offense to that statement as being condescending or arrogant and I beg to differ. If you are an R-CALF supporter and are offended by that statement than answer this, if you believe that the price of beef demand affects the price of cattle, then why don't you mention beef demand when prices fall rather than packer concentration, captive supplies and imports? You can't have it both ways. You can't understand how beef demand and beef supplies affect the price of cattle and not mention beef demand and cattle supplies when discussing falling markets unless you believe beef demand and and beef supplies are constant? So don't cuss me for supporting NCBA on this issue if you also believe beef demand and beef supplies affect cattle prices.

I agree with this particular philosophy of NCBA (increasing beef demand) whole heartedly and have seen no evidence to the contrary for me to question that line of thinking.

Due to the fact that NCBA is willing to work with packers and retailers to increase the price of beef, due to the fact that NCBA supporters find no solid evidence to support increased regulations against the packing industry which will inturn affect how feeders market their cattle, due to the fact that NCBA members, as a whole, could see how "M"COOL was going to be "the law of unintended consequences", their position is viewed by the packer blaming segment of the industry (OT, Sandy, and other R-CALFers) as being "in bed with the packers". This is nothing more then empty rhetoric. Unfortunately for R-CALF and their suporters, there is still a little cornerstone in our judicial system that has to be overcome to achieve their goal and that's called "THE PRESUMPTION OF INNOCENSE". Guilt has to be proven not just desired because they want someone or something to blame.

In contrast to the NCBA philosopy, the R-CALF philosophy is that packers and retailers are making huge profits off the backs of producers by manipulating markets, fixing prices, yada, yada yet R-CALF & Co. cannot provide one stitch of evidence to support what they want to believe. In the wake of their blame, cattle prices rise and fall, just like they always have, and they can't explain why. They claim to know why the markets fall but they can't explain why they raise. What a dilema. Anyone who follows this logic is quickly caught in a position of being unable to defend their beliefs when challenged whether it be in the court room or in debate. They support further regulation of the packing industry and think checkoff dollars would be better spent suing the packers than increasing the demand for beef. Bottom line, R-CALF & CO. is 0 and 9 in court for damn good reason.

Why do I concern myself with this you ask? Because I hate to see producers waste their energy on baseless conspiracy theories when we have much bigger problems to face such as the endangered species act and higher taxes.

Back to the packers. Another thing that most people don't think about is that packers and retailers have to sell the beef before they smell the beef. If beef does not sell at the marked price, the retailer has to lower the price in order for the beef to sell before it has to be discarded. The retailer is not guaranteed their asking price. Think about that in regards to profit and loss. A percentage of all the beef that leaves the packing plant is discarded if it is not sold before it expires. How do you suppose that affects their bottom line??

Next, there is a lag time between when cattle are bought and when the beef from those cattle is sold. The price of cattle lags behind the price of beef which is precisely why you see both positive and negative profit margins in the packing industry regardless how efficient they are. Don't believe me, go talk to a smaller packer that you trust and ask them what affects their bottom line. If the beef market falls between the time the cattle are bought and the beef from those cattle is sold to the retailer, ALL OTHER THINGS BEING EQUAL, the packer will lose money. When the beef market rises, the opposite is true.

FACT: When the packer blamers sued ibp, ibp's financial records were part of the court records. During the period of time when ibp, assumed to be one of the most efficient packers in the industry, was "supposedly" manipulating the market, their per head profit turned out to be $16 per head to market everything from the tongue to the rectum and price cattle accordingly. So what happened to these "HUGE $300 PER HEAD PROFITS" that R-CALF and company were telling us about?? Why didn't you hold those who told you that accountable? Do you really need to blame so badly that you will ignore what was brought out in court in contrast to what you want to believe? Do some of you honestly want to continue to donate calves to fund lawsuits that are based on ignorance and lies?

Contrast a $16 per head profit FROM THE MOST EFFICIENT PACKER IN THEIR BEST YEARS with the local locker plant who pays someone $40 to haul the ofal away? If you still believe there is so much money in the packing industry, why haven't you invested in the packing industry? Why is USPB's patronage dividends only $20 - $30 per head? HOW DO YOU EXPLAIN IT?? You can't!

