Contract Chicken Growing

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Slick8503
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Contract Chicken Growing

Post by Slick8503 » Tue Nov 06, 2012 3:24 pm

Hi All,
I'm in the process of entering into an agreement with a large vertically integrated meat producer to grow broiler chickens. I would like the Bogleheads opinion on this matter. This could get kinda lenghty so bear with me...

A little rundown of my situation. I work for a large utility company, and have a great job. Unfortunately the plant in which I work could be on the chopping block in the near future. Nothing is certain. I feel confident it will be there for another 3-4 years, after that it gets really cloudy. I have worked there since graduating high school(now 27), and have been fortunate enough to save a decent amount of money. I also farm part time with my family, and have a small piece of farmland where I will build the buildings to house the chickens. I am engaged to be married(prob a year from now), to someone with no debt, who will graduate with a BS in agronomy this spring. She is also from a farming family and likes the idea of raising chickens. Our ultimate goal is to farm full-time with my family, either when the plant closes, or when we feel comfortable that we no longer need the income from my current job.

Here are the stats on the three broiler houses:
Estimated cost 700,000 minus 96,000 incentive from the integrator = 605,000
10 yr contract with integrator for 6 flock placemetns per year.
There are many variables, as you can imagine, and I can go into greater detail, if some of you wish, but from what I've put together, if you are an average producer(pay is based on three production calculations + base pay) the houses would produce somewhere in the neighborhood of $10,000 after making the note payments(which amount to around 72,000/yr.

This is overestimating current expenses, and only allowing for 6 flocks/year. The current farmers who are contracted with the company are currently running 7 flocks through. With 7 flocks the number jumps from around 10k to somewhere in the 20-22k range.

The houses will take around 4 hours/per day of labor, and between flocks it will take around 3 or 4 days to prepare the buildings for a new flock.

Since the litter(manure+bedding) will be used by my family on the farm operation until I am farming full time. I haven't counted the value of the litter. We are stil hashing out how this will be handled. The litter will be worth somewhere in the 12-15k range at current fertilizer prices.

After the 10 year contract, depending on how you do as a producer, you re-negotiate with the company and continue raising chickens. Typically 3 year contracts, after the initial 10.

The pros in my mind, are: I can still work in my current job while taking care of the houses. Should I lose my job, I will more than likely have the option of adding three more houses, to make it a more full time job. I have family close by that could take care of any emergency should something arise while I'm at work.(depending on what job my fiance gets, she may be able to help as well) It ties in well with row crop farming, as it will save quite a bit in fertilizer costs. Once buildings are paid for they would produce more income than my current job.(70k) It adds diversification to a farm operation.(almost totally weather independent, crop price etc.) The company supplies the birds/feed, you supply the building, labor, and utilities.

Cons include: Having only one integrator available is risky, if they go belly up, it wouldn't be a good situation. They are a VERY large company, however. Large capital outlay, but I have approval with the lender already.

Is this something a farming boglehead should tackle? I'm sure I'm forgetting important details. I look forward to your questions.
Last edited by Slick8503 on Tue Nov 06, 2012 3:43 pm, edited 1 time in total.

Random Poster
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Re: Contract Chicken Growing

Post by Random Poster » Tue Nov 06, 2012 3:35 pm

I have no idea, but I'd like to make 3 points:

1) How is being contracted to just one integrator any different than being having a job with one employer?

2) You might want to run your contract and hypos by an agricultural economist (or maybe a local extension office?) and an attorney.

3) I find it slightly humorous (from a word-usage viewpoint) that your post is about raising chickens, and your lead-in paragraph discusses your plant being on the chopping block.

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Slick8503
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Re: Contract Chicken Growing

Post by Slick8503 » Tue Nov 06, 2012 3:37 pm

Fiance' is 22

Will go ahead and post balance sheet, since I'm sure some will inquire.
Assets:

401k - 135k
Roth - 35k
Taxable - 25k
Checking - 22k
HSA - 3k
Cash Balance Pension - 23k
Farmground - 125k
House - 125k
2 Trucks - 20k

Debt:

Farmland - (86k)
House - (84k)

353k

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Slick8503
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Re: Contract Chicken Growing

Post by Slick8503 » Tue Nov 06, 2012 3:40 pm

Responses in Italics
Random Poster wrote:I have no idea, but I'd like to make 3 points:

1) How is being contracted to just one integrator any different than being having a job with one employer?

That's a good way to look at it. The advantage of having multiple integrators close by is that you have a little leverage if there is a threat you could grow for another company.

