[News] Recession Closes in on Chicken Farmers

Discussion in 'Random Ramblings' started by crait, Apr 13, 2009.

  1. crait

    crait Chillin' With My Peeps

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    Jul 9, 2008
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    http://www.latimes.com/news/nationworld/nation/la-na-chickens13-2009apr13,0,2407745.story :

    Nationally, 800 to 900 chicken farmers have lost contracts since last fall, almost all of them in the South. The farmers are at the mercy of big chicken processors.

    Reporting from Siler City, N.C. -- Four years ago, Andrew Meeks literally bet the farm on chickens. Now he fears he made a losing bet.

    His three massive chicken houses are empty, and a "For Sale" sign has sprouted out front. Meeks, a contract chicken farmer, borrowed nearly half a million dollars to refurbish his 25-acre farm, putting up as collateral his home, the farm and virtually everything else he owns.

    But the company that provided his chickens and paid him to raise the birds canceled his contract. Without chickens, he can't earn the money to pay off his loans.

    Foreclosure is on the horizon.

    "I paid a lot of money for these chicken houses, but they aren't worth a nickel right now. There's no market for the birds," Meeks said, strolling through one of his darkened chicken houses, scattering white feathers and startling a lone chicken.

    The worst recession in decades has hammered all types of businesses across the country, farming included. But among the hardest hit are contract chicken farmers in the South and especially in North Carolina, the nation's second-leading poultry producer, where it is a $3.3-billion industry.

    Last winter, the economic crisis created "pretty much a catastrophe" for contract farmers, said Dan Campeau, a North Carolina State University poultry specialist and extension agent.

    Demand for chicken nose-dived as beleaguered consumers cut back. The industry's two biggest foreign markets, Russia and China, drastically trimmed their orders. Fuel prices surged, driving up the cost of chicken feed as some grain crops were diverted to produce ethanol.

    Pilgrim's Pride of Pittsburg, Texas, one of the country's largest chicken companies with $8.5 billion in sales last year, filed for Chapter 11 bankruptcy protection in December. In six central North Carolina counties, 44 farmers lost their contracts, including Meeks.

    Together, the 44 farmers owe at least $18 million to banks on investments in their farms, Campeau said. Only four have found contracts with other chicken processors. Two have retired. The rest are searching desperately for a lifeline in a glutted market.

    "The industry is swamped with product right now. But these growers [farmers] have big debts and can't wait for the market to turn around," said Bob Ford, executive director of the North Carolina Poultry Federation.

    'We're baby-sitters'

    Nationally, 800 to 900 chicken farmers have lost contracts since last fall, almost all of them in the South, said Gary McBryde, an economist with the Department of Agriculture. Chicken production is down 7% since April 2008, the National Chicken Council said.

    Contract chicken farmers are at the mercy of big chicken processors, known as "integrators," which provide chicks and feed. Contracts require farmers to provide chicken houses, pay to heat and cool them, and maintain water lines and other equipment. Farmers must dispose of chicken waste and dead birds.

    The farmers raise the chicks to maturity, then are paid by the pound for the meat. But the integrators own the chickens and decide how many the farmers get. They determine the formulas under which farmers are paid, based on a complicated feed-to-meat ratio.

    "We're basically baby-sitters," Meeks said.

    Farmers provide half the capital in the industry but earn only 1% to 3% on their investments, versus more than 20% for integrators in boom times, the National Contract Poultry Growers Assn. said.

    In good economic times, integrators provide enough chicks for farmers to pay down their loans and turn a profit. But in bad times, contracts can be canceled on short notice, leaving farmers like Meeks stuck with expensive chicken houses and equipment.

    In February, Pilgrim's Pride announced that it would shut down three of its 32 processing plants -- in Georgia, Arkansas and Louisiana -- by mid-May. Citing the steepest drop in consumer food purchases in 60 years, the company said it lost $1 billion in fiscal 2008 and $229 million in the first quarter this year.

    'Painful' situation

    Ray Atkinson, a Pilgrim's Pride spokesman, called the situation "very difficult and painful."

    He said the North Carolina farmers were given ample notice last fall that the company intended to cut off the 44 bottom-performing farmers out of 128 in the region.

