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8 Reasons Why the Livestock Industry Is on a Roll
When Kevin Gould was growing up on a beef farm in central Michigan, he never imagined the transformation that would happen in the state’s livestock and dairy industries in just the past two years. Gould, an Extension beef educator with Michigan State University, is based in Ionia and is responsible for 18 counties. He has been helping producers navigate the rapid changes.
“For dairies in Michigan, the trend is toward larger operations in excess of 1,000 cows,” says Gould. “We are losing a lot of farms, but we’ve actually gained cows the last two years.” Close to 200 dairy farms in the state have discontinued milking cows in the past year, he says, after “some of the poorest dairy prices we’ve seen in my lifetime.” Some of the facilities are now being used for other purposes, such as cattle feeding.
The beef and dairy industries in Michigan are tied together. Nationally, about 80% of cattle in feedlots come from beef breeds and 20% from dairy breeds, but that number is flipped in Michigan. “The vast majority of our cattle feeding is black and white,” says Gould. The growth by larger dairies started in 2014 due to high milk prices, he explains. “Producers took that extra income and expanded.”
The poultry industry is growing, too. In Saranac, family-owned Herbruck’s Poultry Ranch, Michigan’s largest egg producer, is in the midst of a $16 million expansion in cage-free pullet-rearing facilities.
Same scenario for swine. Clemens Food Group opened a new hog processing plant in Coldwater in 2017, the first pork packing plant in the state since Thorn Apple Valley in Detroit closed in 1998. The Clemens plant only happened because a small group of Michigan pig farmers went to the Pennsylvania-based company with a proposal. Today, five Michigan producers, plus seven others from Ohio and Indiana, are partners with Clemens in the venture, and many of those farms are expanding.
“It’s positioning Michigan to be a bigger player in the swine industry,” says Gould.
These transformations are not just happening in Michigan. Across the country, meat production is at an all-time high. The U.S. will be at record production for beef and pork in 2019, says Joe Schuele with the U.S. Meat Export Federation. The U.S. has set new records for pork production every year since 2015. Beef production has been increasing since 2016. Poultry production will also be at record levels this year.
Many areas of the country where livestock numbers are booming are seeing stable land values and a boost to rural economies and farm income, vs. row-crop production areas in a time of low commodity prices.
There are many reasons why livestock production is booming in different states and regions. Here are eight general reasons why the growth is happening.
1. Feed costs are lower.
Not much explaining needed here. Low corn and soybean prices mean lower feed costs. That situation is expected to remain through 2019. “When grain prices are lower, cow-calf producers have an incentive to retain their calves and feed them, especially if they are diversified and have corn production to work with,” says Jay Parsons, ag economist at the University of Nebraska-Lincoln.
2. Feeding livestock is a diversification when grain prices are low.
Scott Neff is an ag lender with Wells Fargo in Marshalltown, Iowa. “We’re seeing the cash grain farmers struggle a little bit. If you’re paying market cash rent or if you have any sort of land payment, the five-year run of low prices in corn and soybeans makes it tough to make positive earned net worth gains. So a lot of farmers are looking at different ways to diversify, and in my area, we see quite a few contract hog finishers go in. We’ve also seen individual farmers go together to form and expand sow co-ops,” says Neff.
“In general, those type of operations are doing pretty well. They’ve got the synergy of the manure being utilized for crop production on their grain farms. They’re getting paid for their labor one way or another, either from profit if they own the business or from the contract payments they’re getting if they’ve got a finisher.”
Neff has even had several inquiries recently from farmers wanting to add poultry facilities, but none have been built yet. “People are pursuing a lot of options. They usually can’t do it on their own. They want to do it on a contract basis.”
Having livestock with a crop farm means cash flow throughout the year, says Gould. “It diversifies the farm income side, which can be very positive for family farms. Grain farmers are able to have finishing barns to diversify their current cropping system.