2) You might want to run your contract and hypos by an agricultural economist (or maybe a local extension office?) and an attorney.
Attorney is a good suggestion. There are many articles/studies/papers from the extension service about contract growing

3) I find it slightly humorous (from a word-usage viewpoint) that your post is about raising chickens, and your lead-in paragraph discusses your plant being on the chopping block.Ha! Didn't even cross my mind!

Calm Man
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Re: Contract Chicken Growing

Post by Calm Man » Tue Nov 06, 2012 3:43 pm

OP, am I reading it right that from this investment of dollars, taking a large loan and putting in your time, the net will be 15 or 20K a year? gee, that seems awfully low or is it per flock. There are multiple risks of course. Chickens are a commodity and who knows what can happen to the market? What if the people you sell to go bankrupt or can't pay you for some reason? What if the poor chickens get sick with an illness that makes them unsellable? There must be others but I have no idea about the nature of the chicken business as I do not eat meat of any type :)
Last edited by Calm Man on Tue Nov 06, 2012 4:28 pm, edited 1 time in total.

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Abe
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Re: Contract Chicken Growing

Post by Abe » Tue Nov 06, 2012 4:11 pm

Where I live there are a lot of chicken farmers. They are not happy at all with Tyson Foods. Tyson controls everything and the farmers have a big investment, work long hard hours and make very little money. All the big companies are pretty much the same. I would not do it. You might want to click on the link below and read the article.

http://www.thefreelibrary.com/%60One-si ... a094596490
Slow and steady wins the race.

Rubiosa
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Re: Contract Chicken Growing

Post by Rubiosa » Tue Nov 06, 2012 4:25 pm

A couple of things to think about -- Are you sure you can build the chicken houses on land you don't fully own? Have you talked to at least three other poultry farmers and asked their advice? Will neighbors give you grief because of the smells? Has your buyer been in this business for eight to ten years? Have you checked him out thoroughly? What if your wife-to-be changes her mind and decides she doesn't like this kind of business? Are you sure you want to sign a 10-year contract? What kind of liabilities accrue to you, etc.

It might work for you, but considering everything, IT WOULD NOT WORK FOR ME.

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Re: Contract Chicken Growing

Post by beardsworth » Tue Nov 06, 2012 4:31 pm

I have nothing to do with food production and my family are generations of city dwellers who have never farmed anywhere.

But in the course of my meanderings around the Internet over many years, I had the recollection of bumping into articles about contract poultry farming which made it sound a lot like being a serf on one's own land: poultry company dictating the stock, the feed, the standards; farm family laying out the money and taking a lot of the risk and, of course, all of the labor.

Trying to figure where I might have seen these things, I just went Googling, using the terms "contract," "chicken" and "servitude." And "serf." (Also tried "slavery" in place of "servitude," but that led down a wrong alley.) So, take the following for what they're worth. It doesn't sound like an appealing life, and certainly not one that's uplifting or carefree, but then it's all completely outside my experience and I don't know if the stories described here are typical.

http://www.huffingtonpost.com/2010/05/2 ... 87344.html

http://www.huffingtonpost.com/regina-we ... 85459.html

http://prospect.org/article/serfs-arkansas-0

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Re: Contract Chicken Growing

Post by VictoriaF » Tue Nov 06, 2012 4:39 pm

Slick8503 wrote:I'm in the process of entering into an agreement with a large vertically integrated meat producer to grow broiler chickens.
Beware of chicanery on their part.
Slick8503 wrote:Unfortunately the plant in which I work could be on the chopping block in the near future. Nothing is certain.
Are you chickening out?
Slick8503 wrote:I am engaged to be married(prob a year from now), to someone with no debt, who will graduate with a BS in agronomy this spring.
So you already have one chick.
Slick8503 wrote:Since the litter(manure+bedding) will be used by my family on the farm operation until I am farming full time. I haven't counted the value of the litter. We are stil hashing out how this will be handled. The litter will be worth somewhere in the 12-15k range at current fertilizer prices.
What if the chicken litter hits the fan?
Slick8503 wrote:After the 10 year contract, depending on how you do as a producer, you re-negotiate with the company and continue raising chickens. Typically 3 year contracts, after the initial 10.
Don't count chicken before they are hatched.
Slick8503 wrote:I'm sure I'm forgetting important details. I look forward to your questions.
Why did the chicken cross the road?