    But the company had hoped to avoid such cuts. Atkinson said the company kept the farms on last spring when it closed its Siler City processing plant. Rather than terminate farmers supplying that plant, Pilgrim's Pride combined them with farmers supplying a company plant in Sanford, N.C.

    Overall, Atkinson said, Pilgrim's Pride has cut off about 300 of its 5,000 contract farmers. About 430 will be affected by the three more plant closings next month.

    Meeks said he didn't blame anyone for his troubles. As a farmer and businessman, he knows he is at the mercy of market forces beyond his control.

    Because of the recession, "integrators were making money on the margins, but the margins have run out," Meeks said. "That's the chicken business."

    He purchased the farm four years ago and shares the two-bedroom house with his wife and dogs. At 52, he said, he's hardly an attractive catch for employers, and he's not eligible for unemployment compensation or food stamps.

    "I'm not crying the blues," he said. "With this economy, a lot of people are worse off than I am."

    He is proud of his hard work in rebuilding the once-derelict chicken farm. He owns a "Grower of the week" hat and a "Top 10 grower" jacket, awarded for high-quality production in good times, when he raised 60,000 birds at a time.

    Two weeks ago, Meeks reluctantly put up the "For Sale" sign, but he has not received a single call.

    "It's just one fool looking for another fool," he said. "I mean, nobody is going to buy chicken houses now, when you can't sell chickens to anybody."

    Ford, of the poultry federation, predicted that the market for chickens wouldn't recover until at least next fall or winter. He said most contract farmers couldn't wait that long.

    Meeks said his banker had told him he needed to "come up with a plan" to continue making debt payments. Right now, he said, he doesn't have a plan.

    "All I ever aspired to be was a farmer. Chicken farming is a good life," he said, sitting in his frame house at dusk, gazing out at this three forlorn chicken houses. "Now I don't know what I'll do. I have no idea."

    I never really understood the impact of this recession until now.​
     
    Last edited: Apr 13, 2009
  2. MissPrissy

    MissPrissy Overrun With Chickens Premium Member

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    Forks, Virginia
    One of the problems as I see it - Chicken once was the cheapest meat to eat. Wings being a dime a dozen so to speak. The chicken industry jumped on the buffalo wing band wangon and priced chicken wings out of the cheap to eat meat market. Food network also plunged chicken into the forefront of lean, healthy, get fit, white meat entrees and sent chicken breast up to compete with steak prices.

    I am very sorry for all the farmers who are out of a job but just like the car industry the big businesses priced themselves out of the market on a lot of things.

    Chicken is no longer cheap to eat. A nice sized sunday roaster here is over $10 per chicken. Most people cannot afford $10 for a full meal for a family of 5 much less just the entree.
     
  3. Chicky Tocks

    Chicky Tocks [IMG]emojione/assets/png/2666.png?v=2.2.7[/IMG] Ru

    Oct 20, 2008
    Benton, Arkansas
    Ugh. That is horrible!
    /me hugs her chickens.

    Miss Prissy, you are spot on. Also I wonder if the economy has caused so many people to make themselves more self-sufficient by growing their own meat and vegetables, if by that it has affected the market for chicken/food? I think people are hunkering down and preparing for the worst.
     
    Last edited: Apr 13, 2009
  4. gumpsgirl

    gumpsgirl Overrun With Chickens Premium Member

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    Quote:Well said MissP! It is very sad for those who are being hit so hard, but chicken has gotten crazy expensive and people just can't afford to buy what they used to could buy.
     
  5. flopshot

    flopshot Chillin' With My Peeps

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    over the years i've watched this industry decline. we have a major pultry producer close by and a feed mill owned by same. i drive a stretch of road four time per day that i've nicknamed "dead chicken blvd" due to the ill fated escapes. there was a large demand for contract chicken houses years ago but what some have told me is that the producer along with regulatory policy just made it too hard to show a profit.
     
  6. The Poultry Peanut

    The Poultry Peanut lives under rock

    Quote:I never really understood the impact of this recession until now.

    His problem was borrowing that money.
     
  7. Rosalind

    Rosalind Chillin' With My Peeps

    Mar 25, 2007
    I think his problem was his business model--the factory farm model is only good for the processors, everyone else in the model is pretty much a peasant for the processor CEO's kingdom. As soon as you take on the monocropping business model for anything in any business, you're taking on a LOT of risk--risk of exactly this happening.

