There has always been healthy debate on the subject of packer ownership. The fact that Alberta has only two major packers has done little to snuff the flame of hostility toward the packing industry. Packers, like cattle feeders and cow-calf operators, are margin players. Volume is often related to profitability as economies of scale kick in at some point in the production cycle. We look to more calves per farm unit, more cattle per feedlot, and more carcasses per hooks to reduce capital and operational costs per head. Everyone is in the same business to a degree, and that is to produce beef. Why then, this animosity toward packers?
It stems from a misunderstanding of the difference between packer ownership and packer control. For several years, there have been arguments and attempts to control packer ownership of cattle. That is fine, but packers have normally not owned a lot of cattle at a time. I can recall a few years where they were active in hot spots, but packers don’t like the risk of owning large chunks of cattle outside of their own feedyards. To legislate packer ownership would not cause any disruption to the packing industry. Packers do however control a lot of cattle and the volume and type of cattle through other contractual agreements. This is termed “packer control” or “packer influence.” Packer control includes cattle taken off the cash market by contractual agreement, or where the net price is influenced, such as in a basis contract. To establish a cash market, you need cattle open to cash and buyers with cash. If the feedyard has chosen to take the cattle off of the cash market, then that will influence cash price for the time in which the cattle are to be delivered, called the delivery window.
The reporting of cattle prices in Canada is voluntary. In fact, so is beef carcass grading. There is no mandatory process in which the details of sales transactions or the establishment of value is required by law, nor is there a contingency that this information is to be released to the public. We do not have price transparency in the cattle business.
The complete absence of a value-based marketing system and the voluntary aspects of the current system leave it open to interpretation. You could have a cash price but its depth may be skewed by the volume of trade. Packers may or may not report the high or low end of the day’s transactions and in no instance are the contract, grid, formula, basis or other contractual cattle included in the day’s price reporting.
You can try and manage the packer, but he is doing that quite well by himself. Having one packer or one hundred packers would not bring pleasure to the disheartened. The packer may just simply compete on contract cattle and leave just pennies on the table for the cash cattle.
The cash price the packer offers is the symptom of a very sick and old problematic system in which there is an absence of any type of legal requirement to report cash and contract cattle and the delivery window. Deep in the wound of the antiquated system is the core problem and that is a complete lack of understanding of the value of the product being sold – beef. Until we have both mandatory price reporting that includes all contractual cattle and the delivery windows there will continue to be begging on the cash market. And, until we have value-based marketing systems, the cash market losses its relationship to the product, and all sellers of cattle are price takers.
Another packer is welcome, but the problem remains the same. True change to the cattle industry comes from pricing of cattle off the beef and beef credits, both domestic and international, and the implementation of a transparent and mandatory price reporting system.
Brenda Schoepp is a market analyst and the owner and author of Beeflink, a national beef cattle market newsletter. She ranches near Rimbey.beefli[email protected]