Victoria
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ResNullius
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Re: Contract Chicken Growing

Post by ResNullius » Tue Nov 06, 2012 5:05 pm

I'll keep it simple. Don't do it. Here in my state, there are dozens of folks who have lost everything they had doing what you're describing. I don't know a thing about it, personally, but I do know there are lots of folks around these parts that regret the day they went into the business.

therub
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Re: Contract Chicken Growing

Post by therub » Tue Nov 06, 2012 5:15 pm

I've read a little about this as well and agree with the other contributors. Ignoring all of that and just focusing on your numbers, it sounds like you would be buying a really expensive part time job (that you can't quit).

Have you looked into raising chickens for the organic, free range, or small farm market? Perhaps there's a more equitable business formula out there that would allow you a safer and more satisfying livelihood.

For example, CSA's are popular in my area. You could sell chicken subscriptions!
Fees are the rub.

david99
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Re: Contract Chicken Growing

Post by david99 » Tue Nov 06, 2012 5:20 pm

I think that the documentary Food, Inc. had a section on chicken farmers and how they made very little money and were a slave to the big companies like Tyson and Purdue (check out the documentary). If I were you I would talk to people in the business --- at least 6 or 7 and find out the pros and cons. Find out how much profit there is, the hours involved, how they are treated by the company they work with, what kind of government regulations are involved, etc. You really need to do your homework to avoid getting into a bad sitution.
Last edited by david99 on Tue Nov 06, 2012 5:37 pm, edited 1 time in total.

TSR
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Re: Contract Chicken Growing

Post by TSR » Tue Nov 06, 2012 5:28 pm

Slick, I don't want to join the growing chorus of "I don't know anything about raising chickens, but..." folks, but I did want to point one thing out. At only 27 years old it sure looks like you're a hell of a saver -- your nest egg would be enviable to people a lot older than you. I mention this because it sounds like your primary concern is mitigating the risk of unemployment when you're already doing a lot to mitigate that risk by saving so much. I'm not convinced that taking what sounds like a huge risk is the best answer. I don't know all the details of your situation (e.g., what that farmland debt is costing/generating you), but it sounds like your savings habits have given you a lot of flexibility to retrain or take other steps if you lost your job. It would be a shame to squander that flexibility on a large and potentially risky bet.

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Re: Contract Chicken Growing

Post by gnphiker » Tue Nov 06, 2012 7:19 pm

As someone who has been here since Day 1 of this website but rarely posts, I wanted to offer you my $0.02 when I read your post. Like others have said and I will also tell you, don't do it. I applaud your thinking outside of the box as far as investing and career. However, you're going into a huge amount of debt and you aren't diversifying yourself. I remember when Pilgrim's Pride filed for bankruptcy a few years ago and they terminated many of their contracts with their growers. Google a WSJ article and you can read about it. http://online.wsj.com/article/SB123440092979675383.html I also have a client that had a very large contract (making up 80% of his income) with a company to ship products around the country on semi trucks. He invested in 35 semi trucks and trailors, and was doing great until he lost the contract (company went bankrupt). Of course he went bankrupt as well since he lost 80% of his income. If you're serious about this I would certainly go interview several individuals who own chicken houses, and see how they like it and would they do it again. My opinion though would be to avoid it. Best of luck.

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Re: Contract Chicken Growing

Post by grok87 » Tue Nov 06, 2012 7:33 pm

Abe wrote:Where I live there are a lot of chicken farmers. They are not happy at all with Tyson Foods. Tyson controls everything and the farmers have a big investment, work long hard hours and make very little money. All the big companies are pretty much the same. I would not do it. You might want to click on the link below and read the article.

http://www.thefreelibrary.com/%60One-si ... a094596490
great article-thanks for posting
Keep calm and Boglehead on. KCBO.

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Re: Contract Chicken Growing

Post by norookie » Tue Nov 06, 2012 7:53 pm

:oops:
Last edited by norookie on Wed Dec 19, 2012 12:39 pm, edited 2 times in total.
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thomase
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Re: Contract Chicken Growing

Post by thomase » Tue Nov 06, 2012 8:06 pm

david99 wrote:I think that the documentary Food, Inc. had a section on chicken farmers and how they made very little money and were a slave to the big companies like Tyson and Purdue...
I saw this documentary too and it was eye opening, it's on Netflix, suggest watching it for what it's worth. I have a backyard flock, and though it's fun, doing it for a living is a whole other animal.

