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Producers study captive supply
this document web posted: Wednesday December 14, 2005 20051215p11
By Barbara Duckworth
Calgary bureau
Alberta Beef Producers has initiated a review on the impact of packer ownership of cattle in Canada.
,Reviews of U.S. research show the issue of captive supply, while controversial has an insignificant effect on cash prices
Captive supplies are packer-owned cattle that are custom fed in a commercial feedlot or fed in packer-owned facilities. The definition could also include fed cattle bought by fixed price or basis forward contracts or those involved in exclusive marketing agreements. ,
"We're still not real clear on the positive impacts and negative impacts of captive supply," said Canfax research analyst Andrea Brocklebank.
A new bill has been introduced in the U.S. Congress to control packer ownership of cattle and the U.S. Department of Agriculture is studying the issue with final results expected in mid-2006.
There is little comparable Canadian research and it is dangerous to come to a conclusion without further research into the domestic scenario, said beef producer delegate Travis Toews.
"We should wait and see the results of this study before we make a decision on this issue," he said at the beef producers annual meeting Dec. 7.
Alberta Beef Producers consists of members from five other farm groups with a goal of strengthening Alberta's beef industry.
,Some at the meeting argued restrictions are needed to protect the Canadian industry because the two major packers are American owned and they could control large numbers of available cattle.
Others said contracts are part of a risk management plan.
"You're taking away forward price curves that we use for risk management. It is unenforceable, short of moving toward a single desk, which really means a marketing board," said cattle feeder Stuart Thiessen of Strathmore. ,
Brocklebank said her review of the American situation showed most arrangements are mutual agreements between cattle feeders and packers.
"These marketing agreements have to benefit both parties, otherwise cattle feeders wouldn't become involved with them," she said.
,In the United States, packer ownership in 2002 was around 11 percent of available cattle. There are other contract arrangements that account for as many as a third of U.S. cattle. ,
It is difficult to assess what level is held in Canada because packers are not required to report ownership.
Those opposed to captive supply argue that with fewer bidders in the cash market, prices drop and price discovery is compromised.
Others opt for captive supply to obtain quality and yield grade premiums for high quality cattle that are not available on the cash market.
Some producers claim a contract can help them obtain favourable financing terms and more access to credit. They receive a timely market outlet where they can sell at the correct market weight and maintain profitability.
,Contracts reduce management and marketing costs because less time is spent negotiating on the cash market. ,
Processors like it because they can secure higher quality and more consistent cattle for branded programs and private label retail programs. Banning all forms of captive supply arrangements would result in a small increase in the cash market because there would be more bidders and animals available.
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this document web posted: Wednesday December 14, 2005 20051215p11
By Barbara Duckworth
Calgary bureau
Alberta Beef Producers has initiated a review on the impact of packer ownership of cattle in Canada.
,Reviews of U.S. research show the issue of captive supply, while controversial has an insignificant effect on cash prices
Captive supplies are packer-owned cattle that are custom fed in a commercial feedlot or fed in packer-owned facilities. The definition could also include fed cattle bought by fixed price or basis forward contracts or those involved in exclusive marketing agreements. ,
"We're still not real clear on the positive impacts and negative impacts of captive supply," said Canfax research analyst Andrea Brocklebank.
A new bill has been introduced in the U.S. Congress to control packer ownership of cattle and the U.S. Department of Agriculture is studying the issue with final results expected in mid-2006.
There is little comparable Canadian research and it is dangerous to come to a conclusion without further research into the domestic scenario, said beef producer delegate Travis Toews.
"We should wait and see the results of this study before we make a decision on this issue," he said at the beef producers annual meeting Dec. 7.
Alberta Beef Producers consists of members from five other farm groups with a goal of strengthening Alberta's beef industry.
,Some at the meeting argued restrictions are needed to protect the Canadian industry because the two major packers are American owned and they could control large numbers of available cattle.
Others said contracts are part of a risk management plan.
"You're taking away forward price curves that we use for risk management. It is unenforceable, short of moving toward a single desk, which really means a marketing board," said cattle feeder Stuart Thiessen of Strathmore. ,
Brocklebank said her review of the American situation showed most arrangements are mutual agreements between cattle feeders and packers.
"These marketing agreements have to benefit both parties, otherwise cattle feeders wouldn't become involved with them," she said.
,In the United States, packer ownership in 2002 was around 11 percent of available cattle. There are other contract arrangements that account for as many as a third of U.S. cattle. ,
It is difficult to assess what level is held in Canada because packers are not required to report ownership.
Those opposed to captive supply argue that with fewer bidders in the cash market, prices drop and price discovery is compromised.
Others opt for captive supply to obtain quality and yield grade premiums for high quality cattle that are not available on the cash market.
Some producers claim a contract can help them obtain favourable financing terms and more access to credit. They receive a timely market outlet where they can sell at the correct market weight and maintain profitability.
,Contracts reduce management and marketing costs because less time is spent negotiating on the cash market. ,
Processors like it because they can secure higher quality and more consistent cattle for branded programs and private label retail programs. Banning all forms of captive supply arrangements would result in a small increase in the cash market because there would be more bidders and animals available.
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