7 ms·

Farmers Take Out Millions In Loans To Raise Chickens For Big-Box Retailers

mfoy_ 9y ago
Interesting that they say "raise corn" and "grow chickens".
- saalweachter 9y ago
  There may be two distinctions in the language. First, chicken "production" is generally separated into "layers" and "growers". Layers are chickens you raise to lay eggs, growers are chickens you raise just to grow big enough to eat. So "grow" in the "raise vs grow" context may influenced by the "layer vs grower" context. The second is that there is a split between people who raise livestock through their full life cycle, breeding them and raising them to a finished weight, versus people who just breed or just finish livestock; the "factory chickens" will typically be just a finishing operation, so "grow" may also be influenced by that. The third possibility is that it's an in-joke by the farmers, on how the chickens have become more of a crop than the corn. The fourth possibility, of course, is that it's just a transcription error by the authors, and the farmers say "grow corn and raise chickens".
austenallred 9y ago
Million dollar loans aren't really that strange for farmers. It is definitely a lot of money, but usually it's secured by assets that are objectively valuable themselves (land). My father in law started out as a humble hay farmer in the middle of nowhere in Utah, but he could easily retire on the appreciation and equity he built in the land he owns alone (though he's the type that would never sell it, and he's already rich).
- mfoy_ 9y ago
  In this case the loan is to build barns, not buy more land. And the barns are specifically for raising chickens. If the contracts or the poultry processing in that area fall through then I don't think the underlying assets would be worth their cost-- leaving the farmers high and dry.
  - deleted 9y ago
    [deleted]
  - bluGill 9y ago
    True, but the bank won't be giving those loans if they think the contracts will fall through. Even if the contracts fall through, chicken demand is a known quantity. The farmer has opportunity to find someone else to buy his chickens.
    - kgwgk 9y ago
      Yes, because banks never give loans to people who is later unable to pay back. And chicken prices can only go up, like house prices.
      - austenallred 9y ago
        Well in this case the assets will be chickens and barns. Certainly there's risk, but the likelihood that either chickens or barns rapidly become worthless is quite small. Unlike the housing crisis, they don't need the prices to continually go up. They just need them to not fall through some floor.
- mason240 9y ago
  Exactly. Farming is a very capital intensive business, I'm not even sure why this very note worthy. I work for a small financial company that lends money to farmers on an annual basis for seed and chemicals. Even small crop farms typically borrow $200k+ every spring and then pay back at harvest, and that's just for seasonal operating costs.
vwcx 9y ago
Christopher Leonard's book 'The Meat Racket' is a good primer for anyone interested in the subject. He does an excellent job walking through the simultaneous rise of "big chicken" and the legislative steps corporations like Tyson and Cargill took to ensure their long-term domination of farmers, the law and the consumer. https://www.amazon.com/Meat-Racket-Takeover-Americas-Business/dp/1451645813 https://www.amazon.com/Meat-Racket-Takeover-Americas-Busines...
- rayiner 9y ago
  Here's the NYT book review: https://www.nytimes.com/2014/03/02/books/review/the-meat-racket-and-in-meat-we-trust.html https://www.nytimes.com/2014/03/02/books/review/the-meat-rac.... I think the bigger picture issue is that there is nothing special here about meat, nearly every industry is like that. Big corps are inherently more efficient at this sort of thing, and technology has helped them overcome any inefficiencies of scale they might have suffered in the past. You used to be able to walk into a Comp USA (or even local computer stores) and see aisles of CDs from all these different software companies. Today, Google/Microsoft/Apple control everything through their app stores and bundle most of the software you might want to buy with their devices. Heck, we're watching this happen right now in several industries, and cheering it along. Amazon is putting all the smaller retailers out of business (because there is pretty much no way to compete with Amazon's economics of scale). Uber is an international mega-corp that's systematically wiping out the dozens of taxi companies (almost all small businesses) that used to exist in each city.
  - patio11 9y ago
    You used to be able to walk into a Comp USA (or even local computer stores) and see aisles of CDs from all these different software companies. This is true. Those were terrible, terrible times to be in the software business. If you want me to elaborate, I can elaborate at some length.
    - toomuchtodo 9y ago
      I would be happy to Patreon you for a blog post on this subject.
droopyEyelids 9y ago
The idea of "having faith" that a mega corporation will take pity on your business when inevitable negative variance hits the farm sends a shudder down my spine.
- 0xdeadbeefbabe 9y ago
  NPR is probably thrilled then.
- FussyZeus 9y ago
  The hell else are they supposed to do exactly? The economic crash hit the middle states hard, and the recovery has gone almost exclusively to the coasts. The real question is why we're allowing an entire region of the country's "best option" to be being debt slaves to a handful of chicken companies.
bjpbakker 9y ago
> "There's some things that aren't perfect, but you're never going to get a perfect contract," Mueller says. "And there again you got to have some faith and you've got to have some trust." That's a bit of a straw man. You sign contracts to have a set of rules that you can fall back on if you /no longer/ can trust the other party.
JPKab 9y ago
This is a very, very typical pattern in poultry and egg production. Source: Grew up in rural Virginia near a bunch of big poultry processing centers and the surrounding area is filled with family farmers who are debt slaves to the poultry processors.
ocschwar 9y ago
And elsewhere on the front page, a dotcom is hiring and is in the business of facilitating yet more borrowing by poor people.
greggeter 9y ago
Somebody call Joel Salatin
Luc 9y ago
In the US, 25 million chickens - sentient, feeling creatures, killed in their infancy after a short, miserable life. Genetic freaks, too. Every day, over and over again, a cycle of suffering. Perhaps this is a business one could choose not to get in to.
- sitepodmatt 9y ago
