Farmers Take Out Millions In Loans To Raise Chickens For Big-Box Retailers | Hacker News Reader

Farmers Take Out Millions In Loans To Raise Chickens For Big-Box Retailers

npr.org

The most natural reading of this is "Sophisticated entrepreneurs attempt to increase revenue by diversifying into a new line of business requiring capital improvements financed by readily available debt.", unless one has the misapprehension that farmers are, as a class, stupid.

It's not binary. There's a whole range types of people, situations and forces at play. Not all are sophisticated, not all are dumb and probably are reacting to emotional forces that we aren't aware of. I frequently read stories on this site about how it's dumb to have your whole business dependent upon Facebook. Maybe depending entirely on Costco is equally a bad idea. Perhaps more so since there are massive loans involved.

EDIT: From the article:

"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."

At least in this one case there are non-sophisticated financial forces at play. Patio11's comment is not apt.

> At least in this one case there are non-sophisticated financial forces at play.

I'm not convinced that's a fair assumption. Everyone has reasons they'd like to make more money and some vague idea of what they'd do if they were more wealthy. Acknowledging that you want your business to be successful because x doesn't necessarily indicate that a decision making process is irrational or unsophisticated.

I'd say that a major part in his deciding to take $6 million in loans and signing an exclusive contract with Costco has to do with emotion and not purely financial reasons. It may be a good decision but at least part of the decision making was not for sophisticated financial reasons.

I think it's silly to assume that's the case. You could very well be right, but there's no way to make that anything more than an assumption based on the article.

Well the man in the article talked about how important it was for him to bring his boys home. That is provide an environment where he sees them at home with a future in farming. It's what he said.

Emotion is a huge part of business decisions for most people. It's rare for someone to disassociate their emotions from the transaction. This is well known.

Many farmers like to paint themselves as unsophisticated simpletons. And the trick works more often than it doesn't.

In turn, many people in cities think of themselves as better than people in the country. Why, they moved from the country to the city in search of better opportunities and found them! So, they must be better!

It's all fun and games in honour of our benevolent ultra liberal gods but the river gets red once those debt merchants start telling farmers to buy more equipement with more debt and higher interests to make up for last year's loss they somehow couldn't forecast. Then they get the farm and the land and can get low paid worker with no benefits or robots on it.

Million dollar loans aren't really that strange for farmers. It is definitely a lot of money, but usually it's secured by assets that are objectively valuable themselves (land).

My father in law started out as a humble hay farmer in the middle of nowhere in Utah, but he could easily retire on the appreciation and equity he built in the land he owns alone (though he's the type that would never sell it, and he's already rich).

In this case the loan is to build barns, not buy more land. And the barns are specifically for raising chickens. If the contracts or the poultry processing in that area fall through then I don't think the underlying assets would be worth their cost-- leaving the farmers high and dry.

True, but the bank won't be giving those loans if they think the contracts will fall through. Even if the contracts fall through, chicken demand is a known quantity. The farmer has opportunity to find someone else to buy his chickens.

Yes, because banks never give loans to people who is later unable to pay back. And chicken prices can only go up, like house prices.

Well in this case the assets will be chickens and barns. Certainly there's risk, but the likelihood that either chickens or barns rapidly become worthless is quite small.

Unlike the housing crisis, they don't need the prices to continually go up. They just need them to not fall through some floor.

Exactly. Farming is a very capital intensive business, I'm not even sure why this very note worthy.

I work for a small financial company that lends money to farmers on an annual basis for seed and chemicals. Even small crop farms typically borrow $200k+ every spring and then pay back at harvest, and that's just for seasonal operating costs.

Christopher Leonard's book 'The Meat Racket' is a good primer for anyone interested in the subject. He does an excellent job walking through the simultaneous rise of "big chicken" and the legislative steps corporations like Tyson and Cargill took to ensure their long-term domination of farmers, the law and the consumer.

https://www.amazon.com/Meat-Racket-Takeover-Americas-Busines...