“We’re also seeing an increase in smaller producers trying to look at niche marketing, marketing through a CSA, or other direct marketing avenues,” says Gould.
3. Livestock pump up land values.
When ag economist David Oppedahl, with the Federal Reserve Bank of Chicago, is asked to name a hot spot for agriculture in the Midwest, he doesn’t think hard. “Sioux County, Iowa, comes to mind as an area that has benefited from livestock production. There is a lot of income generated from both raising and processing livestock in that county, but there are also jobs in research and development related to livestock.” He points out that northwest Iowa has also become a high-tech hub in livestock, due to companies like Trans Ova Genetics, based in Sioux Center.
Wendong Zhang, Extension economist with Iowa State University, says the impact on land values is most distinct in northwest Iowa, where there are a lot more livestock producers competing for land because they need nearby acres to spread manure. “Livestock intensify the local competitiveness and help boost the local land prices,” he says.
Zhang does a yearly land values survey. Since 2014, northwest Iowa has been the strongest district in land values. He thinks that will hold true again this year.
4. Exports are high, despite trade wars.
Meat is still moving overseas, despite trade barriers. U.S. beef exports continued on a record pace in late 2018, while pork exports trended 8% lower year over year, according to the USDA and USMEF. Retaliatory duties in key markets such as China and Mexico continue to slow trade for U.S. pork.
“2018 was truly a remarkable year for U.S. beef exports, which shattered previous records in both volume and value and reached new heights in several of our top markets,” says USMEF president and CEO Dan Halstrom. “In the first half of the year, pork exports were also on a very positive trajectory, but, unfortunately, U.S. pork has been heavily targeted for retaliation. We remain hopeful that these disputes can be resolved soon, so that U.S. pork can get back on a level playing field with its competitors.”
5. Soil health and manure have value.
“The topic of soil health has come to the forefront,” says Neff. “The fertilizer value of manure is documented. You don’t just get the macronutrients, you get micronutrients, too. You get the organic matter put back, and you’re recycling. It’s kind of the old-fashioned system back to when the prairie was first settled. You grew your grain and fed it to livestock and kept the nutrients to feed next year’s crop. We’re starting to see that enter into people’s thought processes again.”
There is a lot of discussion about soil health, carbon sequestration, and the value of manure in his area of Michigan, says Gould. “Cropping systems have gotten away from animal agriculture, and now the value is coming back with recycling nutrients and adding carbon back into a cropping system. I think it’s healthy for global enterprises,” he says.
6. Consumer preferences drive growth.
When Costco announced in 2016 it was investing $400 million in a new poultry complex in Fremont, Nebraska, to supply its stores with chicken, farmers in the area took note. Lincoln Premium Poultry (LPP), the management company for Costco, says about 350,000 bushels of corn and 3,000 tons of soybean meal will be needed each week to feed the chickens. The investment is expected to generate an annual economic impact of around $1.2 billion, which is approximately 1% of Nebraska’s GDP.
Farm Credit Services of America (FCSAmerica) is among the lenders working with producers to finance broiler, pullet, and breeder sites under contract with LPP. A typical four-house broiler site costs about $2.5 million, says Tom Dobbe, FCSAmerica regional vice president for eastern Nebraska. Some growers are placing as many as eight to 16 houses on a site. FCSAmerica loans a maximum of 85% of a site’s appraised value, which is about 90% of the construction cost. On a typical four-house broiler site, the lender would finance about $1.9 million, and the producer would either contribute $600,000 in cash or borrow those funds against other real estate equity.
East-central Nebraska is going to be in corn deficit when the Costco venture is running full speed in two or three years, says University of Nebraska-Lincoln farm/ranch succession educator Allan Vyhnalek. “They will have to truck corn into that area to cover all these needs, which should help the local farmers significantly with a lower basis,” he says.
