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Want to Contract Feed Pigs? Here’s What You Need to Know
As the hog industry expands and grain markets get cheaper, pork production companies are looking to partner with row-crop farmers to build hog finishing barns. Four swine company representatives recently discussed contract production at a Farming for the Future Conference in Ames, Iowa, put on by the Coalition to Support Iowa’s Farmers.
The panel’s moderator was Kent Mowrer, senior field coordinator, Coalition to Support Iowa’s Farmers. The speakers were Rod Leman, Cactus Family Farms; Ryan Pudenz, Prestage Farms of Iowa; Seth Wengert, The Maschhoffs; and Tork Whisler, Eichelberger Farms.
Before you sign a contract with a company to build barns and feed hogs, get to know the company first, advises Mowrer.
Cactus Family Farms, a part of Cactus Feeders, is based in Amarillo, Texas. Cactus acquired Swine Graphics Enterprises (SGE) in Webster City, Iowa, in 2015. Cactus has 25,000 sows in Iowa and 10,000 in the Carolinas (most of those pigs come to Iowa for finishing). Cactus sells all its pigs, about 750,000 a year, to Tyson Foods. Cactus is 100% employee owned. All 850 employees are part of the ESOP (employee stock ownership plan).
Prestage Farms is a family-owned hog and turkey production business based in Clinton, North Carolina. The company is building a pork processing plant near Eagle Grove, Iowa. Sows are located in North and South Carolina, Mississippi, Oklahoma, Texas, and Iowa. Prestage feeds 800,000 wean-to-finish hogs a year in Iowa (many of those from North Carolina and Mississippi) and wants to add new wean-to-finish contracts in the state.
The Maschhoffs is a family-owned company based in Carlyle, Illinois. It owns sows in Nebraska, Illinois, Oklahoma, Georgia, and Indiana, and wants to add finishing spaces in Iowa this year.
Eichelberger Farms is family-owned and based in southeast Iowa, near Wayland. The company has just shy of 50,000 sows, says Whisler, the bulk around the Wayland area, but also in Illinois and Missouri. “We are in the midst of a growth mode,” he says. “Over the next couple of years, we’re probably going to add 14,000 sows. And with that we’ll need more barns. We’re looking for partners who want to build barns for us and do the labor raising the pigs.” Eichelberger is part of Triumph Foods, so part of the company’s pigs go to the Triumph plant in St. Joe, Missouri. The company also sells pigs to JBS and Smithfield Foods.
Why expand in Iowa?
That is easy, says Leman. “It's because of the independent farmer base, the landowners who are here, and the infrastructure that we have come to rely on.” That infrastructure includes packing plants, feed mills, transportation systems, and much more.
Prestage Farms is improving that infrastructure by building a new pork processing plant in Iowa. “We saw the plant as the next evolution of our company,” says Pudenz. “This is where the supply of hogs is located, and everybody here is talking about growth. We know that growth is going to keep coming.”
When looking for contract growers, location is a big factor, says Pudenz. “I'm probably looking at a 100-mile circle around Eagle Grove.” Once the site is approved, you need to make sure the grower and the company are a good fit. “It’s a good time to sit down across the dinner table and get to know that person,” he says. “You’re going to be signing a contract for 10 years, so you have to make sure that you can work together.”
Know the expectations
Labor is the biggest part of contract production, says Whisler. “We’re looking for people who are going to be able to provide good labor. If you’ve never been a part of animal agriculture, that’s a commitment. It’s a seven-day-a-week deal. If you could breed a hog that would go to sleep on Friday night and not wake up till Monday morning you would be a zillionaire. It is a relationship business because things are going to go wrong. Get to know who you’re working with, because that contract is a long commitment.”
Honesty is vital, says Wengert. “We have to be honest about what we expect out of you, and you have to be honest to make sure it fits. The thing I absolutely do not want to do is write a contract with you and then figure out later it doesn’t fit your lifestyle or your finances down the road. It’s far easier if we are all transparent and honest.”
The contract failure rate is very low, says Whisler. He has one or two a year out of 250 or so contract growers. The company will terminate a contract early for animal welfare issues that can’t be resolved, but that is rare, he says.
Most problems can be worked out, says Leman. Cactus has about 100 contract growers, with a failure rate below 5%. “We have a sit-down across the kitchen table and lay out our expectations and the things from both sides that are concerns. We haven’t found too many of those we can’t work through,” he says. “That is a testament to the quality of the people we deal with and why it’s so important upfront to really gauge whether you can work with these people. It’s kind of like a marriage; you’re going to have disagreements. The question is, did you marry somebody you can work it out with? That’s probably the key.”
“You can hire somebody to take care of the pigs, but our contract is with you, and that’s something people sometimes forget,” says Whisler. “Ultimately, you are responsible for the pigs. If things aren’t getting done and pigs aren’t being treated well, we will assume the labor and there will be conversation about the contract being terminated early. We would sit down and come up with a plan. It can usually be remedied. The hardest part of the hog business is not the hogs. That part works really well. It’s people. We just have to communicate. We have a clause in our contract that if we have issues, we will manage it – but you’re going to pay us to manage it.”
The first question potential contract growers always ask of companies, says Pudenz, is, “Do you have healthy pigs? I say, ‘Today we do. Tomorrow we might not.’ We all want healthy pigs. That’s what we are in business for. If you sign a contract with someone who says they have the best pigs, tomorrow they’re going to be sick. The important thing is how you work through the disease challenges together.”