Here's the NYT book review: https://www.nytimes.com/2014/03/02/books/review/the-meat-rac....

I think the bigger picture issue is that there is nothing special here about meat, nearly every industry is like that. Big corps are inherently more efficient at this sort of thing, and technology has helped them overcome any inefficiencies of scale they might have suffered in the past. You used to be able to walk into a Comp USA (or even local computer stores) and see aisles of CDs from all these different software companies. Today, Google/Microsoft/Apple control everything through their app stores and bundle most of the software you might want to buy with their devices.

Heck, we're watching this happen right now in several industries, and cheering it along. Amazon is putting all the smaller retailers out of business (because there is pretty much no way to compete with Amazon's economics of scale). Uber is an international mega-corp that's systematically wiping out the dozens of taxi companies (almost all small businesses) that used to exist in each city.

You used to be able to walk into a Comp USA (or even local computer stores) and see aisles of CDs from all these different software companies.

This is true. Those were terrible, terrible times to be in the software business.

If you want me to elaborate, I can elaborate at some length.

I would be happy to Patreon you for a blog post on this subject.

Thank you for the offer.

I'm not sold on Patreon, for a number of reasons. I get the intuitive appeal of it if one is a starving artist, and I get the appeal on the consumer side. I am not really a starving artist, though, and as a commercial proposition it competes with things like my market clearing price as a W-2 employee, my rate card as a consultant, or selling software to businesses. When I compare those numbers to my guesses at the impact of Patreon-ing, I find myself thinking "Patreon does not come close to a motivational number, but it probably pays just enough to activate Disutility From Working Strictly For Money."

Or, as someone once put it, "I have two prices: free and expensive."

"I have two prices: free and expensive."

Time to put that on a T-Shirt :-)

Thanks for the reply. I wasn't sure if there was any way to properly compensate you for your time for sharing your usual extremely valuable experiences, and that was the first thought that came to mind. No offense intended.

None taken!

I'd certainly be curious to know what you mean.

So I came up in the post-retail days of software, but I sold CDs (once upon a time) and have had a coffee or hundred with folks who came up a few years before I did, including ones who operated spiritually similar businesses with retail components. (My CD sales were over the Internet.)

Retail math is absolutely brutal. Consider software sold at a MSRP of $30, which might be squarely in the Scrappy Small Software Company Making A Go Of It range.

The retail store itself practices "keystoning" -- it won't pay more than $15 for that SKU. It also generally won't (and certainly not if it is a Best Buy / CompUSA) pay when one expects it to pay, before receiving the product. Nope, it pays after (depending on the contract) sell-thru or sell-thru plus return window expiry.

So who got the $15? Was it the software company? No, because CompUSA has better things to do than to talk to software companies, unless your company rhymes with Microsoft or Intuit. Instead, CompUSA purchased the software from a distributor. The distributor purchased it from a publisher; the publisher from the software house.

Suppose your software company self-published, to capture the margins. Bully on you. You make about $10 per unit.

Now let's return to that CD bit. Permit me to handwave, because it has been many years, but in quantity, shipped to your distributor, assume CD plus printed insert plus jewel case costs you $4.

So, when everything works out correctly, you make $6 on a $30 sale. You eat $4 per return (returned software is unsaleable; my standing instruction to our fulfillment provider was to destroy it if mail bounced back because even an unopened envelope is useless); assume that's negligible.

Ahh, but you get the massive, massive volume of the retail channel, right? Wonderful performance for midlist in retail is, drumroll, 10k units per year. You're doing better than almost all B2C software which isn't games.

It is the best time in the history of the world to be independent in software. Selling CDs over the Internet bad, not terrible. Selling downloads over the Internet was pretty spiffy. Selling SaaS over the Internet is the best model independent software makers have ever seen.