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Re: Contract Chicken Growing

Post by DSInvestor » Tue Nov 06, 2012 8:13 pm

thomase wrote:
david99 wrote:I think that the documentary Food, Inc. had a section on chicken farmers and how they made very little money and were a slave to the big companies like Tyson and Purdue...
I saw this documentary too and it was eye opening, it's on Netflix, suggest watching it for what it's worth. I have a backyard flock, and though it's fun, doing it for a living is a whole other animal.
The segment on Industrial Chicken Farmers in Food, Inc is on youtube. Here's a link:
http://www.youtube.com/watch?v=enwU5jIXSlU
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Watty
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Re: Contract Chicken Growing

Post by Watty » Tue Nov 06, 2012 8:47 pm

The houses will take around 4 hours/per day of labor, and between flocks it will take around 3 or 4 days to prepare the buildings for a new flock.....would produce somewhere in the neighborhood of $10,000

You could pretty much make that much by working 4 hours a day at McDonalds.

The land the building is on could also be used to grow something or leased out so you need to also consider that loss of that income.

You should also look to see if any similar businesses are for sale. If they are being sold for a discount than that might be a sign that it is not such a good deal.

A major problem with this is that you would have a large investment and if something happened like you had health problems that prevented you from doing the work yourself then it looks unlikely that you could do well if you had to hire someone to do the work. With such a large investment you should have disabily insurance(if possible) to cover this and additional life insurance to pay off the loan if either you or your wife is killed and the survivor cannot handle the work. Be sure to factor the cost of this insurance into your plans.

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Re: Contract Chicken Growing

Post by wingnutty » Tue Nov 06, 2012 8:51 pm

I'm involved with ag, and, but am certainly not knowledgeable with regards to chickens or contract farming in general. I would say, before you decide to do this, look at alternative options to raise stock and/or farm via a means that will provide you more personal enjoyment and maybe equal, or even slightly lower pay. Do you really want to be a slave to these chicken houses? I mean, working in an industrial chicken house is one of the worst ag-related jobs I could imagine.

I would look at something that would maybe allow you to raise smaller numbers of stock, via more hollistic management practices and overall get more enjoyment out of it with significantly lower overhead and risk. I'm not an 'earthy' person and don't eat organic or anything like that, so don't think I'm coming at this from a standpoint of "save the earth". Rather, since you are a young person in ag (one of the few, god bless you), my recommondation is to find something that you will truly enjoy and think outside the box. I have seen a lot of operations and worked with a lot of operators, both livestock (sheep and cattle) and farming (conventional, organic and in-between). In general, the people who are happiest, enjoy life the most and have the best margin are those thinking outside the box and bucking the trends of conventional ag. Think of smaller numbers of stock, lower inputs, expanded markets, etc.

I can provide examples if you want, but I feel like I'm getting off-topic. Just take some time to really think about if this is what YOU want to do with your life?! It isn't all about money, think about your enjoyment and think of ways that you can expand your enjoyment of ag, instead of being a slave to your operation. As a young person in ag, you are poised to really be in a good spot over the next 20-30 years as older ag producers continue to retire.

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Watty
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Re: Contract Chicken Growing

Post by Watty » Tue Nov 06, 2012 9:02 pm

PS Thinking outside the box can pay off so keep thinking of other ideas that you can start up as a part time business. It was years ago but I knew someone that had five or ten acres and they started up a business growing ginseng of all things before it became popular and did very well. The details are fuzzy now but as I recall they started up with a small garden then work their way up to acerage as they learned how to grow ginseng and they could reinvest their earnings.

I'm not saying that that ginseng would be a good thing for you to grow, but that are lots of niche products that you could start out with a very small investment and work your way up.

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Re: Contract Chicken Growing

Post by LadyGeek » Tue Nov 06, 2012 9:33 pm

Slick8503 wrote:Fiance' is 22

Will go ahead and post balance sheet, since I'm sure some will inquire.
Assets:

401k - 135k
Roth - 35k
Taxable - 25k
Checking - 22k
HSA - 3k
Cash Balance Pension - 23k
Farmground - 125k
House - 125k
2 Trucks - 20k

Debt:

Farmland - (86k)
House - (84k)

353k
What you posted is a Net Worth statement, which doesn't reflect cash flow management. IOW, do you have a monthly budget? You should have something similar to what's shown in Household budgeting , but reconfigured to have entries for every income and expense mentioned in this thread.

You don't need a fine level of detail, just rough numbers to get an idea. For example: feed, gas, litter, etc. What about maintenance? Who pays the vet bills?

Get an idea of what you have in a month. Now, start running a few scenarios - equipment breakdown, weather, sick chickens, can't work, etc. Do you have a sufficient Emergency fund to keep going for a while when bad things happen?

With all this focus on the investment side, do you have a "big picture" financial plan? Take a look at Financial planning , the basic concepts still apply - even for farming.

