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Recession closes in on chicken farmers

Nationally, 800 to 900 chicken farmers have lost contracts since last fall, almost all of them in the South. The farmers are at the mercy of big chicken processors.

April 13, 2009|David Zucchino

SILER CITY, N.C. — Four years ago, Andrew Meeks literally bet the farm on chickens. Now he fears he made a losing bet.

His three massive chicken houses are empty, and a "For Sale" sign has sprouted out front. Meeks, a contract chicken farmer, borrowed nearly half a million dollars to refurbish his 25-acre farm, putting up as collateral his home, the farm and virtually everything else he owns.

But the company that provided his chickens and paid him to raise the birds canceled his contract. Without chickens, he can't earn the money to pay off his loans.

Foreclosure is on the horizon.

"I paid a lot of money for these chicken houses, but they aren't worth a nickel right now. There's no market for the birds," Meeks said, strolling through one of his darkened chicken houses, scattering white feathers and startling a lone chicken.

The worst recession in decades has hammered all types of businesses across the country, farming included. But among the hardest hit are contract chicken farmers in the South and especially in North Carolina, the nation's second-leading poultry producer, where it is a $3.3-billion industry.

Last winter, the economic crisis created "pretty much a catastrophe" for contract farmers, said Dan Campeau, a North Carolina State University poultry specialist and extension agent.

Demand for chicken nose-dived as beleaguered consumers cut back. The industry's two biggest foreign markets, Russia and China, drastically trimmed their orders. Fuel prices surged, driving up the cost of chicken feed as some grain crops were diverted to produce ethanol.

Pilgrim's Pride of Pittsburg, Texas, one of the country's largest chicken companies with $8.5 billion in sales last year, filed for Chapter 11 bankruptcy protection in December. In six central North Carolina counties, 44 farmers lost their contracts, including Meeks.

Together, the 44 farmers owe at least $18 million to banks on investments in their farms, Campeau said. Only four have found contracts with other chicken processors. Two have retired. The rest are searching desperately for a lifeline in a glutted market.

"The industry is swamped with product right now. But these growers [farmers] have big debts and can't wait for the market to turn around," said Bob Ford, executive director of the North Carolina Poultry Federation.

'We're baby-sitters'

Nationally, 800 to 900 chicken farmers have lost contracts since last fall, almost all of them in the South, said Gary McBryde, an economist with the Department of Agriculture. Chicken production is down 7% since April 2008, the National Chicken Council said.

Contract chicken farmers are at the mercy of big chicken processors, known as "integrators," which provide chicks and feed. Contracts require farmers to provide chicken houses, pay to heat and cool them, and maintain water lines and other equipment. Farmers must dispose of chicken waste and dead birds.

The farmers raise the chicks to maturity, then are paid by the pound for the meat. But the integrators own the chickens and decide how many the farmers get. They determine the formulas under which farmers are paid, based on a complicated feed-to-meat ratio.

"We're basically baby-sitters," Meeks said.

Farmers provide half the capital in the industry but earn only 1% to 3% on their investments, versus more than 20% for integrators in boom times, the National Contract Poultry Growers Assn. said.

In good economic times, integrators provide enough chicks for farmers to pay down their loans and turn a profit. But in bad times, contracts can be canceled on short notice, leaving farmers like Meeks stuck with expensive chicken houses and equipment.

In February, Pilgrim's Pride announced that it would shut down three of its 32 processing plants -- in Georgia, Arkansas and Louisiana -- by mid-May. Citing the steepest drop in consumer food purchases in 60 years, the company said it lost $1 billion in fiscal 2008 and $229 million in the first quarter this year.

'Painful' situation

Ray Atkinson, a Pilgrim's Pride spokesman, called the situation "very difficult and painful."

He said the North Carolina farmers were given ample notice last fall that the company intended to cut off the 44 bottom-performing farmers out of 128 in the region.

But the company had hoped to avoid such cuts. Atkinson said the company kept the farms on last spring when it closed its Siler City processing plant. Rather than terminate farmers supplying that plant, Pilgrim's Pride combined them with farmers supplying a company plant in Sanford, N.C.

Overall, Atkinson said, Pilgrim's Pride has cut off about 300 of its 5,000 contract farmers. About 430 will be affected by the three more plant closings next month.

Meeks said he didn't blame anyone for his troubles. As a farmer and businessman, he knows he is at the mercy of market forces beyond his control.

Because of the recession, "integrators were making money on the margins, but the margins have run out," Meeks said. "That's the chicken business."

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