(The mobile folks are in a parallel universe which is very, very hit driven and which I wouldn't recommend to most people. Apple/Google are actually are capable of delivering volume -- more than BestBuy could even dream of -- and charge less as a percent for it, but it is in their interests to churn-and-burn who gets that volume, so it is a rough place to be.)

see also https://successfulsoftware.net/2008/04/21/selling-your-softw... which recounts a conversation which is substantially in line with unpublished conversations I had over the years. (Andy Brice, who runs that site, runs a business spiritually similar to my sold software business, but rather larger.)

I note that you might be suffering from a peculiar sort of availability bias. You're, IIRC, a gainfully employed professional who doesn't sell software for a living. As a gainfully employed professional, walking into a CompUSA and walking past a row full of shelves exposes you to evidence that there exists a software industry, even if you have no connection to the industry. If that row of shelves goes away, you might reasonably believe "Wow, the software industry went away.", but that is not in fact what happened. The software industry makes more money than ever, by a lot, but it does so in places which are inconvenient to you to stumble upon accidentally.

> "There's some things that aren't perfect, but you're never going to get a perfect contract," Mueller says. "And there again you got to have some faith and you've got to have some trust."

That's a bit of a straw man. You sign contracts to have a set of rules that you can fall back on if you /no longer/ can trust the other party.

Interesting that they say "raise corn" and "grow chickens".

There may be two distinctions in the language.

First, chicken "production" is generally separated into "layers" and "growers". Layers are chickens you raise to lay eggs, growers are chickens you raise just to grow big enough to eat. So "grow" in the "raise vs grow" context may influenced by the "layer vs grower" context.

The second is that there is a split between people who raise livestock through their full life cycle, breeding them and raising them to a finished weight, versus people who just breed or just finish livestock; the "factory chickens" will typically be just a finishing operation, so "grow" may also be influenced by that.

The third possibility is that it's an in-joke by the farmers, on how the chickens have become more of a crop than the corn.

The fourth possibility, of course, is that it's just a transcription error by the authors, and the farmers say "grow corn and raise chickens".

Disclaimer - my current contract is with the Farm Credit bank system, and they're likely to be the ones to lend to these farmers. Mainly because they understand agriculture and farmers & ranchers, and the big banks don't. But also because even though we're a government-sponsored entity (the feds guarantee our loans), we are run as a co-op. If we have a good year (i.e. not many losses) we will refund patronage dividends to our customers. And this can be significant - one association alone paid out $160 million last year.

These farmers are pretty smart - yes they're taking a risk by borrowing money. But diversification can only help them in the long run. And $2-6 million for new barns isn't a lot in a business where field equipment can easily run a half-million dollars, and wears out/becomes obsolete in 10 or 15 years.

The company that you're going to be working with/for is going to make a huge difference here. Costco has a reputation of being a good corporate citizen and taking care of its staff, suppliers, etc. (FWIW including a code of ethics that prioritizes: Obey the Law, Take care of Members, Take care of Employees, Respect Suppliers, Reward Shareholders.)

If I were a supplier I'd be a lot more willing to sign on with someone like Costco with a DBAD reputation than with anything owned by Walmart with a "you need to cut your margin another 5% this year or we'll drop you and leave you with no way to pay those loans" reputation.

I'm really hoping that in the next 5 or 10 years that "clean meat" or meat created from animal cells becomes a viable alternative. This is the future, and with it we will drive costs down and food safety up.

> And farmers can always lose money on a bad batch of birds.

> "A disaster flock I call them," says OCM President Mike Weaver, who raises poultry on contract in West Virginia. "They contract a disease that stunts their growth. And that's going to happen to (the farmers) eventually. The feed and the chicks, they don't have control over, but their pay is going to be based on those."

Wouldn't some sort of insurance be useful here?

This is a very, very typical pattern in poultry and egg production.

Source: Grew up in rural Virginia near a bunch of big poultry processing centers and the surrounding area is filled with family farmers who are debt slaves to the poultry processors.

The idea of "having faith" that a mega corporation will take pity on your business when inevitable negative variance hits the farm sends a shudder down my spine.