Missouri is experiencing big growth in the egg-laying industry, particularly free-range and grass-based poultry, says Joe Parcell, director of applied social sciences for the University of Missouri. “A lot of that incredible expansion is due to consumer preferences. These are typically barns of 20,000 layer hens. They can be run by a family pretty efficiently. It’s a good source of income for families who want to live in a rural area and sustain both an agricultural way of life and work off farm, too.”
Here are 7 things to know about the Costco chicken project in Nebraska:
- The money Lincoln Premium Poultry pays you on the contract covers the loan cost of your buildings and some insurance, and pays you a wage of about $90,000 a year.
- You either have to hire the manure management work done or buy the equipment. The litter value is approximately $40,000 in replacement fertilizer cost, says Jessica Kolterman, corporate and external affairs for Lincoln Premium Poultry.
- The buildings will have birds for six weeks and then be cleaned out and sit empty for a period of time before a new batch comes in.
- It takes about two hours a building to go through and make sure your waters are working, your feeders are working, and remove any dead birds. You have to compost the birds daily.
- At the end of six weeks, the litter has to be composted and then redistributed. You only remove finished compost and clean out completely once a year, or every six or seven turns.
- Most growers get insurance for both avian influenza and business interruption, so if there was a disease outbreak or a natural disaster they are protected.
- Equipment upgrades for the buildings are addressed in the contract, says Kolterman. “We indicate an interest in partnering with our growers on potential equipment upgrades that would benefit both them and the company. We don’t provide specifics, but it is something we would work through at that time.”
7. New packing plants bring livestock growth to an area.
Besides the Clemens pork plant in Michigan, which has boosted pig numbers for the region, there are new pork plants in Sioux City, Iowa (Seaboard Triumph Foods), and Eagle Grove, Iowa (Prestage Foods). To fill the demand, companies like Iowa Select Farms are building new sow farms and working with grain farmers to build contract finishing barns.
8. Livestock help with farm succession.
Livestock bring more people back to rural areas, says Vyhnalek. Farming 1,200 acres of grain is not enough to support another family in Nebraska, he says. “Livestock offer a way to diversify and to support the next generation, as well as create value locally.”
Recently, he says, there was a discussion at the university “about our rural communities and what we can do for them. We need to keep as many farms and ranches in business as we can, considering the boomers will be leaving ag in the next 10 to 15 years.” Vyhnalek looked at what would happen to Nebraska’s population by age group and rural vs. metro going out decades. “It is an eye-opener to compare the rural population projections with the metro population projections. You realize that there is a big cliff coming, because the boomers cannot hold on to farming and to the land indefinitely.
“I’m especially nervous about the ranchers in the Sand Hills,” says Vyhnalek. “If you look at the demographic data, ranchers are five to six years older than the farmers. We can talk all we want about entrepreneurship and high-speed internet, but I’m worried about whether we’re going to have enough folks working out there on the farms and ranches.”
Vyhnalek talked with several families recently who understand they don’t have enough acres without livestock to bring a family back. “You can’t go out and buy a bunch of land, because it’s still relatively high priced. A challenge with adding livestock is we are vertically integrated so much that a large investment is needed for facilities. A few families have talked to me about borrowing to put in chicken-rearing facilities. Families need to be sure they are willing to do chicken chores. It’s a large investment to make and then decide they don’t really like chickens.”
Finding a niche market for products already grown or raised on a farm may be a better diversification for many farmers, says Vyhnalek. “They have to figure out what they could do in terms of a niche market. What can they do to create value without a huge capital investment? For homemade food products, the UNL Food Processing Center can help with development.”
The next generation is coming back some to rural areas, says Vyhnalek, especially on farmer-feeder operations on the beef side. “They’re coming in and helping their dads out with the feedlot, and it’s going well for them. The feedlot is able to bring that next generation back nicely. There are well-established farmer feeders who have upgraded, especially on the manure-handling side. They are in it for the long haul, because they made that investment. That next generation is getting in place.”