BTW, I like your diversification strategy. I'm not a farmer, but I understand what you are doing.

This thread is now in the Personal Finance (Not Investing) forum (farming decision).
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Re: Contract Chicken Growing

Post by cheesepep » Wed Nov 07, 2012 5:50 am

[OT comment removed by admin alex]

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Slick8503
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Re: Contract Chicken Growing

Post by Slick8503 » Wed Nov 07, 2012 8:09 am

Abe wrote:Where I live there are a lot of chicken farmers. They are not happy at all with Tyson Foods. Tyson controls everything and the farmers have a big investment, work long hard hours and make very little money. All the big companies are pretty much the same. I would not do it. You might want to click on the link below and read the article.

http://www.thefreelibrary.com/%60One-si ... a094596490
Will try to respond to all the concerns... I'm not sure how to quote multiple posts, sorry. I appreciate all the replies.

I have talked with two different growers. I do intend to talk with a few more. The two that I have talked with are satisfied with how they have been doing, and are actually in the process of putting up more buildings.

As I said in the OP, the contract is for 10 years. It's not year to year or flock to flock. After the 10 year period, year to year could be the case, but no growers that I know of are on a flock to flock basis.

The numbers I posted in the OP are not quite a worst case scenario, but they are figuring operating on city water, with much higher propane prices, on 6 flocks/year. Worst case would be to be a terrible grower(which I will not be) and have the above costs with 6 flock/year. That would be just above breakeven.

It's a fairly wide range, but there are lots of variables. Without figuring litter value the range is anywhere from 10k(6 flocks, paying for water, average producer)-30k(well water, good producer, 7 flocks). Figuring litter value, add 10-15k to both those totals.

I have read the stories about pilgrims pride terminating contracts. As I said in the OP, dealing with one integrator concerns me, but the company I'm working with is much larger than a pilgrims pride. That's not to say they couldn't go bankrupt/shutdown the factory. In the one case where a factory has shut down, the company bought out the outstanding contracts. The factory I would be dealing with is around 15 years old, and has plans to greatly expand in the near future.

Most of the disgruntled grower stories I've read are from a number of years ago, and I believe the companies caught a lot of flack for treatment of growers, and now seem more "grower friendly".

As far as a household budget, no, I don't track every penny spent, but I max a 401k and Roth on top of paying my farm and house loans. My fiance and I eat out once a week. I don't spend much. I like to farm.

The way I look at it is, I'm giving up some profit potential by pursuing a less risky business. Sure if I borrowed 700k to do some animal ag enterprise on my own, I would expect more compensation, but I'm assuming much more, and different kinds of risk. Same with stocks/bonds. I like the idea of a stable cash flow, and reduction of expenses for crop farming. Especially since we are at the top of the cycle right now. When corn goes back to a normal level the lowest cost producers will still be around. This is especially true for those whose income is very diverse, which this helps with.

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Slick8503
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Re: Contract Chicken Growing

Post by Slick8503 » Wed Nov 07, 2012 8:18 am

Forgot another concern... As far as being satisfied with the work, from what I've seen from the houses I've visited and read, I will like it. There are lots of small details that add. Not unlike Boglehead investing. :)

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fandango
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Re: Contract Chicken Growing

Post by fandango » Wed Nov 07, 2012 8:20 am

I am familiar with this business and have a friend who does exactly what you are planning to do.

His take on this concept:

- Low pay (averages out to be about minimum wage or less).
- Long hours.
- Moderate risk. You can break even or take a loss. Depends on contract. But you are essentially bearing the risk for the company - otherwise they would run the chicken houses themselves.
- Disease, heat can impact your bottom line significantly, and there is not much you can do about it.

His comment - "There are better ways to make money."

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zed
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Re: Contract Chicken Growing

Post by zed » Wed Nov 07, 2012 8:50 am

Don't do it.

Its a commodities market.
Think niche. Think value-added.
Google Joel salatin

Best of luck

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Re: Contract Chicken Growing

Post by jpkuva » Wed Nov 07, 2012 9:30 am

You asked and lots of really smart and wise people told you not to do it, take this to heart and don't let youthful exuberance cloud your judgment. I will echo what others have advised, consider other less capital intensive options that allow you farm. You state you "like to farm" but do you really want to be a chicken farmer? I know nothing about this business but if it was such a sure thing every dairy farmer I hear about would not be exiting farming but turning their 100 acres into chicken farms. I can tell you that in my neck of the woods people have been opting for organic and CSA farming practices, as restaurants are keen on "locally grown" and many people like knowing where there food comes from.

