Friday, February 13, 2009

Hard Times on Chicken Farms...

I can't say that this is surprising, but I do feel for the farmers and the families...
"A chicken housing crisis has cropped up in the U.S., and it's producing some of the same bleak results as the human one -- foreclosures, lawsuits and devastated homeowners.

In the wake of last year's bankruptcy filing by poultry giant Pilgrim's Pride Corp., hundreds of farmers suddenly find themselves unable to make mortgage payments on their pricey chicken coops.

To cut costs, Pilgrim's, the nation's second-largest chicken company, has terminated contracts with at least 300 farms in Arkansas, Florida and North Carolina. Under these contracts, farmers receive a set price per pound for raising chicks supplied by Pilgrim's until they are ready for slaughter. The company turns the birds into nuggets, wings and other food."
Those are the opening paragraphs from, "Farmers Face Empty-Nest Syndrome Amid Chicken Housing Crisis," in Thursdays edition of "The Wall Street Journal". The article by Lauren Etter looks at the situation that a few families are currently facing after losing their production contracts with Pilgrim's Pride Corp. Their contracts gave them birds, feed, and a buyer if they built chicken houses to the companies specifications.

The draw of course to this sort of production is the fact that you know that you will have birds (not all the time I guess) and that you receive an agreed upon price (if they give you birds of course). The downside though is that most people that jump on these deals have to throw all their eggs in one basket (no pun intended) in order to get the financing to build the big buildings needed.

Once you lose your contract though you are left with a really expensive building (they cost more than $200,000 according to the article) that doesn't offer much resale value you or even income generating potential. And, as far as I know there are not many markets for an independent commercial chicken producer to sell at these days because Perdue, Tyson, and Pilgrim's own most of the commercial chickens in the country.

The thing is that the chicken industry probably isn't the only place that sees this "housing crisis" from time to time. I'm sure it exists in the commercial hog world where huge confinement houses are built when prices are high and then are hard to keep going when prices drop. I'm sure the same thing happens in dairy and crops as well.

I see at least two problems working here. The first problem is the fact that the poultry industry in the U.S. has become vertical. Farmers are growing someone's birds and they don't have much say in the operation. The second problem is diversification. If you are a chicken farmer and you lose all of your chickens ... well, I think you lose all of your income.


Jena said...

This reminds me of growing corn, and cash crop farming in general. If you own a $200,000 combine with a corn head, you're going to just keep planting corn even when it doesn't make much sense otherwise.

I think you're exactly right that lack of diversification is how these messes happen. It is just plain poor business practice to rely so completely on one product!

DanielRSeedorf said...

This is what I feel will be the down fall of Big Ag.Poor business models, no diversity, and let's face it, mass production and animals don't mix.

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