Show notes
Introduction (Recording 9/14) (Airing 10/4)Thank you for listeningFarm4Profit episode vs Farm4Fun EpisodeThank you again for suggesting topics for us to talk about on the podcast and keep them coming. Send those to [email protected] or find us all over social media.We greatly appreciate your help in growing our audience.The listener review today is brought to you by BW Fusion. They are focused on bringing innovative Fertility, Nutritional and Technology to the Ag marketplace. They combine their best-in-class products along with the 365 soil and tissue program to provide growers the tools necessary to address limiting factors in real time. Just like 365 Your reviews are how we monitor our podcast in real time. Bigzac0627 – Love the podcast. Still catching up on it, keep up the great work guys!What’s Working in AG – www.fieldpocket.comhelping the farming be more organized with record keepingINSERT Brandt 30 second ADMain topic – Breaking down the value of contract raising livestock.Guest – Travis from Circle “U” FarmsCattle and poultry farmer who is here today to help us provide an episode with straight forward information around custom raising livestock.Where do you farm and tell us a little about yourself Travis! Definition of contract growing livestock or custom raising livestock.Production contracts specify services provided by a farmer for a contractor who owns the commodity while it is being produced. The contract covers (1) the services provided by the farmer, (2) the way the farmer is to be compensated for the services, and (3) the specific contractor responsibilities for provision of inputs. For example, farmers provide labor, housing, and equipment under livestock and poultry production contracts, while contractors provide such other inputs as feed, veterinary and livestock transportation services, and young animals.”Livestock IntegratorOwner of the livestock placed for custom raisingToday we will try to provide perspective from 3 types of livestock.Corey/Tanner – PigsTanner/David – CattleTravis – PoultryWhat does it take to get started?FacilitiesSize of building, amount of landCosts to build or remodelOngoing maintenanceStoring FeedLaborTasks frequently doneHired?Contractors?Regular Hours?EquipmentTractorMowerHandlingEtc….ContractHow do we get paid?What are normal expectations?Farmers ResponsibilitiesIntegrators Responsibilities Length?Flock by flock, group by group, yearsIs it profitable?HogsCattlePoultry - Depending on the size of bird produced, five to seven flocks per year may be grown per house with flock sizes ranging between 22,000 and 26,000. Gross income per house will generally range from $28,000 to $35,000 annually. Thus, net returns per house are generally minimal ($3,000 to $10,000) during the 10- to 15-year payback period. Returns per house are much more substantial once the house is paid for.AdvantagesReduced management responsibilities.Still requires intense herd/flock management & record keeping, but less accountingLess risk for production and less risk for loss of incomeAlso limits upside potential – poultry gets bonusesRelatively fixed income; some insulation from price changes.Utilities, fuel, labor, etc….not fixed costsLess operating capital necessaryStill requires substantial capital at initial investmentOpportunity to participate in livestock production.Opportunity to obtain additional income from the farm.Borrowing capacityTypically having a contract provides financial institutions more comfort when approving loansManure/FertilizerThere is one sentence in the Clean Water Act that says "if you dictate the growing conditions, all the byproducts are yours" yet they cast the responsibility on the grower, so I don't know that I would consider the litter/manure to be a Pro for the grower.Other personal advantages?DisadvantagesPossibility of limited opportunity for growth. New building and expansion are dictated by integrators' plans.High fixed investment. Pressure to keep up with technological changes in management, housing, and equipment.Possible lack bargaining power.You might have higher production costs in order to comply with contract terms, for example, because you must use higher priced inputs or special equipmentYou may have less flexibility in how you farm if the contract provides guidelines on what practices must be followedplay by their rules or move onOther disadvantages from personal experience?Why Do Companies/Integrators Want to Use Production Contracts? Quality Control –genetic technology, production methods, and inputs used, and help ensure uniformity and quality of the commodity produced. Intellectual Property Protections –can control access to new technologies, thus serving as a form of intellectual property protection. Confidential Arrangements –preserve the confidentiality of their marketing arrangements and even the identity of end-users. Pricing Confidentiality –often use non-public pricing which conceals the premium earned for any special trait or the amount paid for performing services. This can create higher profits for the contractor and may limit the ability of producers to bargain for higher payments. Lower Risks and Higher Profits – offers companies a way to invest in technologies like improved breeding & extend operations into production without having to own farmland or production facilities. Move Capital Requirements from the Company to Farmers –allow companies to move the financial risk of building barns and buying equipment from their balance sheet to that of farmers. This reduces their financial risk in case market conditions call for reduced productionLower Environmental Risk – Contracts allow companies to ensure the responsibility for manure and other waste, such as dead animals, remains with the farmer. Disposal of waste can be subject to local, state, and federal lawThings to considerRemember the first rule of contracts: whoever writes the contract benefits most. Don’t assume a contract protects you. It might, but you shouldn’t assume so. The contractor who wrote the contract protected its interests. You must protect your own interestsBe sure any changes to a contract are made in writing. Never rely on oral communications to amend an agreement. Just because you believe a contract was changed by a conversation with the contractor or its representative, doesn’t make it true. If you and the other party agree to amend the terms of a contract, get the new terms in writing, and have the other party sign themKeep good records of your performance under the contract. It is helpful to keep records and documents concerning your performance. Also, keep notes about any communications with the contractor. If a dispute arises, your records may provide the answers a court will need in order to resolve it.What worked for the neighbor might not work for youIs there anything else you would like our listeners to learn from our conversation today?SummaryChallengeSubmit questions and topic suggestions - Like, Rate, Review, Share
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