With that $16 per head figure in mind, why wouldn't this industry rather take the NCBA approach of trying to find ways to increase beef and beef by product demand both foreign and domestic? If increasing the demand for beef and beef by products could result in another $50 per head for feeder calves, why wouldn't we do everything we could to increase beef demand?

Here is something else for you to consider, if the packers are simply a margin operator, why should they care what consumers are willing to pay for beef and beef by products??? Their profit is not just determined by what they can sell beef for, it's also determined by what they pay for cattle. YET THEY HAVE BEEN WILLING PARTICIPANTS IN FINDING NEW WAYS TO MARKET BEEF so how can the packer be the enemy?

I can remember when the late Bob Peterson, former ibp CEO, was talking about how angry he was that poultry had an unfair market advantage due to the amount of water that poultry could contain as opposed to the amount of water that beef could contain. He was asking livestock producers where were they in this fight and why the packer was fighting this fight for the producer??? Bob was exactly right. Since the price of beef affects the price of cattle and since the packer's profit was not solely driven by the price of beef, why weren't the livestock producers just as concerned about this inequity between beef and poultry???

It's imperative that the industry either work with the large packers to increase the market share for beef or invest in the packing industry and market their own beef.

It's funny how these so called sale barn market experts are cussing vertical integration and cussing the packers yet most of the cattle they sell end up being processed by the same large packers that they believe are making all this profit. Go figure! Yet if these same cow calf producers invest in the packing segment of the industry, they are contributing to vertical integration JUST LIKE THEIR SPOKESPERSON MIKE CALLICRATE DID BY INVESTING IN RANCH FOODS DIRECT. Haha! If Ranch Foods Direct is not vertical integration, what is??? The hypocrisy in the blaming segment of this industry is endless.

If you can agree with me that the price of cattle is driven by the price of beef and beef by products minus the costs of processing minus the level of profit a packer is willing to accept and still keep operating RELATIVE TO THEIR COMPETITION, then let's discuss what affects processing costs.

Processing costs include labor. What the employees are paid. Here is another classic hypocritical position of the packer blamers. They claim packer employees are underpaid and existing in, as they put it, "a third world country environment". If labor is a cost of production and labor costs increase, how do you suppose this affects the price of cattle? The packer blamers blame the packers for not paying their help more yet cattle prices are partially determined by processing costs which include labor costs. If labor costs in processing go up, cattle prices come down ALL OTHER THINGS BEING EQUAL. COMPRENDE'?

Another big factor in the cost of production in a packing plant is chain speeds. How many cattle can be processed in a certain amount of time. Obviously, the more cattle that can be processed, WITHOUT ABUSING YOUR LABOR FORCE, the more efficient the plant can be. I don't know if financial incentives are offered to labor for increased plant production or not. I'm sure the work force and the management have that worked out or the employees wouldn't be working there for very long. They are certainly not being forced to work there.

During beef fabrication, I am sure precise cuts are a factor in profit and loss. If bad cuts are made, prices for the beef will reflect those bad cuts.

Now consider this, you have a labor force that has to be paid. Yes, you can cut shifts and slow chain speeds but there is no question that you are far better to maintain a constant flow of cattle than to be caught short. If you have to cut shifts and slow chain speeds to reflect the availability of cattle, you still have the same fixed costs and you still have to worry about having enough work to keep your employees. Do you think that would create incentive to go out and buy cattle particularly when your competition might be in the same position?

So you wonder why the packing industry is now dominated by 4 companies with 80% market share??

I dont care if you have 40 packers, you are still going to have a certain number of those packers that figure out how to cut costs and pay more for cattle than their competition and they will eventually be buying out that competition WHICH LEADS TO CONCENTRATION.

Here's another thing, why do some of you squeal about the concentration in the packing industry but not the concentration in the cow calf industry? Why is it ok for some of you to buy more land and run more cattle but it's not ok for a packing plant to process more cattle? Figure that one out.

Now here's the real kicker, by pointing out these obvious truths, I am labeled as a "packer lackey" or as being "in bed with the packers" but where is the facts in opposition to what I have just stated? Talk certainly is cheap isn't it?


~SH~
 

Latest posts

Back
Top