The kickoff for the voluntary Producer Retirement Program is June 17, which means U.S. producers who own sow herds can start enrolling in the program.
Created by a group of producers, and established as a cooperative in the state of Iowa, the program is designed “as an early retirement program for sow herd owners ,” says Chuck Wirtz, an Iowa producer with 9,000 sows and program organizer.
“I have to give the PRP group credit for thinking outside of the box,” says Mark Greenwood, with AgStar Financials in Minnesota. “Some producers are looking at exiting, but are worried about the value they will receive for their operation. Specialization has made it harder to retire their assets.”
While not officially a sow-liquidation effort, that’s essentially the effect that the program will produce. To participate, sow owners will need to commit an upfront payment of $20 per sow. Another option is for the producer to provide 25 percent of that or $5 per sow, with 75 percent supported by a letter of credit from his or her lender. That will secure the person’s enrolment as a subscriber, and in true cooperative form, PRP will operate under a one-producer-one-vote rule.
“It is important to have lender support in this program,” notes Wirtz, and he points out that there is no government involvement in the program. “It is entirely producer driven.”
Producers who don’t own sows, as well as allied industry, who are interested in supporting the program as an industry production-reduction effort, also can contribute financially. Those “subscribers” will not be allowed to vote, and the funds will be directed toward administrative costs, such as attorney services required to get the program off the ground.
Subscriber enrollment will close on July 10. The deadline for sow owners to submit bids for their herds to be considered for liquidation is July 17. Under the bid process, a sow owner will determine what premium over the sow cull price he or she would require to liquidate the entire sow herd within a site and leave it set idle for two full years. “That is solely a producer’s decision,” notes Wirtz.
The lowest bids will be accepted first, beginning on July 24. Each week thereafter, bids totaling approximately 10,000 sows will be accepted until the bids run out or the program’s money runs out, whichever comes first. That weekly number correlates with available sow slaughter capacity. “We don’t’ want to overburden industry capacity,” Wirtz says.
“We reserve the right to reject any and all bids,” he adds, and the bids will be confirmed to ensure that they originate from the sow owner.
The premises liquidation will occur over a 10-week period. The group consulted with packers and animal well-being specialists, who confirmed that bred sows can be liquidated more than five weeks before farrowing. Any sows further into gestation than that will be farrowed and culled upon weaning. No unbred gilts will be accepted within the bid as part of the sow herd. Those animals will need to be sold through the market-hog route.
There will be an on-site verification process before any animal liquidation begins. An audit team will come to the site and confirm the number of sows. Upon selling animals the producer subscriber will have to submit the sow buyer’s receipts to confirm when liquidation is complete. A one-year audit will occur to ensure that the sow-owner’s premises remain empty; a two-year audit will be conducted for the same purposes. The plan is to use appraisers who are already in place and located across the country within the Farm Credit System.
Program payments will proceed as follows:
70 percent upon confirmed sow and site liquidation
15 percent following the one-year site audit
15 percent following the second-year site audit
How many sows might be involved and how much money is purely speculation. Estimates of $50 million to $60 million have been batted around, says Wirtz, as has 250,000 to 290,000 sows.
From the pork supply standpoint, one concern is that the extra sows will add extra pork to the market, While the National Pork Producers Council is not involved in the Producer Retirement Program, it is soliciting the U.S. government to purchase more pork for its food assistance programs this summer and fall to help move excess product off the market.
“We’re below the five-year average sow culling rate,” says Greenwood. “We’re 8,000 to 10,000 sows per week short of last year’s culling rate. Sow liquidation is not occurring fast enough, and more losses are coming. The industry is approaching $400 billion of lost equity.”
Something needs to be done, he says, and the Producer Retirement Program is one option.
It’s worth noting that the program’s sow numbers will be made public, but the producer information will not. This is an owner program, so the owner involved cannot put sows back on the site. However, the empty sow facilities can be converted to other uses; they also can be sold or leased to someone else. “We don’t think the market conditions are such that that will happen,” says Wirtz.
What happens if the subscriber owner puts sows back on the site? Remember, this is a contract arrangement, with the legalities that follow. The producer would have to pay back the money (minus his $20 per sow or equivalent investment) plus interest.
Some within the industry have questioned the legality of such a program, specifically anti-trust issues. “This group has done much legal due diligence on this; I am confident the legal issues are addressed,” says Greenwood. The organizers have involved four separate law firms and their attorney’s in the developmental process. He adds that many lenders have been informed about the program and are supportive.
This is a Web-based program, however, Wirtz emphases that producers without Internet access will not be left out, and should call (507) 766-1930 for advice and guidance.
“The pork industry is in a defining moment of where it will go in the future,” says Greenwood. “I give the PRP board a lot of credit for working on this program. It’s time for producers, lenders and the industry to be creative and work together for solutions.”