NPR is probably thrilled then.

The hell else are they supposed to do exactly? The economic crash hit the middle states hard, and the recovery has gone almost exclusively to the coasts. The real question is why we're allowing an entire region of the country's "best option" to be being debt slaves to a handful of chicken companies.

Interesting to see Costco taking out the middle man. Chicken is going to get even cheaper.

Possibly, but in my opinion probably not. Costco is selling these chickens for $4.99 each. It's a loss leader, and (as far as I have heard) Costco is adamant that this price will not change. I think Costco is simply trying to reduce the amount of loss they are taking at that price.

* I know it works on me, I go in for the free samples mostly and regularly spend $50+ on a visit (maybe half the time), and just recently spent $7,000 on a massage chair.

They used to be $3.99, but even at $5 they are twice as big and 1/2 the cost of grocery store chickens.

Yes, but what is the quality? What have they been fed and injected with on their way to an assembly line that kills them at the rate of 200/minute?

The Costco chickens taste good.

They do taste good. I have to admit though, after eating a lot of them, I suspect they have some brine added. Not a big deal, and not for sure, but I don't get them as much as I used to.

I think the membership model is the future. You pay a fee but get goods in bulk near wholesale and producers compete to sell in your store.

And elsewhere on the front page, a dotcom is hiring and is in the business of facilitating yet more borrowing by poor people.

In the US, 25 million chickens - sentient, feeling creatures, killed in their infancy after a short, miserable life. Genetic freaks, too.

Every day, over and over again, a cycle of suffering.

Perhaps this is a business one could choose not to get in to.

Is this much different to dogs, cats, whales, pigs, rabbits?

Why does that matter?

Maybe it doesnt, but it might shock you to know that most of the korean dog meat trade protesters are not vegetarian. I dont see the reason we are sympathetic to chickens alone here.

> I dont see the reason we are sympathetic to chickens alone here

If you want to try to fix animal cruelty in the whole world, you're boiling the ocean. I don't think its far fetched to say that Americans should fix stuff at home (chickens, pigs, cows...) before we try to fix the world (unless its your life mission or something).

I personally have never been to Asia, so I don't see the dog meat thing as "my battle". I don't think we need to make people feel guilty for problems on the other side of the planet when there are plenty of local problems.

Rhinos are endangered and hunted by poachers nearly to extinction because they aren't allowed to be domesticated and "farmed" for ivory. The best way animals can ensure long term survival is to be useful to man, not only because farm animals are in much greater numbers and protected as property is in our society, but also because we are rapidly running out of "wild" area for them to exist in.

I shudder to think how many species are going to go extinct once we can grow meat directly in labs.

Rhino horns don't contain ivory - that comes from elephant tusks.

You really think that regulations(!) are the major obstacle to domesticating a enormous (5000+ lb), ill-tempered animal?!

> I shudder to think how many species are going to go extinct once we can grow meat directly in labs.

Cows, chickens, turkey (although they've got a wild variant), sheep and pigs. Add in a few less common meats and you're up to about a dozen?

Not even a drop in the bucket for the https://en.wikipedia.org/wiki/Holocene_extinction.

Do you also cry when you step on a bug?

I don't, but I go out of my way to avoid stepping on the snails in my front garden, and I move insects away from places where they are likely to get squished by shoes or tires, I help spiders and flies out of my house if they are inside and look for a good place in my garden for them, and I just wave away mosquitos if they attack me.

No. But I don't go out of my way to intentionally inflict pain, ensure their lives are miserable, and kill them at scale.

If your point is that people are hypocrites then this is nothing new or worth pointing. My hypocrisy does not detract from points I make. It merely indicates a disconnect between my actions and my beliefs. My beliefs can still be valid even my actions aren't.

Chicken farmers don't go out of their way to inflict pain or ensure misery, either. They're side-effects of the "produce as many chickens as quickly and cheaply as possible" goal.

Well, if those are side effects then it is intentional. There may be a good reason for it but it is intentional.

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