Producer v Feeder v Packer

[HDRider]

The combination of lower cash cattle prices and higher beef cutout values produced a windfall for beef packers — their estimated profit margins were $191 per head the week before the fire but jumped to $450 per head by early September. Coupled with feedyard losses estimated at $203 per head, the spread between feedyard and packer margins reached a whopping $618 per the second week in September.

That shocking profit spread fueled the anger and deepening rift between packers and feeders. At a cattlemen’s rally in Omaha Oct. 2, organized by groups who are seeking government intervention to “restore fair cattle markets,” speakers noted producers should be rightly outraged at packers’ low-ball bids while “they are charging more for boxed beef going out the back door.”

Such statements were made by those who had their prices right, but their facts wrong. That’s because boxed beef prices are reported daily by USDA’s Agricultural Marketing Service, widely disseminated by media and market services, yet sometimes wildly misunderstood by many cattlemen.

“Markets typically provide strong price responses to a shock such as the Tyson fire in order to initiate actions that repair the market disruption,” says Derrell Peel, livestock marketing specialist at Oklahoma State University.

https://www.drovers.com/article/beef-cutout-prices-widely-reported-yet-wildly-misunderstood

 

[bball]

The combination of lower cash cattle prices and higher beef cutout values produced a windfall for beef packers — their estimated profit margins were $191 per head the week before the fire but jumped to $450 per head by early September. Coupled with feedyard losses estimated at $203 per head, the spread between feedyard and packer margins reached a whopping $618 per the second week in September.

That shocking profit spread fueled the anger and deepening rift between packers and feeders. At a cattlemen’s rally in Omaha Oct. 2, organized by groups who are seeking government intervention to “restore fair cattle markets,” speakers noted producers should be rightly outraged at packers’ low-ball bids while “they are charging more for boxed beef going out the back door.”

Such statements were made by those who had their prices right, but their facts wrong. That’s because boxed beef prices are reported daily by USDA’s Agricultural Marketing Service, widely disseminated by media and market services, yet sometimes wildly misunderstood by many cattlemen.

“Markets typically provide strong price responses to a shock such as the Tyson fire in order to initiate actions that repair the market disruption,” says Derrell Peel, livestock marketing specialist at Oklahoma State University.

https://www.drovers.com/article/beef-cutout-prices-widely-reported-yet-wildly-misunderstood

I would have enjoyed an explanation as to why those strong price responses are felt by those on the packing side only, but not the feeders or producers...but we aren't supposed to ask those types of questions anymore. From what I can gather, it wasnt "markets" that provided strong price responses; it was only one market (i.e. the retail end that saw strong price response). Record price response I suspect :roll: :secret: :help:

 

[Dave]

I don't remember the cow/calf guys complaining in 2014 when the feeders were paying too much to come out on the calves.

The issue at the packer end is too many contracted or packer owned cattle. That allows them to stay out of the cash market if they want to for a time. That drives the cash market down. Fat cattle do have an expiration date on them. The feeders can't hold them forever.

 

[HDRider]

The combination of lower cash cattle prices and higher beef cutout values produced a windfall for beef packers — their estimated profit margins were $191 per head the week before the fire but jumped to $450 per head by early September. Coupled with feedyard losses estimated at $203 per head, the spread between feedyard and packer margins reached a whopping $618 per the second week in September.

That shocking profit spread fueled the anger and deepening rift between packers and feeders. At a cattlemen’s rally in Omaha Oct. 2, organized by groups who are seeking government intervention to “restore fair cattle markets,” speakers noted producers should be rightly outraged at packers’ low-ball bids while “they are charging more for boxed beef going out the back door.”

Such statements were made by those who had their prices right, but their facts wrong. That’s because boxed beef prices are reported daily by USDA’s Agricultural Marketing Service, widely disseminated by media and market services, yet sometimes wildly misunderstood by many cattlemen.