    You see this business model fail and fail again in lots of industries, not just agriculture: pharmaceutical companies fail when they don't have over-the-counter cough meds and aspirin to pay the bills in a bad year for prescription drugs. Telephone companies fail when they don't offer internet and wireless services as well. Computer companies fail when they don't also sell MP3 players, phones, software, photocopiers, etc. Camera companies fail when they don't also sell satellite optics, medical devices, telescopes and microscopes.

    Think about this for a minute, if you were the CEO of, let's say, Olympus. Your company makes lenses for cameras. Now the CEO of General Electric comes to you and says, "Olympus, I want you to dedicate ALL your manufacturing equipment to making lenses for our new medical device. We have sold 200 of these medical devices already and anticipate needing more. We want to buy yours because we know you're good at making this sort of thing, and we calculate that it will take all your resources to make enough lenses for us. How about it? We will pay $millions$ for your lenses, IF you make them for us, and we will supply the glass if you supply the grinding equipment, expertise and people."

    Do you, as the CEO, say, "Well, OK, but in fact we calculate that in order to produce the number of lenses you're asking for, we'll need to expand operations. We will pay for the expansion out of our own pocket, and if at any time in the future for whatever reason, you decide you don't need any more of our lenses, you can just leave us high and dry"?

    No. You say, "Well, we can produce that many lenses only if we expand--we must, after all, continue to produce our own products which generate a decent revenue stream in their own right. And we have a commitment to our customers. Tell you what, it will cost $million$ to expand, and you are asking us to expand based on YOUR risk assessment, obviously we can't take all that risk ourselves. If YOU provide x% of up-front capital we will need for expansion, we will use it to build a multipurpose facility that can produce your lenses but will be easily converted to anything else in the future. We will produce your lenses for 2 years at a guaranteed purchase price of $millions$ and then we'll re-visit things based on market demand. But, you MUST promise to purchase 2 years' worth of lenses, regardless of whether or not your market assessment turns out to be true--that is, if it turns out you thought you'd need lenses for 2,000 machines, but only sell 100 machines, you're still going to pay us for 2,000 lenses. Deal?"

    The crummy thing is, the processors do, in fact, know what a fair deal is vs. what they are offering. They also know that the people they contract with need the money badly enough that they can't say no and walk away easily. And they also know that the average poultry farmer is not an ex-corporate project manager who would tell them to bugger off with their lousy non-deal, so they know they're likely to get some takers.

    If the guy wanted to be a poultry farmer, and he could get $0.5mil in credit, I'm wondering why he didn't just start his own setup--instead of contract growing, raise and process his own birds on a smaller scale? You can do that for a heckuva lot less capital and not be in the hole at the end of the day. 25 acres is enough for that.
     
  8. Mojo Chick'n

    Mojo Chick'n Empress of Chickenville

    What the guy needs to sell is LIVE chickens (since the hatcheries can't keep up with all the orders this year [​IMG] )

    He has the set-up already, why not get a bunch of quality hens and roosters to get hatching eggs, and maybe sell chicks on the side, too.

    He would could probably have as much profit in selling to hatcheries and private sales as he might with the factory meat production.

    At least, that is where my mind would take me in such a situation.

    But, not knowing his full situation, I can't tell him what to do. Maybe his debt is so far behind he can't wait for that sort of profit to flow in.

    Like the article said, however, in this market, who is gonna buy his farm? Heck, I had a house for sale for over a year and ended up selling it for 1/3 of what it was worth - just to get rid of it. He'll never make back what he owes.

    I am so glad I don't have any debt right now. We were in pretty tough financial straits for a long time too - many many years.

    I wouldn't take out a loan or buy on credit if my life depended on it (especially right now in the current economy) - I'd find a way to save my life without it.

    meri
     
  9. ltlchicken

    ltlchicken Chillin' With My Peeps

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    yup, he needs to sell live chickens. get a new contract with the hatcheries. when life gives you lemons, make lemonade.
     
    Last edited: Apr 13, 2009
  10. DiVon80

    DiVon80 Chillin' With My Peeps

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    Pearl River,Louisiana
    Hay! Maybe its got to do with all us BYC people. Everyone is growing there own...We know what goes in our meat and eggs if we do it our selves.[​IMG]
     

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