Are Poultry Grower's Insulated from Market Risk

It has long irritated me when I read news bites from the National Chicken Council, other poultry trade associations or the poultry companies themselves stating that fixed price contracts insulate growers from market risk. NOTHING could be further from the truth. Yes, grower base pay is the same regardless of market price variation, but base pay is the only thing that stays the same. Let me explain.

We all know about supply and demand. Well, the poultry companies manipulate the market by reducing supply to drive the price of chicken higher. When supply is reduced, growers are the losers and the poultry companies are the winners. Growers may receive fewer chickens in each flock or have longer lengths of time between flocks of chickens and oftentimes they will see both - less chickens and longer out times between flocks, which means less money for the grower. The poultry companies, on the other hand, are receiving a higher price for the chicken in the marketplace so their profit increases.

That exact scenario is playing out right now. There are many, many struggling poultry growers that have seen input costs rise while their poultry income shrink, yet the poultry industry had their most profitable month EVER in May of this year. The poultry companies are laughing all the way to the bank, while growers are trying to keep the wolf from the door.

I am fully aware that poultry companies have struggled with high feed prices for the last several years and I know they need to make a profit. However, growers have struggled right along side the companies as we have had our flocks cut in both numbers of birds placed and in numbers of flocks per year and seen longer out times between flocks, yet we aren't getting  even a fraction of a cent of their record profits. In fact, things are getting ever harder for growers.

Over these last few years, the company I am contracted with and many others have created new requirements to their housing specifications that have forced growers to make costly updates to their chicken houses in order to still be able to even get chickens. I know some of you may be wondering why, if things are so rocky growers would make additional financial investments into this business, let me try to explain. Poultry houses are single use structures and without chickens there is no way to generate enough income to pay for them.. Since most growers have their homes and everything else they own tied up in the poultry house mortgage, they can either do what the poultry company says or risk loosing everything they own.

It's the ultimate damned if you do and damned if you don't situation.

The Beginning

I guess it's fitting to begin at the beginning, so here goes. When my husband and I began to consider the idea of becoming  contract broiler growers, the business where I had worked for almost 10 years was struggling and cutting workforce and my position was on the line.

The farm we found had two poultry houses on it, the previous owners had gone through an ugly divorce and in the process had badly neglected the farm. The amount they were asking for the farm was very reasonable as they just wanted it off their hands, however the updates the the chicken houses that the poultry company required added quite a bit to the cost. Still when it was all said and done, we borrowed less than it would have cost to build new houses, so we felt like we were in pretty good shape.

We decided that since my job was probably going away, that I would stay home and take care of the chicken houses and we thought since I wouldn't have job related expense such as gas, clothing, etc. that the income from the chickens would provide a replacement for my previous income.

We. couldn't. have. been. more. wrong.