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Slick8503
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Re: Contract Chicken Growing

Post by Slick8503 » Wed Nov 07, 2012 9:59 am

I really appreciate all the discussion. I am taking it to heart, and respect this community. Being creative/visionary is not one of my strong suits. I do realize there is more profit potential in niche and value added markets, I'm just not sure where to start. It's not much different than starting your own business as opposed to working an hourly job.

Also, don't think that I don't realize why it's such a big advantage for a company to do business in this way. It allows them to expand quickly with much less capital. Also, raising them on company farms opens the company up to more environmental liability that a single farmer who owns the property is better able to handle, and less likely to have regulatory issues. There is also a quality issue. The old system of hiring workers to take care of company farms resulted in low production because workers didn't have much incentive to do good work. It is a big win for the company, I get that.

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fishnskiguy
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Re: Contract Chicken Growing

Post by fishnskiguy » Wed Nov 07, 2012 10:04 am

Go for it. You've already figured out that it's not a sure thing. Sharpen your pencil to a pin point and watch your costs like a hawk.

Us Bogleheads can be too conservative at times. Most of us can't spell entrepreneur if we tried. If everybody was a Boglehead, nobody would ever start a business or a farm.

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Re: Contract Chicken Growing

Post by wearymicrobe » Wed Nov 07, 2012 11:35 am

OK I have way to many family members in food to ever recommend doing something like this.

Tyson and others have started moving away from a vertically integrated system because they; as a large multinational company cannot use there leverage to bring the cost down to a constantly profitable arrangement. What truly make you as a individual grower think you can do better. Other then valuing your time very low.

They cannot slow down the kill houses or not make delivery's so they are moving as much as they can of the one really risky part of there operation, IE things tied to feed and in some way oil. To independent producers.

If you have land, and if you have someone getting a ARG degree this should be readily apparent. With as little space as I am guessing that you have based on your # of houses a artisan style growth might be more profitable.

Additionally, what are they giving you as loss due to damage and disease, blue meat if you are harvesting yourself is going to be a HUGE deal. Your damage rates are going to be 2-3 times what a automated system will do. Do they offer insurance against this or are you flat out on the hook for delivery lb's

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Slick8503
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Re: Contract Chicken Growing

Post by Slick8503 » Wed Nov 07, 2012 12:34 pm

I cannot stress this enough. The company supplies the birds AND feed. Your inputs are the utilities/labor and that is all. My only concern about the profit margin of the company is whether or not they stay viable enough to make good on their contract with me. Well, and the possibility of reducing from 7 flocks per year to 6. It is a totally different enterprise than say, running your own stocker steers, or cow calf operation.

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Re: Contract Chicken Growing

Post by fareastwarriors » Wed Nov 07, 2012 1:19 pm

Can you go organic/free-range route and try to hit up a deal with the Whole Foods of the world? Or try hitting you a the Farmer's Market circuit.

I believe the margins are much better. But that route is another whole different animal.

The overwhelming majority says no but I think we should take (calculated) risks and just go for it sometimes. Just remember to think about the good, the bad, and the ugly of the situtation.

Maybe it is not chicken farming but working for yourself can be very rewarding.

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Re: Contract Chicken Growing

Post by Easy Rhino » Wed Nov 07, 2012 2:10 pm

it seems like a large investment (cost and labor) for relatively little money.

How long would it take to pay off the note?

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Re: Contract Chicken Growing

Post by Slick8503 » Wed Nov 07, 2012 2:26 pm

10 years. The loan payments are in the 70-75k a year range. Houses can last for 30 years or so. They will more than likely require substantial upgrades after several years, however. Nothing close to the initial cost, though.

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Re: Contract Chicken Growing

Post by wearymicrobe » Wed Nov 07, 2012 3:09 pm

Slick8503 wrote:I cannot stress this enough. The company supplies the birds AND feed. Your inputs are the utilities/labor and that is all. My only concern about the profit margin of the company is whether or not they stay viable enough to make good on their contract with me. Well, and the possibility of reducing from 7 flocks per year to 6. It is a totally different enterprise than say, running your own stocker steers, or cow calf operation.
But you still need to provide a certain tonnage of sale-able product back right>?

Sexed chicks in bulk run ~0.55$ feed is what in bulk 0.25-0.33 a pound. Can you make a profit selling to another collective if you have to provide that in the long run,
Last edited by wearymicrobe on Wed Nov 07, 2012 3:15 pm, edited 1 time in total.