Type of barns
Every company has a different design for wean-to-finish barns, although some basics are similar. Prestage has a double-wide tunnel design across its system, says Pudenz. “Not to say that’s the best design out there, but for our system that works. We try to keep all of our barn designs similar so we can run similar ventilation programs.”
There are some 40-foot-wide, double-curtain, naturally-ventilated barns in the Eichelberger system, says Whisler, with growers who have fed for the family since the 1990s. New construction is either 50-foot- or 70-foot-wide tunnel barns. Growers can customize the work rooms and office, but pen size, feeders, fans, and such is all specified.
Maschhoff also favors double-wide tunnel barns holding 2,480 pigs, says Wengert. “We try to keep it as industry standard as possible. Our common barn would be 101 feet wide by 93 feet long with two rooms and a wall down the middle.”
The driving force behind what barn design is built is often the banker, says Wengert. “We find that lenders are willing to loan on those barns. If you get a far-out design, some lenders may not be as willing to loan on those barns. Those double-wide tunnels also cash flow the best today. We’ve built two naturally-ventilated barns in Iowa in the last six years. They’re just not popular.”
At Cactus, the standard is a 2,485-head, tunnel-ventilated wean-to-finish barn. “We’re putting solid side walls on a lot of those barns now,” says Leman. “We find that it saves the contractor some utilities in the long run.”
“When you build these barns, you have to think beyond the 10- or 12-year contract,” says Leman. “You have to think about that asset as a 30- or 40-year asset. We probably all have barns that are 30 years old in our system, and those barns were not built with near the quality of these barns being built today. Think of these things as a 40-year asset, well beyond the current contract. We’d love to have growers with us for 25 years, that would be a massive success, but the reality is those things change as contracts expire. You want to have a marketable barn.”
Every project is different, but all-in costs for a wean-to-finish tunnel barn range from $730,000 to $800,000, says Leman. “It all depends on the details, such as siting, wells, lane, and dirt work.”
There are four contractors that build the bulk of the hog barns in his area, says Whisler, and the bids will usually be within $30,000 of each other. “The biggest difference is how far am I going to have to go for water? How big is the lane?” he says. “Do not skimp on the building. If there is something loose in there, hogs are going to rub it 24/7. The money that you put in the building on the front side is going to pay you dividends on the back side. It has to cash flow, I realize that, but the more money you spend on quality equipment will pay you dividends down the road.”
Do not underestimate the soft costs, cautions Wengert. “Make sure the company quotes dirt work. I’ve had guys tell me they can do it for $50,000. I figure $75,000 to $100,000 in soft costs, including the driveway, rock, and well. When you add soft costs on top of that building, that’s the thing that trips up so many people and I hate to see that. I’d rather you know going in upfront what it’s going to cost. If you can do it for less, great.”
Another tip, says Wengert, is don’t skimp on your office, including the showers. “If the barn is going to last 40 or 50 years, make sure you have enough office on there so it meets biosecurity requirements.”
The bottom line, says Pudenz, is cash flow. “One company may have a cheaper barn, but a cheaper contract, too. It’s whether it cash flows for your operation.”
Some companies prefer to keep payment structures confidential, but Cactus is up-front with its contract. Growers with new barns are paid $44 per pig space per year, on a 12-year contract. “It’s a guaranteed monthly payment if the barn is full or not, with no production incentives,” says Leman. “It’s a flat-rate contract with no production bonuses or discounts.”
Is it more efficient to build two barns instead of one to spread out the soft costs? “You’ve got to think about the manure and disposing that manure from a 5,000-head site over 40 years,” says Leman. “Do you have enough land base right around that site? In some cases, the money you’ll save building that 5,000-head site right up front will be more than offset by hauling manure a longer distance. We like one barn on the site for several reasons, not the least of which is biosecurity.”
A larger wean-to-finish site takes longer to fill and longer to empty, says Whisler. “We’re paying for that to be a full site. We are not looking to take on any 4,800-head sites. Biosecurity is worse and pig health is worse even though they’re all the same flow pigs. You are also tanking manure a long way.”
The 2,480-head sites work best from a health standpoint for Machhoff, says Wengert. “A lot of people think you can take those soft costs and divide them out over two barns, but unfortunately, your soft costs tend to increase, too.” Excavation, gravel, and well costs are higher for two barns, he explains.
Your options for signing a new contract after the first expires in 10 or 12 years are better for a site with one barn, says Wengert.
Pudenz disagrees. “I like the 5,000-head site if the producer does have the land available close by. The building cost is cheaper and the barns cash flow better. I think there are some definite advantages to the 5,000 if it fits in your operation.”
It’s all about fill time, says Leman. “Guys with smaller sow farms will be less apt to want the big sites; guys with larger farms will want the big sites.”
The overriding concern with a larger site is pig health. “We can fill them,” says Wengert, “but we have found out we struggle with health too often.”
How much land is needed for the manure from a 2,485-head site? If you are on a corn-and-soybean rotation in Iowa, it’s going to take roughly 400 acres, says Mowrer. That is 200 acres one year of the rotation and another 200 in the next year. Corn-on-corn takes 150 to 200 acres, depending on your soil type.
Manure rates are based on yields in Iowa, points out Wengert. “If you’re in the bottom two tiers of counties, you are going to need more acres because your yields are significantly lower. Around Ames you can get by on 160 acres of corn-on-corn easily. Go south and you may need to add 30%.”