  Is this much different to dogs, cats, whales, pigs, rabbits?
  - devmunchies 9y ago
    Why does that matter?
    - sitepodmatt 9y ago
      Maybe it doesnt, but it might shock you to know that most of the korean dog meat trade protesters are not vegetarian. I dont see the reason we are sympathetic to chickens alone here.
      - devmunchies 9y ago
        > I dont see the reason we are sympathetic to chickens alone here If you want to try to fix animal cruelty in the whole world, you're boiling the ocean. I don't think its far fetched to say that Americans should fix stuff at home (chickens, pigs, cows...) before we try to fix the world (unless its your life mission or something). I personally have never been to Asia, so I don't see the dog meat thing as "my battle". I don't think we need to make people feel guilty for problems on the other side of the planet when there are plenty of local problems.
- FussyZeus 9y ago
  Rhinos are endangered and hunted by poachers nearly to extinction because they aren't allowed to be domesticated and "farmed" for ivory. The best way animals can ensure long term survival is to be useful to man, not only because farm animals are in much greater numbers and protected as property is in our society, but also because we are rapidly running out of "wild" area for them to exist in. I shudder to think how many species are going to go extinct once we can grow meat directly in labs.
fencepost 9y ago
The company that you're going to be working with/for is going to make a huge difference here. Costco has a reputation of being a good corporate citizen and taking care of its staff, suppliers, etc. (FWIW including a code of ethics that prioritizes: Obey the Law, Take care of Members, Take care of Employees, Respect Suppliers, Reward Shareholders.) If I were a supplier I'd be a lot more willing to sign on with someone like Costco with a DBAD reputation than with anything owned by Walmart with a "you need to cut your margin another 5% this year or we'll drop you and leave you with no way to pay those loans" reputation.
patio11 9y ago
The most natural reading of this is "Sophisticated entrepreneurs attempt to increase revenue by diversifying into a new line of business requiring capital improvements financed by readily available debt.", unless one has the misapprehension that farmers are, as a class, stupid.
- yequalsx 9y ago
  It's not binary. There's a whole range types of people, situations and forces at play. Not all are sophisticated, not all are dumb and probably are reacting to emotional forces that we aren't aware of. I frequently read stories on this site about how it's dumb to have your whole business dependent upon Facebook. Maybe depending entirely on Costco is equally a bad idea. Perhaps more so since there are massive loans involved. EDIT: From the article: "Bringing the boys back to the farm is huge for me," Mueller says. "I'm not a big enough farmer to where another family could farm and do corn and soybeans and survive. This way they can." At least in this one case there are non-sophisticated financial forces at play. Patio11's comment is not apt.
  - austenallred 9y ago
    > At least in this one case there are non-sophisticated financial forces at play. I'm not convinced that's a fair assumption. Everyone has reasons they'd like to make more money and some vague idea of what they'd do if they were more wealthy. Acknowledging that you want your business to be successful because x doesn't necessarily indicate that a decision making process is irrational or unsophisticated.
    - yequalsx 9y ago
      I'd say that a major part in his deciding to take $6 million in loans and signing an exclusive contract with Costco has to do with emotion and not purely financial reasons. It may be a good decision but at least part of the decision making was not for sophisticated financial reasons.
      - 9y ago
sjg007 9y ago
Interesting to see Costco taking out the middle man. Chicken is going to get even cheaper.
- loco5niner 9y ago
  Possibly, but in my opinion probably not. Costco is selling these chickens for $4.99 each. It's a loss leader, and (as far as I have heard) Costco is adamant that this price will not change. I think Costco is simply trying to reduce the amount of loss they are taking at that price. * I know it works on me, I go in for the free samples mostly and regularly spend $50+ on a visit (maybe half the time), and just recently spent $7,000 on a massage chair.
  - madengr 9y ago
    They used to be $3.99, but even at $5 they are twice as big and 1/2 the cost of grocery store chickens.
    - Mankhool 9y ago
      Yes, but what is the quality? What have they been fed and injected with on their way to an assembly line that kills them at the rate of 200/minute?
      - madengr 9y ago
        The Costco chickens taste good.
        loco5niner 9y ago
        They do taste good. I have to admit though, after eating a lot of them, I suspect they have some brine added. Not a big deal, and not for sure, but I don't get them as much as I used to.
  - sjg007 9y ago
    I think the membership model is the future. You pay a fee but get goods in bulk near wholesale and producers compete to sell in your store.
chiph 9y ago
Disclaimer - my current contract is with the Farm Credit bank system, and they're likely to be the ones to lend to these farmers. Mainly because they understand agriculture and farmers & ranchers, and the big banks don't. But also because even though we're a government-sponsored entity (the feds guarantee our loans), we are run as a co-op. If we have a good year (i.e. not many losses) we will refund patronage dividends to our customers. And this can be significant - one association alone paid out $160 million last year. These farmers are pretty smart - yes they're taking a risk by borrowing money. But diversification can only help them in the long run. And $2-6 million for new barns isn't a lot in a business where field equipment can easily run a half-million dollars, and wears out/becomes obsolete in 10 or 15 years.
superplussed 9y ago
I'm really hoping that in the next 5 or 10 years that "clean meat" or meat created from animal cells becomes a viable alternative. This is the future, and with it we will drive costs down and food safety up.
Paul-ish 9y ago
> And farmers can always lose money on a bad batch of birds. > "A disaster flock I call them," says OCM President Mike Weaver, who raises poultry on contract in West Virginia. "They contract a disease that stunts their growth. And that's going to happen to (the farmers) eventually. The feed and the chicks, they don't have control over, but their pay is going to be based on those." Wouldn't some sort of insurance be useful here?