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Slick8503
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Re: Contract Chicken Growing

Post by Slick8503 » Wed Nov 07, 2012 3:13 pm

Yes. You are paid on a per pound basis, but it doesn't have a thing to do with the price of chicken. It is set in stone when you sign the contract.

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Re: Contract Chicken Growing

Post by LadyGeek » Wed Nov 07, 2012 5:16 pm

Slick - We've tried to be the devil's advocate to make sure this is really what you want and couldn't dissuade you. You have a good answer for all of the questions and still want to do it. Farming is your passion - go for it and don't look back.

The rest of the discussion are the details on how to do it.
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Re: Contract Chicken Growing

Post by DaleMaley » Wed Nov 07, 2012 7:05 pm

I was raised on a grain farm in the 1960s in Central Illinois.

My dad put a new chicken house that held 7,000 layers. This was a big operation at the time. Nowadays I understand there are corporate chicken farms with 1,000,000 birds on one site.

Us 4 kids had to gather eggs twice a day, every day, except your birthday......when Dad would gather your eggs for you. The worst part of this operation was the smell of the chicken manure.

When the kids went off to college, he switched to finishing hogs. The key inputs to finishing hogs is feed cost and death rate. My dad never made a lot of money with hogs, primarily because of his relatively high feed costs..........and his death rate was way above the norm. The only way to lower the death rate was to do more thorough cleanings of the building each time you shipped the hogs. Since he was doing it part-time, he never had time to really clean the building right. The worst part of this operation was the manure smell (not as bad as chickens though), and the difficulty of manually removing dead hogs of more than 100 lbs from the building.

If I was the poster, I would check out other options like raising organic corn. One of my school mates raises organic corn. He told me he gets 4X the normal $/bushel of regular corn. His corn is used to make health food chips. His only real restriction is to use only approved types of fertilizers.
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Re: Contract Chicken Growing

Post by zed » Wed Nov 07, 2012 7:15 pm

Circa 2007 toured the Ozarks looking for a possible relocation spot to semi-retire. Found numerous farms many idle with these distinctive row buildings. Even the old-order Amish normally conservative and careful got suckered into these deals. Do due dilegence my friend.

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Re: Contract Chicken Growing

Post by tim1999 » Wed Nov 07, 2012 9:01 pm

Personally, I'd stick it out for a few more years at the utility plant and hopefully get some more visibility into its long-term prospects before jumping into the poultry business. If it's a coal-fired plant, it's probably not going to be looking good given current politics.

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Re: Contract Chicken Growing

Post by gwrvmd » Wed Nov 07, 2012 10:34 pm

I grew up in the poultry industry 60 years ago, in fact started college as a Poultry Science major. Left the industry but have watched it closely for the last 60 years
You have a realistic grasp of the facts and recognize the pitfalls. It is a large investment for buildings that are only good for a hog operation or growing mushrooms other than chickens.
It is a confining life 7 days a week, every new batch/flock means not a day off for 50 days, forget about trips or vacations until the mortgage is paid off.
Talk to many more contracted growers before you commit to a $700,000 mortgage, at least 8 including 2 that have been doing it for 10 years or more. At least 2 that have paid off the buildings and are still contract growers. If you can't find any, that is a bad sign.
Invest in a 2-3 day trip to an area where there are contract growers contracted to a different integrator, in the SE that won't be hard, stop at any feed mill and ask questions. It could be the best 2 -3 days you ever invested in your future. Talk to at least two.
Be very well informed about the current industry situation before you hang a 700K mortgage around your neck for buildings that essentially have no other use.
The above is serious but on the other hand, remember one of the maxims of investing is "Never invest in anything that eats" Gordon
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Re: Contract Chicken Growing

Post by Slick8503 » Thu Nov 08, 2012 7:39 am

I will definitely take your advice and talk with more growers. I have a contact from an ag related web forum that is in the business, and he has offered to give me a tour of their area(he is about an hour and a half south). The same integrator is in this area, along with a few others, so thats a plus.

With regard to the smell... There can be a fairly strong ammonia smell(in the winter especially) inside the buildings, but by and large these aren't your dad's chicken coops. They are tunnel temp controlled and tunnel ventilated. It's not something someone from a city would be ok with, probably, but the times I've been inside them, it has been no big deal. I drive by quite a few houses also, and from the outside 99% of the time you don't even know they are there. Where the smell really becomes apparent is during/after cleanout if any litter is left in a pile outside uncovered. That can be RANK. We will do a total cleanout once/yr. and spread right away. It costs money in nitrogen value to let the litter setout before incorporating into the ground. That ammonia smell is your nitrogen value gassing off.

