If you're an independent pork producer looking for a way to remain competitive, then a sow cooperative may be the answer.
To long-time industry veterans, sow cooperatives tend to carry negative connotations. However, today's re-designed sow co-ops offer a sound business alternative for some independent pork producers.
These arrangements are gaining popularity, especially in states like Iowa that have large numbers of independent pork producers. In general, pork producers who had farrow-to-finish operations producing 2,000 to 12,000 pigs annually are building most of the sow co-ops, according to Keith Aljets, a veterinarian with VMC Management in Williamsburg, Iowa. In these cases, the pork operation is usually part of a larger diversified farming operation.
A typical sow unit has somewhere between 1,250 and 5,000 sows. Once completed, most producers get 500 or 1,000 pigs a week from the co-op. "It gives producers another option instead of contracting," says Aljets.
Being part of a sow co-op, has its advantages. (See sidebar.) That's what motivated Washington, Iowa, pork producer Jim Ledger and three other producers to form their own sow co-op – Walnut Meadows – in 1999. The timing was key in this venture, as the group got up and running after hog prices hit rock bottom in 1998.
Getting started is probably the hardest part. Shareholders will need to contribute 40 percent to 45 percent of the total project cost, says Aljets. In most cases, this requires a $160,000- to $180,000-commitment to receive 1,000 pigs every nine weeks. A lot will depend on your lender and the producer group's financial strength.
The beginning price to join Walnut Meadows was $75,000 per share, which guarantees the shareholder 500 pigs every nine weeks. Ledger's two shares give him 1,000 weaned pigs every nine weeks. He transfers the pigs to one of his two 500-head nurseries, or to a 1,000-head, wean-to-finish building.
Aljets says most systems are set up as eight- or nine-week turns with a 24- to 27-week finishing period. This requires one nursery space for every two finishing spaces. A seven-week system would require one nursery space for every three finishing spaces. That same allotment would apply to a wean-to-finish system.
As for the cost of producing weaned pigs, Aljets says most new units will have a pig price of $33 to $34 per head. But with debt reduction, good production practices and cost control, the pig price can decline to $30 to $32 per head.
In most cases, producers hire a management company to manage the sow unit's day-to-day operations. Aljets is one of the veterinarians involved in VMC Management, which manages several sow co-ops, including Walnut Meadows.
VMC is in charge of hiring employees and the herd health for the co-op. Ledger says Signature Farms, a division of United Feeds, takes care of the co-op's recordkeeping.
A sow co-op's success hinges on a well-thought-out plan. Here are a few of Aljet's
- Determine who is sincerely interested in the project.
- Require them to commit a capital contribution. Suggest $5 per pig sold per week.
- Make sure that the project focus changes from "we want to" to "we will"
- Set up a new business entity.
- Establish a separate business structure; talk to an attorney that is familiar with these types of arrangements.
- Find a facility site/location and get a commitment to purchase it. The best option is for the land to belong to one of the co-op members vs. trying to find a new site.
- Build the facility next to cropland to accommodate manure hauling. Begin to line up any necessary arrangements for this.
- Provide information about the project and develop timelines with plans for action.
- Obtain at least three construction bids so that you can make some cost comparisons.
- Develop project timelines and costs.
- Make someone responsible for the project that can get it done right and in a timely manner.
With those factors in mind, let's look at what a sow co-op project might cost. You have to include all costs, including the building, genetics, the land, site development, permitting, water, electricity, supplies, equipment and many others.
The final cost will vary depending on the size and type of facility, genetics used, land purchased, builder used, gilt isolation system, among other things. Aljets points out that you also have to add the "operating costs before pig sales" into the project costs.
Based on Aljets' experience, a 2,500-sow co-op will probably cost:
- Gestation/farrowing/isolation: $2.3 million
- Genetics: $500,000 to $600,000
- Land/house: $150,000
- Site development: $200,000
- Costs before pig sales: $200,000
- Total: $3.5 million
If you're interested in getting involved in a sow co-op, Ledger recommends talking to producers that are already involved with one. Aljets suggests talking with feed suppliers, genetic companies and veterinarians who have helped producers form these co-ops. Your state pork producer association may be able to assist you as well.
Joining a sow co-op may not be for everyone, but it does offer another business option worth considering.
What Do Sow Co-ops Have to Offer?
The advantages of joining a sow cooperative definitely outweigh the disadvantages, according to pork producer Jim Ledger, Washington, Iowa.
From what he can see, there aren't a lot of disadvantages. You will lose some independence and it can be tough to come up with the initial capital investment.
"You have to treat it like starting a new business," says Keith Aljets, a veterinarian with VMC Management, Williamsburg, Iowa. "It requires capital, and you won't make money until the debt is under control."
On the other hand, establishing a sow co-op allows you to own part of a larger production system. Aljets and Ledger offer some other advantages:
Improved pig flow
- A larger sow herd lets you produce larger pig groups.
- Large pig groups can improve your pig flow by allowing you to go all-in/all-out by room, building or site.
- Pigs are delivered on a set schedule (seven, eight or nine weeks), letting you optimize facility space.
- Improved pig-flow can improve your grow/finish herd's health status.
- New genetics and tight biosecurity protocols allow for improved health in the sow herd. Ledgers notes that his co-op has had some minor problems with Strep. suis, but otherwise has produced healthy pigs.
Reduce on-farm labor
- Breeding, gestation and farrowing are high labor areas of pork production. Passing those responsibilities on to the co-op can reduce your labor time and costs.
- You can focus on growing and marketing pigs, as well as other on- or off-farm business ventures.
- Your quality of life improves. You can commit less time to the pigs and more time to yourself.
Utilize top genetics
- By sharing costs, co-op members can increase their access to top genetics that might be cost-prohibitive individually. Ledger says good genetics are key to making this type of arrangement work.
Sow productivity gains
- Full-time, specialized labor force focuses on breeding sows, heat checks, reducing nonproductive-sow days, increasing pigs born alive and pigs weaned per sow.
- Most producers see production gains on the sow side as well as the grow/ finish side.
- A sow co-op allows you to continuously breed sows, not rely on a batch system.
Control over pig purchases
- Guaranteed a consistent supply of single-source, weaned pigs delivered on a schedule.
- Control over the health of your herd.
- Sow co-op members can capture profits from an efficient sow herd producing weaned pigs.
Part of a system
- Being part of a system gives you access to things like records, comparative analysis, consultants.
- Membership often means access to volume discounts on products, as well as joint hog marketing options.
- Allows you to more efficiently grow or upgrade your production today and in the future.