Interesting that they say "raise corn" and "grow chickens".

saalweachter 9y ago
There may be two distinctions in the language. First, chicken "production" is generally separated into "layers" and "growers". Layers are chickens you raise to lay eggs, growers are chickens you raise just to grow big enough to eat. So "grow" in the "raise vs grow" context may influenced by the "layer vs grower" context. The second is that there is a split between people who raise livestock through their full life cycle, breeding them and raising them to a finished weight, versus people who just breed or just finish livestock; the "factory chickens" will typically be just a finishing operation, so "grow" may also be influenced by that. The third possibility is that it's an in-joke by the farmers, on how the chickens have become more of a crop than the corn. The fourth possibility, of course, is that it's just a transcription error by the authors, and the farmers say "grow corn and raise chickens".

Million dollar loans aren't really that strange for farmers. It is definitely a lot of money, but usually it's secured by assets that are objectively valuable themselves (land). My father in law started out as a humble hay farmer in the middle of nowhere in Utah, but he could easily retire on the appreciation and equity he built in the land he owns alone (though he's the type that would never sell it, and he's already rich).

mfoy_ 9y ago
In this case the loan is to build barns, not buy more land. And the barns are specifically for raising chickens. If the contracts or the poultry processing in that area fall through then I don't think the underlying assets would be worth their cost-- leaving the farmers high and dry.
- deleted 9y ago
  [deleted]
- bluGill 9y ago
  True, but the bank won't be giving those loans if they think the contracts will fall through. Even if the contracts fall through, chicken demand is a known quantity. The farmer has opportunity to find someone else to buy his chickens.
  - kgwgk 9y ago
    Yes, because banks never give loans to people who is later unable to pay back. And chicken prices can only go up, like house prices.
    - austenallred 9y ago
      Well in this case the assets will be chickens and barns. Certainly there's risk, but the likelihood that either chickens or barns rapidly become worthless is quite small. Unlike the housing crisis, they don't need the prices to continually go up. They just need them to not fall through some floor.
mason240 9y ago
Exactly. Farming is a very capital intensive business, I'm not even sure why this very note worthy. I work for a small financial company that lends money to farmers on an annual basis for seed and chemicals. Even small crop farms typically borrow $200k+ every spring and then pay back at harvest, and that's just for seasonal operating costs.

