These are good times for pork producers. Extraordinary domestic and foreign demand for pork laid the groundwork for an outstanding year in 2004. The high protein diet craze helped feed that demand.
It's hard to imagine that 2005 will be as profitable for hog producers. In fact, some traders believe the re-opening of the border to Canadian beef will cut into pork demand. Either way, careful marketing is a priority for producers.
For a group of Illinois farmers, that meant taking some risk and building their own processing plant. After five years of work, the 200 farmer-members realized their dream when Meadowbrook Farms opened for business. David Miller explains.
When hog prices plummeted to eight cents per pound in 1998, John Kellogg of Yorkville, Illinois, began looking for a way to capture more of the market value of his animals. After some thought, Kellogg decided investing with other producers in a processing plant was the answer.
John Kellogg, Kellogg Farms: "We knew that meat was worth way more than what we were receiving at eight dollars a hundred weight for a pig. So, I think that it really made us realize that we need to control our own destiny instead of letting someone else just basically steal pigs from us. "
In early 1999, Kellogg became a member of one of three groups hoping to build a pork processing plant somewhere in Illinois. He felt the investment would increase the prospects of a profitable future for his Kellogg Farms operation in the near term and give his children, including his son Matt, a better chance of success in the long term.
Eventually, the groups joined forces with 200 farmer-investors uniting under the moniker Meadowbrook Farms. The USDA gave the group a grant for $500 thousand to create a business plan. Experts from inside and outside the meat industry helped fine tune the proposal. The USDA was impressed with the finished product and granted an additional $500 thousand to fashion a marketing plan.
Then things stalled. Even with thorough planning, the group couldn't find a bank interested in investing in a $28 million state-of-the-art packing plant. Finally, one bank were willing to finance the cooperative's dream if the farmer-members agreed to maintain 40 percent equity. Various incarnations of stock were attempted but, in the end, it was decided members would receive one share of stock for each animal they were willing to commit to the plant. Kellogg put up the entire output of his 1450 sow operation. With the necessary $13 million in-hand, the bank supplied the balance.
In mid-January of 2004, after a five year wait, the plant opened for business in the southern Illinois community of Rantoul.
Jim Burke, a former member of one of the original investment groups, is the president and chief executive officer for Meadowbrook Farms
Jim Burke, President and CEO, Meadowbrook Farms: "...even our own owners, a lot of them went into it saying look, the pork industry is going to look like the poultry industry someday, we're all going to be either contract finishers - we're all going to be contract finishers period. And it's going to be, you know, how big can you get and how many facilities can you throw up. And just, a lot of our owners just didn't want to go in that direction....it's been a progression and getting folks to understand the long-term goals, to get closer to that consumer, we've just scratched the surface really."
To improve the cooperatives chances of survival, it was decided that Meadowbrook Farms would be run like a business. People with experience in the meat industry would be hired and paid a decent wage. A CEO would have complete control over the operation. The farmer-members would have no direct input on the day-to-day activities at the plant. And to provide accountability, a board of directors would interface between plant employees and cooperative members.
Roger Walk, one of the more skeptical farmer-members, was appointed chairman of the board.
Roger Walk, Chairman of the Board, Meadowbrook Farms: "It actually, as it worked out, had we been able to keep our original timetable of when we wanted to get the plant built we would probably be out of business.... you know, they always say things work out the way they do for a reason and the fact that it took us this long probably, you know, doubled or tripled our chances for success. It's like, this has taken way too long but it's a good thing it did."
Meadowbrook Farms has 250 employees that work one eight-hour shift per day, five days per week. During the early morning, two trucks containing 180 hogs each arrive every 15 minutes. In a single day, up to 3600 animals can be processed. At that rate, Burke estimates almost one million hogs will come through the plant every year.
Producers are not required to raise any specific genetic line or follow a special feeding regimen. Carcass data is provided for each animal and every member has access to all the information. Producers at the top of the list are encouraged to discuss management techniques with those at the bottom. The idea is not to crown a "top producer" each week, but raise the highest quality hog possible.
Members are paid based on the wholesale prices compiled by the USDA and not the terminal market. Ultimately, members of Meadowbrook Farms are expecting this arrangement to remove the fluctuations seen they have seen in the past. So far, Kellogg is receiving anywhere from $50 to $58 per hundred-weight.
To further guarantee the survival of the enterprise, product is sold into several supply chains. Some is sold for grocery store house-brands, another portion to foodservice outlets, and yet another to further processors who make bacon and ham. Even the specialty meats are sold to make various products like deli meats.
Ten percent of the plant's output is exported to Japan, China, Korea and Mexico and the sales staff is working on increasing that amount by an additional 10 percent. There are future designs for a Meadowbrook Farms supermarket label but the costs associated with creating a retail brand have, up to now, outweighed the return. Even so, according to company officials, the label may get its start sooner rather than later.
Back on the farm, Kellogg is bullish about his investment and what it might return.
John Kellogg, Kellogg Farms: "...tough things will come along in the future and we'll figure out a way to deal with them. The hog industry, for the last four to five years has been certainly a challenge on the profit side of it. So, this is really a ray of hope that long-term this is the answer to being reasonably profitable."
For Market to Market, I'm David Miller.