SF Special: How Contract Feeding Changed the Hog Industry

 

By Betsy Freese, Successful Farming

Agriculture.com - 11/25/2019

 

 One evening last summer, a dozen seasoned hog industry leaders gathered around a table in Algona, Iowa, to reminisce about the history of the modern pork business. Wendell Murphy, 80, was visiting from North Carolina, and he wanted to meet again with folks he did business with 30 years ago when he was getting his Midwest contract hog feeding company started.

 

In the late 1980s, Iowa farmers, those who made it through the farm crisis of that decade, were looking for ways to improve their financial position. They needed to diversify and find extra income outside of corn and soybean production. Pork producers were still mainly independent family farmers, but they were becoming aware that the industry in North Carolina was expanding and integrating rapidly. Many felt threatened.

 

Rich Degner was CEO of the Iowa Pork Producers Association (IPPA) when Murphy came blowing in from the East Coast with the radical (for Iowa) notion of contract feeding.

 

“It was not easy to transition an association with thousands of members, many of whom did not like production companies,” says Degner. “The production companies were frustrated that we weren’t helping to move things along more quickly. We went through a time where we weren’t liked by anyone.”

A close call

 

Dermot Hayes, economics and finance professor at Iowa State University, was just starting his career when Murphy came to the state to push contract feeding. Many farmers pushed back.

 

“Everything you saw about it in the press was negative,” says Hayes. “If you believed the community activists, contract feeding would drive everyone out of the countryside.”

 

Pork producers, the justice department, and the Iowa DNR were all reading the tea leaves, says Hayes. “It was a close call about what happens next. Iowa almost walked away from this opportunity.”

 

Hayes was an assistant professor without tenure, but he took a chance. “I kind of got hot about the situation and thought somebody needed to write about the positives,” he says. He wrote a 14-page report and sent to the Des Moines Register.

 

“The point I was trying to make was that contract production was going to be good for Iowa,” says Hayes. “Contract feeding had the potential to renew rural Iowa, create jobs, help the soil with manure, increase corn basis, and increase corn yields. This was a good thing.”

 

The Register published the entire essay in the Sunday edition over two full pages. While some readers complained about “the hogwash” he had written, says Hayes, others saw a huge investment opportunity. Pretty soon, state representatives were seeing potential for hog growth in their counties.

 

Today, swine production alone provides over $228 million in taxes each year to Iowa, he says. “Those kind of numbers help. The industry is not nearly as unpopular as it used to be.”

 

When the chain broke

 

When Bob Malloy, an Iowa attorney concentrating on agribusiness, got his law degree, he swore he was not going to practice in the bankruptcy court or do debtor creditor law. That was in the late 1970s when agriculture was booming, farmers were tearing out fences, selling their sows and cows, and making plenty of money just grain farming. From 1975 to 1982, land values went from $600 to $4,000 an acre in north-central Iowa.

 

Then Fed chairman Paul Volcker skyrocketed the interest rates. Once they topped 9%, grain farmers couldn’t make it, says Malloy. “The chain broke. The interest was eating them up. I was standing in bankruptcy court every other day trying to keep a farmer on the farm.”

 

Farmers were desperate for alternative income, so Malloy was willing to listen when Wendell Murphy wanted to meet for lunch in Goldfield, where Murphy Farms had a tiny office, to talk about contract feeding pigs.

 

“The first question he asked me was, ‘What kind of feed conversion did the best Iowa pork producers get?’ I said, ‘3.9 pounds of feed for a pound of gain.’ He looked at me kind of stunned.

 

“He said if we can’t get better than that he wasn’t going to be here very long,” says Malloy. “He wanted to get 2.6. I said, ‘Golly, I don’t know how you are going to do that.’ His response was, ‘Well, we better.’”

 

Malloy penciled out the returns for his clients. “If you had a three-barn site at that time you would earn more profit than farming 1,000 acres,” he says. “The grain farmers’ mentality was, if I just get more acres I will make more money, but it wasn’t working. They would ask me what to do. I said, there is this little bitty office in Goldfield. Go talk to those folks.”

 

He didn’t realize how controversial his connection to Murphy would be. “When I started working with those folks, talk about controversy. Grain farmers who earned it the old fashioned way – by inheriting it – and who didn’t have any debt, came and took their files because they heard I might be working with contract producers.”

 

It all worked out in the end. “There are farmers who I stood in bankruptcy court with back then who put up contract hog barns and are successful today,” says Malloy.

 

Stayed independent ...

 

Scare up the money ...

 

Mortgage lifters ... 

 

The packer’s view ... 

 

Doing business in the 1990s ... 

 

Big Changes in 1999 ... 

 

Packing history ... 

 

Building net worth ... 

 

What it Means ... 

 

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