vwcx 9y ago

Christopher Leonard's book 'The Meat Racket' is a good primer for anyone interested in the subject. He does an excellent job walking through the simultaneous rise of "big chicken" and the legislative steps corporations like Tyson and Cargill took to ensure their long-term domination of farmers, the law and the consumer. https://www.amazon.com/Meat-Racket-Takeover-Americas-Business/dp/1451645813 https://www.amazon.com/Meat-Racket-Takeover-Americas-Busines...

rayiner 9y ago
Here's the NYT book review: https://www.nytimes.com/2014/03/02/books/review/the-meat-racket-and-in-meat-we-trust.html https://www.nytimes.com/2014/03/02/books/review/the-meat-rac.... I think the bigger picture issue is that there is nothing special here about meat, nearly every industry is like that. Big corps are inherently more efficient at this sort of thing, and technology has helped them overcome any inefficiencies of scale they might have suffered in the past. You used to be able to walk into a Comp USA (or even local computer stores) and see aisles of CDs from all these different software companies. Today, Google/Microsoft/Apple control everything through their app stores and bundle most of the software you might want to buy with their devices. Heck, we're watching this happen right now in several industries, and cheering it along. Amazon is putting all the smaller retailers out of business (because there is pretty much no way to compete with Amazon's economics of scale). Uber is an international mega-corp that's systematically wiping out the dozens of taxi companies (almost all small businesses) that used to exist in each city.
- patio11 9y ago
  You used to be able to walk into a Comp USA (or even local computer stores) and see aisles of CDs from all these different software companies. This is true. Those were terrible, terrible times to be in the software business. If you want me to elaborate, I can elaborate at some length.
  - toomuchtodo 9y ago
    I would be happy to Patreon you for a blog post on this subject.

droopyEyelids 9y ago

The idea of "having faith" that a mega corporation will take pity on your business when inevitable negative variance hits the farm sends a shudder down my spine.

0xdeadbeefbabe 9y ago
NPR is probably thrilled then.
FussyZeus 9y ago
The hell else are they supposed to do exactly? The economic crash hit the middle states hard, and the recovery has gone almost exclusively to the coasts. The real question is why we're allowing an entire region of the country's "best option" to be being debt slaves to a handful of chicken companies.

bjpbakker 9y ago

> "There's some things that aren't perfect, but you're never going to get a perfect contract," Mueller says. "And there again you got to have some faith and you've got to have some trust." That's a bit of a straw man. You sign contracts to have a set of rules that you can fall back on if you /no longer/ can trust the other party.

JPKab 9y ago

This is a very, very typical pattern in poultry and egg production. Source: Grew up in rural Virginia near a bunch of big poultry processing centers and the surrounding area is filled with family farmers who are debt slaves to the poultry processors.

ocschwar 9y ago

And elsewhere on the front page, a dotcom is hiring and is in the business of facilitating yet more borrowing by poor people.

greggeter 9y ago

Somebody call Joel Salatin

Luc 9y ago

In the US, 25 million chickens - sentient, feeling creatures, killed in their infancy after a short, miserable life. Genetic freaks, too. Every day, over and over again, a cycle of suffering. Perhaps this is a business one could choose not to get in to.

sitepodmatt 9y ago
Is this much different to dogs, cats, whales, pigs, rabbits?
- devmunchies 9y ago
  Why does that matter?
  - sitepodmatt 9y ago
    Maybe it doesnt, but it might shock you to know that most of the korean dog meat trade protesters are not vegetarian. I dont see the reason we are sympathetic to chickens alone here.
    - devmunchies 9y ago
      > I dont see the reason we are sympathetic to chickens alone here If you want to try to fix animal cruelty in the whole world, you're boiling the ocean. I don't think its far fetched to say that Americans should fix stuff at home (chickens, pigs, cows...) before we try to fix the world (unless its your life mission or something). I personally have never been to Asia, so I don't see the dog meat thing as "my battle". I don't think we need to make people feel guilty for problems on the other side of the planet when there are plenty of local problems.
FussyZeus 9y ago
Rhinos are endangered and hunted by poachers nearly to extinction because they aren't allowed to be domesticated and "farmed" for ivory. The best way animals can ensure long term survival is to be useful to man, not only because farm animals are in much greater numbers and protected as property is in our society, but also because we are rapidly running out of "wild" area for them to exist in. I shudder to think how many species are going to go extinct once we can grow meat directly in labs.

