I too am never letting hens hatch anymore chicks. Too many issues have arisen that don't when I hatch them, so never again!
Yes, the chicks sleep on the pellets or the one little spot I provide them with a couple of paper towels.
To start out, I put about an inch of the pellets down, then cover the warm side with paper towels for the first 3-4 days. This way they can wander over in the pellets if they want.
They get used to the pellets when they go investigate the rest of the brooder. Over on the left is the mash where those other chicks are. The ceramic bulb lamp is in the corner right above the puddle of younger chicks there.
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After pulling the majority of the paper towels, sometimes in the corner of the warm side, I put a paper towel, or in the case of this younger orphan, a shallow bowl. I just do it to be nice, as really they'll sleep anywhere.
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We use a verticle nipple in the beginning. Here the horizontal one is there, but they are too young to use it yet. This shows the pellets after about two weeks of them being in there. Their poop just dries up. I stir the pellets around every couple of days. They are good for about a month, and then I'll replace them with fresh pellets. In the coop, they go a year.
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Here's some just sleeping on the pellets or on the board we thought we'd try out. A little surprising to see them want to try perching at such a young age. We'll sometimes put a 3-4" in diameter log in there for them to sit/sleep on too.
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There are two of these brooders in the house at the present time, and we've never had a smell problem ever.