“Markets typically provide strong price responses to a shock such as the Tyson fire in order to initiate actions that repair the market disruption,” says Derrell Peel, livestock marketing specialist at Oklahoma State University.

https://www.drovers.com/article/beef-cutout-prices-widely-reported-yet-wildly-misunderstood

I would have enjoyed an explanation as to why those strong price responses are felt by those on the packing side only, but not the feeders or producers...but we aren't supposed to ask those types of questions anymore. From what I can gather, it wasnt "markets" that provided strong price responses; it was only one market (i.e. the retail end that saw strong price response). Record price response I suspect :roll: :secret: :help:

I posted it for the very reason you replied. I did not see an explanation in that article.

It simply said, "It's complicated, you are too stupid to understand, move on, nothing to see here."

 

[HDRider]

I don't remember the cow/calf guys complaining in 2014 when the feeders were paying too much to come out on the calves.

The issue at the packer end is too many contracted or packer owned cattle. That allows them to stay out of the cash market if they want to for a time. That drives the cash market down. Fat cattle do have an expiration date on them. The feeders can't hold them forever.

Are you suggesting feeders lost money because of producers?

You are right about packers. They are the only one in the value chain that can squeeze the ones upstream.

 

[bball]

I don't remember the cow/calf guys complaining in 2014 when the feeders were paying too much to come out on the calves.

The issue at the packer end is too many contracted or packer owned cattle. That allows them to stay out of the cash market if they want to for a time. That drives the cash market down. Fat cattle do have an expiration date on them. The feeders can't hold them forever.

Are you suggesting feeders lost money because of producers?

You are right about packers. They are the only one in the value chain that can squeeze the ones upstream.

And not only that Rider, but back in 2014, the retail market prices also climbed with the higher prices being paid to producers/feeders. So even though the packers had to pay producers "record" prices for a year or 2, when the prices did come back down for the producers, retail prices remained strong for some odd reason and still do today. Anyone who hasn't figured out that price fixing, and collusion is and has been occurring by the packers is asleep at the wheel. Just glad I am a hobby guy and can close it down with relative ease if it gets much worse. I feel just awful for the producers trying to make this go as a primary source of income; their livelihood.

 

[Dave]

Just glad I am a hobby guy and can close it down with relative ease if it gets much worse. I feel just awful for the producers trying to make this go as a primary source of income; their livelihood.

I don't know why everyone is complaining. Sure it could be better. All of my neighbors are full time cattlemen. The closest neighbor shipped his calves 2 weeks ago. His wife and him are in Hawaii right now. Another extended family from here spent 10 days vacationing just outside Yellowstone staying in a private vacation cabin ($200+ a day to stay in the cabin). Another one who I talked to this morning was debating doing something next week or after he gets back from a trip to Las Vegas for the WNFR. They can't be doing too bad.

 

[callmefence]

I don't remember the cow/calf guys complaining in 2014 when the feeders were paying too much to come out on the calves.

The issue at the packer end is too many contracted or packer owned cattle. That allows them to stay out of the cash market if they want to for a time. That drives the cash market down. Fat cattle do have an expiration date on them. The feeders can't hold them forever.

Are you suggesting feeders lost money because of producers?

You are right about packers. They are the only one in the value chain that can squeeze the ones upstream.

And not only that Rider, but back in 2014, the retail market prices also climbed with the higher prices being paid to producers/feeders. So even though the packers had to pay producers "record" prices for a year or 2, when the prices did come back down for the producers, retail prices remained strong for some odd reason and still do today. Anyone who hasn't figured out that price fixing, and collusion is and has been occurring by the packers is asleep at the wheel. Just glad I am a hobby guy and can close it down with relative ease if it gets much worse. I feel just awful for the producers trying to make this go as a primary source of income; their livelihood.

Ball can you imagine having to compete with someone. Make that lots of someone's who are doing your work as their hobby... that's gotta be tuff to huh.

 

[bball]

Are you suggesting feeders lost money because of producers?

You are right about packers. They are the only one in the value chain that can squeeze the ones upstream.

And not only that Rider, but back in 2014, the retail market prices also climbed with the higher prices being paid to producers/feeders. So even though the packers had to pay producers "record" prices for a year or 2, when the prices did come back down for the producers, retail prices remained strong for some odd reason and still do today. Anyone who hasn't figured out that price fixing, and collusion is and has been occurring by the packers is asleep at the wheel. Just glad I am a hobby guy and can close it down with relative ease if it gets much worse. I feel just awful for the producers trying to make this go as a primary source of income; their livelihood.

