By Grant Gerlock
Tim Mueller plans to build his chicken barns in the corner of this corn field just south of his home. His barns would house “breeders,” the hens that lay the eggs that will hatch to be raised for meat
The farmers that raise our chicken and our pork are in a tough business. They often invest millions of dollars and go into debt just to have the chance to land a contract with a big meat company. But those agreements don’t always work out.
The big box retailer, Costco, is building a new chicken processing plant in Fremont, Nebraska. The plant will slaughter 2 million birds per week. To raise all those chickens, the company is recruiting around 120 farmers to sign on as contract poultry farmers.
As pork and poultry production grows in the U.S., this is how it usually happens. Farmers sign multi-million dollar deals to do business with big corporations. The company provides animals and feed. The farmer builds the barns and cares for the animals. It requires a major investment from the farmers who enter into the agreement hoping the investment will pay off.
Tim Mueller wants to be one of Costco’s farmers. Mueller raises corn and soybeans on 530 acres near the city of Columbus, about an hour from the new chicken plant. With Costco coming to town, he’s planning to take a big gamble on the chicken business.
We walk out of his home and down a gravel driveway about 50 yards to the corner of a corn field speckled with young, green corn stalks. This plot of land is where Mueller wants to build as many as 12 new chicken barns, with room for a total of 180,000 birds.
“Makes me a little more diversified, brings some extra income in,” says Mueller. “Every farmer needs extra income.”
Mueller has never raised chickens, except for backyard birds. But like many farmers, the chance for steady income when grain prices are down, like they are now, has grabbed his attention. Also, he says, adding chickens would help two of his sons come back to the business.
“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.”
You can hear the excitement in Mueller’s voice when he talks about raising chickens, and maybe some nerves, too, because he’ll have to take out a $2 million loan to build just four of his chicken barns. Farming takes a lot of money, but that’s more than he’s ever borrowed before.
“My wife and I talked a lot about this investment,” Mueller says. “She said the same thing, ‘God, that’s a lot of money’.”
But, Mueller says, buying another section of farmland to raise more corn would cost nearly as much. Plus, the poultry contract is supposed to pay off the debt.
“You take out a loan over 15 years, you’re getting your barns paid for plus you’re taking good money home to live on,” Mueller said. “That’s why when you compare buying ground to this investment, to me it’s sounder.”
In other parts of the U.S., though, poultry contracts have not always been a sound investment.
“The upfront promises of a poultry production contract are really enticing,” says Christopher Leonard, author of The Meat Racket, a book about cutthroat contracts in the poultry industry.
In states like Arkansas, Leonard says, poultry growers often sign contracts for one flock at a time, with no guarantee that there will be another. They are also typically paid according to a tournament system: the best farmers are paid extra, with money taken away from farmers at the bottom.
“These entrepreneurial farmers take on a lot of debt, and then after just a year or two find themselves really bound up in onerous conditions they never expected to find,” Leonard says.
Lincoln Premium Poultry, the Costco subsidiary managing the Fremont project, says the Nebraska contract was written to be different. It will pay extra for the best chickens but will not cut the pay of farmers whose chickens are below average. Also, the contract will not be flock-to-flock. It is a 15-year contract, the same length as the bank loan farmers will take out to build their chicken barns.
“I wish I had this contract that I’m giving these growers in Nebraska, that’s how strongly I feel about it," says Walt Shafer, the project manager for Lincoln Premium Poultry and a contract poultry grower in Virginia.
Ultimately, Costco wants to make the arrangement work, Shafer says, because the company needs all the chicken the farmers can produce.
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