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Veteran Contributor

Hog Buildings

Looking for some input for my dad.  He has been approached by a granddaughter to sell 8 acres of the home farm for a hog confinement building.  The hogs would be owned and fed by Cargill, have idea who would hold the paper as she will graduate this spring from college, so has virtually no equity of her own to fund the land and building.  The 8 acres also includes a large barn that needs some roof work, not a large amount, but the barn is very useable being fully concreted inside on the sides and outside as well.  The soils are Tama, and Muscatine so the CSR is in the 90-100 range for the ground.

 

Is this a worthwhile venture for her?  She does plan to get another job, but I don't have a lot of faith that she will have staying power to stick with it?  If she defaults on the loan, what happens to the property?  My brother farms the rest of the farm, her uncle, and would I presume use the manure. 

 

I think my dad should have the right to see the proposed contract she would have with Cargill, is that a reasonable expectation?

 

Lots of questions, any other comments or thoughts will be welcomed.

 

Thanks in advance,

 

Cropdoc

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13 Replies
Senior Contributor

Re: Hog Buildings

yes, he should definitely read the contract. I am curious if Cargill proper is the contracting party, or if they set up another corporation to run their livestock business through. I have seen others, back in the 1980's do this...you think the contract is with a big entity, and when you read the fine print, it is with a division, with its own limited liability. What this does is to give the big, deep pockets type Corporation or person, a way to get out of the contract if things go bad.

 

Good Luck getting a copy of the contract, too. Back when a large meat processing company was contracting with growers, a friend wanted me to review the proposed contract to check for loopholes. I had a really hard time getting a copy to read, and soon found out it was just like I expected...a dummy corporation would be the contracting entity on the processors part. I advised against pursing the venture, and it was good advice. The ones that did these contracts, ended up with defaults, and the dummy corporation just went bankrupt.

 

I have found Cargill to be pretty reputable, though, and they may cover their contracts with the parent company. If that is the case, you know they will honor their commitments.

 

 

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Advisor

Re: Hog Buildings

Having been a contract grower of swine for going on seventeen years now, I can give some perspective.  If she's planning on paying someone else to manage the hogs for her, she will not realize any return at all, IMHO.  

If you think she will work the hogs 365 days a year, then it may fly.  If not, then it is not feasible in my mind.  Who will get the call to deal with problems in the middle of the night, or the middle of the day, if she is away at work?  Who has responsibilities to load in and out when pigs come and go? 

Does Cargill have loading crews, or is the grower expected to push pigs up the chute?  Could she do that and meet her other duties elsewhere?  I hate to say this, being  a female in the hog business for my whole life, but some might expect the menfolk to "help out."   Loading out is a very hard job, and it may be scheduled in the middle of  the night, and last well into the day.   Depending upon the number of pigs, it may take more than a day to empty the facility. 

Is there sorting  involved, and who does that hard job?  Finishers usually get emptied of the sorted out biggest pigs first, then the bulk of the rest, and finally the tailenders. It can drag out over weeks. 

We have all-in/all-out nurseries, but that is not the norm now.  Each building leaves here on its shipout day, all at one time in two semis, which my daughter and hired man can load in under two hours...but we have the reputation of moving pigs faster than any other farm.  That is not going to happen on a finisher.  How much leave time will her other job provide her to manage this chore?

 Unless you have the equipment and tractors to move and probably inject the manure already, that is an additional expense that is seldom included in anyone's proforma.  A first-time grower does not know what to ask about that...and the contract rep may gloss over it, saying that "farmers will beg for the manure..."  Yeah, but who' s going to save her tail if not?  How are you going to say "no" when the time comes and you do not want the hassle of her manure management anymore?

Do not know the regs in your state, but in ours (NC) you have to have a written agreement to apply manure on land you do not own yourself.  I honestly would NEVER site a hog facility unless I owned sufficient land to apply my own manure at  the permitted rate...and that implies also having the ability to crop or hay it.   We bought a place with about 13 times the land we needed, and when setbacks and other regulatory rules came into play, that was cut almost in half...and who knows what the future will bring?

As an aside...the most complaints in hogs come from land application of manure, from what I've seen.  Farmers who accept manure can be named in complaints, and I suppose in lawsuits.   People in your neighborhood that you've "always gotten along with just fine" will stand up and scream over you to keep you from getting permits.  Will your neighborhood welcome the pigs, or fight you to keep them out?  Been there and done that in TWO states. 

Manure management is one aspect, and mortality management  another.  Dead disposal is a big deal, especially the bigger the pigs get.  Your state may or may not get into it, but you will want to know precisely how and where she plans to do this part of her operation.  Incinerators have an odor, and burying can foul groundwater...and she'd have to have a backhoe and some way to backfill.  Does Cargill manage mortalities with a rendering route, and what does it cost, if so? 

Do not know the site or the area, but clearing farm paths to get feed and livehaul trucks in and out is costly and has to be done for animal welfare reasons.  My husband had to clear over a foot of snow from roughly two miles of our paths right at Christmas, and we are about halfway through spreading ten loads of rock to top off parts of the roadbed now...will cost about $3000, and we grade with our own blade.   

Can she do "industrial" maintenance level repairs?  Hog buildings are miles of wires and pipes, feed systems and ventialtion systems, water pumps, waste pumps, etc., much of the mechanical side controlled by computers and slave boxes.  Mike does most of our repairs, but I hire out complex electrical much of the time now, since his near vision is not as good as it once was.  Not as big a deal on new buildings, but you will want them to last a lot longer than the initial contract term, and hogs tear the Hades out of things. 