Ball can you imagine having to compete with someone. Make that lots of someone's who are doing your work as their hobby... that's gotta be tuff to huh.

Yes, I sure can! Anytime I take a cow to the sale barn I compete with nothing but guys like myself; running 20 or 30 head. Consequently, I put the work in to pursue other avenues to maximize my profit margins. Makes more work for me, but what's work to a hog? The juice is worth the squeeze. When it's not, I will be one less hobby guy you will have to compete with. Plenty of guys running 30 head of cattle topping the sales consistently in this country.

 

[bball]

No one is complaining. Its simply a discussion about the inequalities in production and retailing of beef in this country. I am glad your neighbors are succeeding in their endeavors. Perhaps the PNW is the last bastion of promise for the American beef producer. Yes, it could be better; simply by being somewhat balanced, as opposed to one sided. Its a tough balancing act between free market and formation(openly or covertly) of trusts(leading to monopolies usually). I believe the inequity between production and packing is what is concerning to many folks involved with beef production.
Perhaps producers should band together and do a better job of protecting our product, but as this board often demonstrates, the American producer is just too stubborn, hardheaded and/or autonomous in our behavior to ever risk joining together for our own benefit or survival.

 

[callmefence]

And not only that Rider, but back in 2014, the retail market prices also climbed with the higher prices being paid to producers/feeders. So even though the packers had to pay producers "record" prices for a year or 2, when the prices did come back down for the producers, retail prices remained strong for some odd reason and still do today. Anyone who hasn't figured out that price fixing, and collusion is and has been occurring by the packers is asleep at the wheel. Just glad I am a hobby guy and can close it down with relative ease if it gets much worse. I feel just awful for the producers trying to make this go as a primary source of income; their livelihood.

Ball can you imagine having to compete with someone. Make that lots of someone's who are doing your work as their hobby... that's gotta be tuff to huh.

Yes, I sure can! Anytime I take a cow to the sale barn I compete with nothing but guys like myself; running 20 or 30 head. Consequently, I put the work in to pursue other avenues to maximize my profit margins. Makes more work for me, but what's work to a hog? The juice is worth the squeeze. When it's not, I will be one less hobby guy you will have to compete with. Plenty of guys running 30 head of cattle topping the sales consistently in this country.

Ok , I'll try again.
Can you imagine competing at your profession, not your hobby???
I don't mean to get you riled. And your not competing with me. Cattle are not my primary source of income. The number of amateur and hobby producers is a huge part of the supply in this country. That's my point. Wouldn't it be good for the pros if there wasn't so much hobby beef in the supply???

 

[callmefence]

No one is complaining. Its simply a discussion about the inequalities in production and retailing of beef in this country. I am glad your neighbors are succeeding in their endeavors. Perhaps the PNW is the last bastion of promise for the American beef producer. Yes, it could be better; simply by being somewhat balanced, as opposed to one sided. Its a tough balancing act between free market and formation(openly or covertly) of trusts(leading to monopolies usually). I believe the inequity between production and packing is what is concerning to many folks involved with beef production.
Perhaps producers should band together and do a better job of protecting our product, but as this board often demonstrates, the American producer is just too stubborn, hardheaded and/or autonomous in our behavior to ever risk joining together for our own benefit or survival.

If the producers banded together to affect prices. That would be collusion and price fixing

:shock: .

 

[bball]

Ball can you imagine having to compete with someone. Make that lots of someone's who are doing your work as their hobby... that's gotta be tuff to huh.

Yes, I sure can! Anytime I take a cow to the sale barn I compete with nothing but guys like myself; running 20 or 30 head. Consequently, I put the work in to pursue other avenues to maximize my profit margins. Makes more work for me, but what's work to a hog? The juice is worth the squeeze. When it's not, I will be one less hobby guy you will have to compete with. Plenty of guys running 30 head of cattle topping the sales consistently in this country.

Ok , I'll try again.
Can you imagine competing at your profession, not your hobby???
I don't mean to get you riled. And your not competing with me. Cattle are not my primary source of income. The number of amateur and hobby producers is a huge part of the supply in this country. That's my point. Wouldn't it be good for the pros if there wasn't so much hobby beef in the supply???