For a four pound bird(which is what we will raise) the growout phase is only 5 weeks. Pretty amazing the growth rate. You currently get 2 weeks to cleanout, and that only takes three to four. So every 6 weeks, is a week "off".

I know it sounds like I've made up my mind. I kinda had before posting, but I knew if I could sell this idea to the Bogleheads, I knew it was probably a good idea. Most of the answers were what I expected, and some of you have made me re-think a few things.

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Re: Contract Chicken Growing

Post by Rebecca_S » Thu Nov 08, 2012 8:08 am

We get our chicken and pork from a local, organic operation. We pay a lot for the meat but it is worth it to us. Tufts University nutrition dept works closely with small farmers and those who want to become farmers, the chicken farmers we use work extensively with them to help train new farmers. Since you are getting an Ag degree you might not need the same training but your school might offer options that focus on independant farms/CSAs rather than contract farming.

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Re: Contract Chicken Growing

Post by Slick8503 » Thu Nov 08, 2012 8:48 am

My fiance is getting the ag degree. Maybe the organic thing is worth checking into. How people can justify the price difference is crazy to me, but to each their own. The broilers grown in these houses are as organic as the ones grown in an open lot. They aren't medicated except on the rare occasion that the birds are actually sick. I haven't talked with anyone who has had to do that. The broiler manager I'm working with at the local plant has said it has happened twice since he has been working at this location and he has been there 8 years.

I would much rather eat these birds than one that has been scrummaging around in a dirt lot eating god knows what and coming into contact with god knows what. Disease from wild fowl(wild turkeys are bad in this area) is the biggest concern as far as disease transmission. Something to think about.

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Re: Contract Chicken Growing

Post by beardsworth » Thu Nov 08, 2012 9:44 am

Slick8503 (original poster) wrote:I know it sounds like I've made up my mind. I kinda had before posting, but I knew if I could sell this idea to the Bogleheads, I knew it was probably a good idea. Most of the answers were what I expected, and some of you have made me re-think a few things.
I am a city guy who posted above including some links but, yes, as the thread developed and I followed your own many additional posts, it did seem (this is not a "criticism") that you had essentially made up your mind to do this before you ever opened the thread. A lot of the responses, I think, were a "reality check" to make sure you understand the kind of life involved, not just in strictly financial terms, and to encourage you to evaluate the pros and (without "rose-colored glasses") the cons. And perhaps also to have a Plan B if things don't work out as hoped. Good luck.

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Re: Contract Chicken Growing

Post by bartbill » Thu Nov 08, 2012 9:51 am

In driving thru eastern Oklahoma and western Arkansas you see abandoned and non producing grow houses everywhere. There is a reason these folks quit producing chickens. I would be very careful with this.

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Re: Contract Chicken Growing

Post by Random Poster » Thu Nov 08, 2012 10:41 am

gwrvmd wrote:The above is serious but on the other hand, remember one of the maxims of investing is "Never invest in anything that eats"
So you shouldn't invest in yourself?

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Re: Contract Chicken Growing

Post by mike10 » Sat Nov 10, 2012 8:07 am

I found your post interesting since we are experiencing the same growth in poultry expansion in our area, only our experience is with turkeys. I am not involved in the turkey business but I am an owner in a farm equipment dealership. I have often thought the initial outlay oi cash to get involved in the poultry buisness would never pay off. Some of my observations are;

The poultry growers appear to have more disposable income than other livestock producers.

Farmers, whether poultry, other livestock or grain producers, farm because they love their job and lifestyle. Your future wife may make more money than you with her degree. but I can almost guarentee she will not love her job as much as you do.

I marvel at my peers who work outside jobs and farm on the side. Despite the long hours they appear to happy with their lives.

It appears you have one very important asset in that your future wife in on board with your desire to raise chickens. Do not get involved in this venture if she is not committed to it. Happy wife happy life is a fact of life in farming.

Raising poultry is a gamble as some have posted. During summer months some of our producers will loose thousands of their flock. The ones who built buildings with some kind of cooling systems are far ahead of the game. The initial price of the building is important, but look at future costs such as lost birds, and inferior systems failing. Many of the internal systems will not make the 10 year contract.

You have stated the positive aspects of this venture but now is the time to look at the other side and plan for the worst.

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Re: Contract Chicken Growing

Post by Rubiosa » Sat Nov 10, 2012 12:23 pm

Slick - What does your daddy say? I'll bet, "DON'T DO IT." Case Closed.

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