Your Reading List

Good, Bad And Opportunity

These days a lot of Canadian producers are feeling overwhelmed by the control of industry by big players. This includes input suppliers who are becoming fewer and gaining market power, as well as purchasers of live cattle who are becoming more concentrated all the time.

For most producers the opportunity to take part in market power is somewhat limited. To put this into perspective, a producer with 600 cows would have a difficult time filling a modern 300 head feedlot pen single-handedly. There are some new technologies emerging to help deal with this, with the best example being the availability of sexed semen through AI. The producer can now produce feeder calves in a ratio greatly skewed from the traditional biological 50 per cent heifer:50 per cent steer calf crop ratio. This can provide some added market power.

Another example is the ability to put load lots (roughly 60,000 pounds) of calves together. This equates to 100 six-weight calves, or 67 nine-weight calves. Load lots of similar cattle are preferred as they help to reduce transport costs per head or per pound of beef. There are some opportunities for smaller producers to feed calves to heavier weights to make up load lots.

All of these solutions proposed so far to battle market concentration have one major problem. They involve a single operator, on a single operation making singular decisions. The greatest technology available (and the hardest to implement) to gain market power is cooperation.

This struck me particularly hard on a trip to Australia where Stanbroke Pastoral Company (http://www.stanbroke.com.au) gave a presentation and talked about their 200,000 mother cows. Admittedly these cows and their environment may not be as productive as a typical Canadian operation, but at the time the average herd size in Canada was around 50 cows. Today at our current 61 cow average herd size, that means roughly 3,300 average producers would have to work together to influence the same number of cows as the few folks in Stanbroke’s boardroom. If we are serious about trade and keeping a productive and profitable industry, we have to learn to work together.

The feeding industry in Canada is already providing a good business case in this regard on the marketing end through the North West Consolidated Beef Producers model (http://www.nwcbp.org/).On the input side, the local coop, Farmers of North America (http://www.fna.ca)and some of the equipment sharing co-operatives are good examples.

These examples provide some useful insight and direction for producers to gain market power and to add value. There are opportunities for co-operation by using similar types of sires, calving season, vaccination, and marketing programs. This goes beyond the traditional “pre-sort” sale where calves are sorted by colour and weight on a specific calendar day and sold on the average. The approach moves towards packaging genetically similar groups of cattle with consistent past management in load lots or larger groups.

I believe that this type of approach will become more common in the marketplace and may be a service offered to customers by the seedstock industry or veterinary service providers, since they represent a common point of interest and management for many producers.

In a recent article in the Globe and Mail’s Report on Business titled “How to get paid like Michael Dell” (Jan 13, 2010) the author talks about how Dell computers nearly went bankrupt (many of us can probably relate about now) because its’ growth in sales was so steep they didn’t have enough cash from previous sales to build newly ordered computers. Dell reversed its cash flow cycle by pre-selling its product (getting paid up front) and the result was spectacular growth with low debt financing. In the beef business this would be like the retailer paying for calves of a specific quality on a set date up front and the cowboy agreeing to breed cows and provide the product two years ahead. This is certainly a stretch from today, but this is the type of global scenario that we are competing with when looking at integrated and organized groups like Stanbroke.

We have to learn to get along within and across sectors. Cooperation is can be a self-directed form of consolidation and it is one we can’t afford to overlook.

Sean McGrath is a rancher and consultant from Vermilion, AB. He can be reached at [email protected]or (780)853-9673. For additional information visit www.ranchingsystems.com

About the author

Contributor

Sean McGrath is a rancher and consultant from Vermilion, Alta. He can be reached at [email protected] or (780) 853- 9673. For additional information visit www.ranchingsystems.com.

Comments

explore

Stories from our other publications