Livestock buildings continue to pop up around the Iowa countryside, and most of those come with some sort of contract.
Eric Haveman, vice president of ag lending for American Savings Bank in Sioux Center, estimates more than 80 percent of hog buildings constructed in the last few years have come attached to a contract from a large producer.
“There are some independent producers out there that build them on their own, but most come with contracts ranging from two to 10 years and up,” he says. “We have not had any sow barns go up in our area because of disease risk.”
Haveman says the contract gives both the producer and lender some security.
“Over the last 10 to 15 years, the contract growers have received a check monthly, and that has allowed them to build equity that they can use in other projects,” he says. “It has been a great tool for younger producers who have the desire to farm and need to generate income.”
Haveman estimates most feed-to-finish buildings cost $38 to $40 per pig space to build. That cost jumps up $3 to $5 for buildings housing weaned baby pigs.
He says contract lengths vary, depending on the amount of risk the producer is willing to assume.
“Some like the shorter contracts to keep their options open,” Haveman says. “Obviously, there is more risk involved. The bank would prefer to see a more lengthy contract in most cases.”
Once the decision is made to put up buildings, producers must have certain things ready for the lender, says Mark DeJong, vice president of Bank Iowa in Oskaloosa. Those things include projected cash flow, estimated manure value and length of the contract.
“We want to know who the integrator is, because we have seen situations where corn is expensive and pigs are cheap, and the integrator has difficulty fulfilling the contract,” DeJong says.
He says very few hog buildings are financed without some sort of contract.
“The producer wants some form of protection,” DeJong says, adding many pigs are owned by someone other than the person feeding them.
He says his bank also wants to know more about the producer.
“Is this someone who loves working with livestock?” DeJong says. “They need to have the ability to take care of pigs and enjoy what they’re doing.”
Haveman says while contracts are usually part of financing a hog building, it does not come into play with cattle buildings.
“We are starting to see more interest in cattle buildings in this area, because of the benefit to the cattle and producer,” he says. “But there aren’t any contracts involved. The feedlots might be custom feeding the cattle, but there is rarely a contract.”