Not riled at all. Enjoy the discussion. I do compete in my profession as well. You see, just like in cattle, in my professional life, I am small potatoes there too! Our hospital is a medium sized rural hospital trying to compete with the major players in our state. Most have folded up or been bought up by the big dogs. We hang on even though the writing is on the wall, and that has come with great cuts and consolidating.

You're absolutely correct. It would be beneficial for the big dogs if all the small dogs or part timers quit. Like most things in this country, get big or get out, right? As I posted in another thread, the statistics that illustrate just how many beef producers are supplemented by off farm income is astonishing in America. Who really are the "pros"? And who decides? Are the pros supplemented by off farm income? There aren't any pros. There are big out fits, medium out fits and small out fits. The small guys make up the majority of beef producers in number, but also only produce approximately 26% of the beef. Fine. Run off all the small guys. But If You think that will help the big producer you're dreaming my fine Texas friend. Packers will simply import more Australian, Canadian and S. American beef to drive the big dogs out of the market by keeping prices down. You saw the same pic I did with the POTUS making his announcement and the JBS boys standing nearby...
Big dogs can out survive a small dog on smaller margins due to volume. But even volume won't be enough to last for the long haul with what is happening in S. America especially. They're waking up.

 

[bball]

No one is complaining. Its simply a discussion about the inequalities in production and retailing of beef in this country. I am glad your neighbors are succeeding in their endeavors. Perhaps the PNW is the last bastion of promise for the American beef producer. Yes, it could be better; simply by being somewhat balanced, as opposed to one sided. Its a tough balancing act between free market and formation(openly or covertly) of trusts(leading to monopolies usually). I believe the inequity between production and packing is what is concerning to many folks involved with beef production.
Perhaps producers should band together and do a better job of protecting our product, but as this board often demonstrates, the American producer is just too stubborn, hardheaded and/or autonomous in our behavior to ever risk joining together for our own benefit or survival.

If the producers banded together to affect prices. That would be collusion and price fixing

:shock: .

:clap: :clap: you got the point :cowboy:
It was sarcasm AEB all the reasons I listed, implying it would never happen.

 

[sstterry]

If the producers banded together to affect prices. That would be collusion and price fixing

:shock: .

Not if they did it as a cooperative and negotiated that way. This is exactly what the milk producers have done. The problem with the milk producers has been that they got shafted by their own co-op that started colluding with the wholesalers.

 

[callmefence]

No one is complaining. Its simply a discussion about the inequalities in production and retailing of beef in this country. I am glad your neighbors are succeeding in their endeavors. Perhaps the PNW is the last bastion of promise for the American beef producer. Yes, it could be better; simply by being somewhat balanced, as opposed to one sided. Its a tough balancing act between free market and formation(openly or covertly) of trusts(leading to monopolies usually). I believe the inequity between production and packing is what is concerning to many folks involved with beef production.
Perhaps producers should band together and do a better job of protecting our product, but as this board often demonstrates, the American producer is just too stubborn, hardheaded and/or autonomous in our behavior to ever risk joining together for our own benefit or survival.

If the producers banded together to affect prices. That would be collusion and price fixing

:shock: .

:clap: :clap: you got the point :cowboy:
It was sarcasm AEB all the reasons I listed, implying it would never happen.

**** try not to act so surprised would ya

 

[Ky hills]

Pretty good conversation here. I’m glad to see it being discussed, it seems like the associations want to shut down conversations and inevitable questions. I think we are being led to believe that our numbers are causing the competition, however per an article I read recently but can’t recall whether it was online or in a cattle publication, it stated that fast food restaurants bought a high percentage of the beef and a significant part of that was of out of country origin. It stated that there was a shortage of lean beef. I realize the concept is to provide as cheap of food supply as possible but I would think that if the reasoning is a shortage of lean beef that our domestic pound cow and bulls, as well as feeder cattle perceived as lower grading should be stable and relatively good at all times price wise.
Around here it used to be said that 40 or so cows would make for a modest living. I believe that would be closer now to 60-70 at the minimum, and that’s talking a bare minimum with no room for errors. I think that’s why a lot are folding up around here the land prices are not comparable to the cattle income for most.

