Investors find a way to expand their pork production interests by becoming equal partners in a production contract to finish early weaned pigs.
On their own, the three partners in a wean-to-finish (W-F) production contract wouldn't have built the two, 2,000-head finishing buildings in south-central Illinois.
They combined forces - resources and expertise - to expand two farming operations using an innovative approach to hog production contracting.
Finding a Way A few years back, brothers Rich and Bob Brauer and sister Jane Feagans - partners in Oasis Farms, a 2,400-sow, farrow-to-finish operation at Oakford, IL - decided they needed to expand to stay competitive. They started building an off-site, 3,000-sow, farrow-to-wean operation.
Rich Brauer explains that limited resources and the increasingly unpredictable hog market led the family team to seek out non-traditional means of finishing the weaned pigs. They've put together two separate partnerships that share equity and resources.
"What we've set up with our wean-to-finish contracts are two limited liability companies (LLC) with three-way ownership in each of them," explains Feagans. The equal partners in each company are Oasis Farms, a small, independent farmer and a silent industry partner.
The first LLC was set up with new pork producer Dennis Barnard at Decatur, IL. The second was with Shawn Stribling, a crop/hog producer at Ashland, IL.
Both agreements have come off without a hitch, says Rich. "That's because we all have the same goal - producing the best pigs possible," he adds.
Stribling's Contract In most livestock production contracts, Stribling would put up all the equity for the buildings, including the land base, and be paid a contract fee to manage the pigs, says Rich. The owner of the pigs would take care of all feed and veterinary care.
This new arrangement calls for the $1.1 million cost for the W-F buildings, animals and feed to be split three ways, and it makes the contract producer an equal partner. The LLC purchased two acres from Stribling for the building site.
"Chances are, any time a person is managing his own assets, he will do a better job than when he is managing someone else's assets," explains Rich. "Shawn treats the livestock like they are his own because, in essence, they are. Not all contractors will do that."
Contract Production Overview Weaned pigs are sold by a third LLC representing Oasis Farms to the other two LLCs that are responsible for finishing the pigs, using a formula price based on the futures market.
Oasis Farms owners oversee production and records, the silent industry partner handles finances, and Stribling tackles the day-to-day management of the 4,000 pigs. For his labor he is paid a management fee. All three parties are paid equally for the market hogs that are sold from a farm fund set up by the LLCs. That way, no cash or checks change hands.
Stribling is a crop farmer who grew up around hogs and also has a standard feeder pig finishing production contract with Oasis Farms. He likes this new shared arrangement for several reasons.
- He gets 17-day-old, 10-lb., single-source weaned pigs from an off-site sow farm, providing him with pigs that are generally above average in health status.
The pigs are transported 15 miles on an old school bus to the isolated W-F site. Each of the two double-wide, W-F buildings is double-curtain-sided; a third curtain divides each building into two rooms to segregate animals and maintain health.
Each room holds 1,000 pigs, 125/pen. Pigs seem to do well in the large pens. But, management is more challenging, especially sorting out a group for market, points out Stribling. Hogs are sold six months after arrival, weighing 270-280 lb.
- To keep health high, biosecurity is tight. Units are shower-in, shower-out, and traffic is limited to essential personnel only.
- The partnership provides Stribling a way to expand in farming. "With $200-plus cash rents per acre in this area of south-central Illinois, increasing your grain farming operation is very hard to do, so this is a good way to continue diversification in hog production," Stribling says.
- All of the hog manure from the W-F pigs is applied to the surrounding farmland that Stribling and his father own. "We figure on an annual basis this manure production will equal the fertilizer needs of about 300 acres, worth about $55/acre. This really helps our farming situation," he notes.
Joint Decisions Stribling maintains production numbers from the W-F units. He faxes death loss and inventory each month to the other partners for analysis. Each month local veterinarian Wade Price and the three partners conduct a walk through, go over production records and jointly make any health and management changes. A monthly status report is issued to the partners.
"I like this arrangement because it brings everybody's strengths to the table," says Stribling. "You've got the silent partner with their expertise in finance and accounting and Oasis Farms with their long-standing knowledge of hog production."
Concludes Rich: "Equal equity is the biggest key to this shared contract. We all have minority rights, but it takes all three parties to decide issues.
"Any kind of agreement can fail, but with this kind of arrangement, we hope to be able to ride out the hard times."