fencepost 9y ago

The company that you're going to be working with/for is going to make a huge difference here. Costco has a reputation of being a good corporate citizen and taking care of its staff, suppliers, etc. (FWIW including a code of ethics that prioritizes: Obey the Law, Take care of Members, Take care of Employees, Respect Suppliers, Reward Shareholders.) If I were a supplier I'd be a lot more willing to sign on with someone like Costco with a DBAD reputation than with anything owned by Walmart with a "you need to cut your margin another 5% this year or we'll drop you and leave you with no way to pay those loans" reputation.

patio11 9y ago

The most natural reading of this is "Sophisticated entrepreneurs attempt to increase revenue by diversifying into a new line of business requiring capital improvements financed by readily available debt.", unless one has the misapprehension that farmers are, as a class, stupid.

yequalsx 9y ago
It's not binary. There's a whole range types of people, situations and forces at play. Not all are sophisticated, not all are dumb and probably are reacting to emotional forces that we aren't aware of. I frequently read stories on this site about how it's dumb to have your whole business dependent upon Facebook. Maybe depending entirely on Costco is equally a bad idea. Perhaps more so since there are massive loans involved. EDIT: From the article: "Bringing the boys back to the farm is huge for me," Mueller says. "I'm not a big enough farmer to where another family could farm and do corn and soybeans and survive. This way they can." At least in this one case there are non-sophisticated financial forces at play. Patio11's comment is not apt.
- austenallred 9y ago
  > At least in this one case there are non-sophisticated financial forces at play. I'm not convinced that's a fair assumption. Everyone has reasons they'd like to make more money and some vague idea of what they'd do if they were more wealthy. Acknowledging that you want your business to be successful because x doesn't necessarily indicate that a decision making process is irrational or unsophisticated.
  - yequalsx 9y ago
    I'd say that a major part in his deciding to take $6 million in loans and signing an exclusive contract with Costco has to do with emotion and not purely financial reasons. It may be a good decision but at least part of the decision making was not for sophisticated financial reasons.
    - 9y ago

sjg007 9y ago

Interesting to see Costco taking out the middle man. Chicken is going to get even cheaper.

loco5niner 9y ago
Possibly, but in my opinion probably not. Costco is selling these chickens for $4.99 each. It's a loss leader, and (as far as I have heard) Costco is adamant that this price will not change. I think Costco is simply trying to reduce the amount of loss they are taking at that price. * I know it works on me, I go in for the free samples mostly and regularly spend $50+ on a visit (maybe half the time), and just recently spent $7,000 on a massage chair.
- madengr 9y ago
  They used to be $3.99, but even at $5 they are twice as big and 1/2 the cost of grocery store chickens.
  - Mankhool 9y ago
    Yes, but what is the quality? What have they been fed and injected with on their way to an assembly line that kills them at the rate of 200/minute?
    - madengr 9y ago
      The Costco chickens taste good.
      - loco5niner 9y ago
        They do taste good. I have to admit though, after eating a lot of them, I suspect they have some brine added. Not a big deal, and not for sure, but I don't get them as much as I used to.
- sjg007 9y ago
  I think the membership model is the future. You pay a fee but get goods in bulk near wholesale and producers compete to sell in your store.

chiph 9y ago

Disclaimer - my current contract is with the Farm Credit bank system, and they're likely to be the ones to lend to these farmers. Mainly because they understand agriculture and farmers & ranchers, and the big banks don't. But also because even though we're a government-sponsored entity (the feds guarantee our loans), we are run as a co-op. If we have a good year (i.e. not many losses) we will refund patronage dividends to our customers. And this can be significant - one association alone paid out $160 million last year. These farmers are pretty smart - yes they're taking a risk by borrowing money. But diversification can only help them in the long run. And $2-6 million for new barns isn't a lot in a business where field equipment can easily run a half-million dollars, and wears out/becomes obsolete in 10 or 15 years.

superplussed 9y ago

I'm really hoping that in the next 5 or 10 years that "clean meat" or meat created from animal cells becomes a viable alternative. This is the future, and with it we will drive costs down and food safety up.

Paul-ish 9y ago

> And farmers can always lose money on a bad batch of birds. > "A disaster flock I call them," says OCM President Mike Weaver, who raises poultry on contract in West Virginia. "They contract a disease that stunts their growth. And that's going to happen to (the farmers) eventually. The feed and the chicks, they don't have control over, but their pay is going to be based on those." Wouldn't some sort of insurance be useful here?