 

[wbvs58]

I am surprised that your prices aren't stronger. Our processors are paying reasonable money for our drought affected cattle as they need them to keep the plants going at optimum capacity as the export markets are very strong especially China and the lean meat to the US is not too shabby either.

Ken

 

[bball]

Pretty good conversation here. I’m glad to see it being discussed, it seems like the associations want to shut down conversations and inevitable questions. I think we are being led to believe that our numbers are causing the competition, however per an article I read recently but can’t recall whether it was online or in a cattle publication, it stated that fast food restaurants bought a high percentage of the beef and a significant part of that was of out of country origin. It stated that there was a shortage of lean beef. I realize the concept is to provide as cheap of food supply as possible but I would think that if the reasoning is a shortage of lean beef that our domestic pound cow and bulls, as well as feeder cattle perceived as lower grading should be stable and relatively good at all times price wise.
Around here it used to be said that 40 or so cows would make for a modest living. I believe that would be closer now to 60-70 at the minimum, and that’s talking a bare minimum with no room for errors. I think that’s why a lot are folding up around here the land prices are not comparable to the cattle income for most.

This is one of the single biggest obstacles an American producer now faces; unless you live in one of the few places left where you can buy large parcels of ground for under $2500 per acre. This number is the number generally agreed upon by several savvy real estate/cattle guys from this very board(some are still here and some are not) as about the most you could pay for land and run a cattle operation. Some would argue for 3k. Doesn't matter to me, I couldn't buy sh:t ground here for under 4k anymore. However, as land prices continue to creep upwards, it will impact everywhere eventually.

It has been a very good discussion and remained very civil. One thing for certain, there are no simple answers. I am ALWAYS interested to hear how the guys that are making it work for a living do it. Unfortunately, we rarely hear the how, just that it looks like they are.
I know the 2 BTOs that are near me are both nervous. I hate to see it because they are awesome people. Good as folks as you could hope to know.

 

[Ky hills]

Pretty good conversation here. I’m glad to see it being discussed, it seems like the associations want to shut down conversations and inevitable questions. I think we are being led to believe that our numbers are causing the competition, however per an article I read recently but can’t recall whether it was online or in a cattle publication, it stated that fast food restaurants bought a high percentage of the beef and a significant part of that was of out of country origin. It stated that there was a shortage of lean beef. I realize the concept is to provide as cheap of food supply as possible but I would think that if the reasoning is a shortage of lean beef that our domestic pound cow and bulls, as well as feeder cattle perceived as lower grading should be stable and relatively good at all times price wise.
Around here it used to be said that 40 or so cows would make for a modest living. I believe that would be closer now to 60-70 at the minimum, and that’s talking a bare minimum with no room for errors. I think that’s why a lot are folding up around here the land prices are not comparable to the cattle income for most.

This is one of the single biggest obstacles an American producer now faces; unless you live in one of the few places left where you can buy large parcels of ground for under $2500 per acre. This number is the number generally agreed upon by several savvy real estate/cattle guys from this very board(some are still here and some are not) as about the most you could pay for land and run a cattle operation. Some would argue for 3k. Doesn't matter to me, I couldn't buy sh:t ground here for under 4k anymore. However, as land prices continue to creep upwards, it will impact everywhere eventually.

It has been a very good discussion and remained very civil. One thing for certain, there are no simple answers. I am ALWAYS interested to hear how the guys that are making it work for a living do it. Unfortunately, we rarely hear the how, just that it looks like they are.
I know the 2 BTOs that are near me are both nervous. I hate to see it because they are awesome people. Good as folks as you could hope to know.

Like a lot of others I’m personally at a crossroads now as far how to make it work so it’s a subject near and dear to me. I’m a small time full time farmer and the only option I have at the moment is to go all in on cows and calves and forget the feeders and bred heifers. That will cut out the expense of having to buy and then worry about paying out if the market goes worse. At least with a cow calf outfit you still have the cows after selling off the calves. I can run cows without having to feed near as much grain. I am figuring on running more cows and rotating between fields where I haven’t been able to do that with the other projects. I’m also considering the possibility of maybe selling out here and relocating to a less expensive area.