None of this addresses the business side of things...which is another whole discussion.   I will just say that I was a 39-year-old woman when I took it up, and had been used to loading and hauling my own farm truck of tops directly to the plants.  Had been actively farming all my life, in with Mike for almost 20 years at the time...and I was nowhere near ready to deal with the characters we encountered in the purchase and construction of this place, just for starters.  

I grew up working with men in hogs, peanuts and tobacco, and was not shocked by much, and it all still caught me off guard.  She ought to at least work in such a unit for a good while before she makes this level of a commitment that much of her family may have to help her carry off in many ways. 

 It was a steep learning curve here, and I compare it to a roller coaster ride, right down to making you want to puke some days.  Not for the faint of heart. 

 If she is a very nice, or at all naive girl, I'd say she will get eaten alive. 

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Contributor

Re: Hog Buildings

Why does she need 8 acres? A finishing building close to his property adds a lot of value from the way of manure. I have heard peolpe say that there will be a day when you can't give the stuff away. Maybe, but for the forseeable future it will have tremendous value in my opinoin. 

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Veteran Contributor

Re: Hog Buildings

Good thoughts there Kay.   Helps to get other veiw points, and you put a lot of my concerns into words.  I think she has an unrealistic view of what farming or pig raising is all about.  Sounds glamourous, but it is a lot of hard, dirty work and like you said, you better know exactly what you are getting into, before you make the investment.

 

Thanks,

 

Cropdoc

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Veteran Contributor

Re: Hog Buildings

Don't know any particulars, as I am getting this from my dad.  He is feeling pressured to do this I think, which he shouldn't as this should be a business decision, not a personal one.  Funny how a few years ago, when my folks made her dad and mom buy the farm house they lived in, her grandparents were making them have to move.  Never mind that they bought the home place for about half of its true market value.

 

Thanks,

 

Cropdoc

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Veteran Contributor

Re: Hog Buildings

I don't know why they want 8 acres other than they want to buy the old cattle barn and corn crib also as her dad has a few cows also.  My other brother farms the rest of the farm land that the manure will be applied to, so for her it is of no benefit. 

 

Thanks,

 

Cropdoc

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Re: Hog Buildings

Can she physically manhandle a carcass that will probably weigh at least twice what she does?  Live weight is worse when it has a mind of its own.  Glamorous is hardly the word for this business. 

I do not get something here...if her own folks had to buy the homeplace a few years ago, why not use some of  that acreage?  If they will not risk it for her, why should Grandpa feel pressured? 

If she cannot answer any of the significant questions about the issues I raised above, she is just being  used by someone, because she is young and hasn't ruined her credit yet.  I have another whole long list, when you get through that one. 

Start with vaccination...someone on this farm has had to give as many as a quarter million shots a year, bent over to give them, for years on end.  Washing down the building is a really nasty chore...a big finisher can take several long days to clean between lots of pigs.  Fortunately, we have had a good employee who does not mind the mess and is young/strong enough to do the work. 

I honestly do not see how she can do it and work elsewhere.  She probably won't really make money until it's paid off, and new farms here in NC are financing for 20 years, instead of the ten in our proforma.  With metal/lumber/labor prices where they are now, I cannot see it happening any sooner. 

It will need a lot of repair long before it's paid off, if it's a 20-year proposal.  If they are "giving" her the feed system or vent package, for example, that tells you how tight the cashflow is...and that a complete building without them writing off that expensive stuff as they depreciate it (you used to own it in seven years, but accelerated depreciation now may make that happen sooner) will not flow positively.   

One other caveat:  N ot in a swine contract, but in a poultry one, I found  several material errors in what the rep was stating.  He cited an interest rate at least two percent below the going rate at that time.  (Oh, if she gets a variable rate, she will be screwed when it goes up...and it always does.)  Same guy used the tax rate of a different county, significantly less than ours.  he did not include anything in the proposal for cleanout/cakeout equipment, and nothing for a dead composter. 

You and I know that if you use bogus figures in the equation, the bottom line just does not work out in positive territory.  This was clearly intentional in our case, and I simply knew enough from years in swine growing to catch the lies in the poultry proforma.  That guy could not wait to leave this place. 

Integrators want growers so they can expand their  production without incurring debt on their own shoulders.  It is not to do any of us a big favor, believe me. 

A thousand fine points.  Like I said above...it's a dog-eat-dog game, and she's wearing Milkbone underwear. 

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Veteran Contributor

Re: Hog Buildings

A lot of what you are saying, I said to my dad.  I told him the land should be worth at least $10,000 per acre, he thought maybe that was a little high considering the highest land sold in the area had only brought $8,000/acre.  I told him you aren't doing her any favors selling it cheap, Cargill is the one he would doing the favor for, trying to get him off the grandfather role and into a businessman role.  She has had grand ideas before, thinking she could make a living off of a 200 head cow/calf operation before this latest one.  Like I said, she has this idea that farming is a glamourous occupation as she likes to go to cattle shows and hang out with people there.  Unfortunately she doesn't have a clue what it costs to go to a show like that, or have the investment of time of money to get animals to bring the big money she sees some animals bring.

 

I'm like you and think someone is trying to take advantage of her exurberance and youth, my concern is that I don't want my dad to be a patsy with her and regret his decision. 

 

Thanks,

 

Cropdoc

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Senior Contributor

Re: Hog Buildings

Who ponied up the money for her to attend the shows? Just because she likes to talk to the people at the shows doesn't mean that she will get the same when she starts competing. Her naivity shows by her actions--did she get into contact with Cargill at one of those shows? A businessman doesn't make money by only saying yes. No is a more prevalent word. She had better grow up and get used to getting closed doors in her face. There are plenty of them to go around.

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