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Episode 21: Want to be a contract finishing grower? Benefits and challenges with Phil Hord

October 17, 2022

October is National Pork Month and we’re celebrating with a special episode dedicated to contract finishing partnerships. In this episode, we chat with Phil Hord, director of sow production and research and innovation at Hord Family Farms, who walks us through the process of becoming a contract grower and the benefits and challenges that come along with it.

BENEFITS

Diversify your farming operation
Through the contract grower model, Phil says “it’s allowed smaller farms to be able to add a family member back into the business or even allow a farm to continue in business.”
Phil says the next generation of young farmers are particularly interested in contract growing as a first step in “transfer of ownership” of the family farm, for example.

Operate and manage your own finishing barn
In the 80s and 90s, explains Phil, “we saw the pork industry progress through contract relationships with farmers that may not have had the resources or even the desire to get into breeding and farrowing but wanted to raise pigs.”
This model allows growers to own their own facility and be compensated for their time caring for the pigs.

Offset input costs
High input costs in cropping operations have made manure extremely valuable, explains Phil. Grain farmers can especially benefit from offsetting, and in some instances, replacing high fertilizer costs with manure produced from their growing barns.
For non-grain farmers who want to contract grow, manure can be another income stream for their farm through the sale of manure to neighboring crop farmers.

Leave the marketing and nutrition side to the integrator
Phil says contract grower relationships allow growers to know exactly what is required of them through an agreement. “They don’t have to worry about the nutrition side or the marketing side,” says Phil. “It takes a lot of the variables out and provides a way to add income back into the farm.”

Build equity
“The contract grower model has been around long enough that the basis of the whole idea has been verified to work,” says Phil. “You’re building equity in something.” As a crop farmer or land owner, this can be an important asset to have.

Maintenance, operational and animal health support
As a contract grower, Phil explains that the feed, veterinarian care and any sort of potential healthcare interventions are provided by the integrator while basic everyday care is assumed by the grower. Phil explains this helps relieve some of the risks on the contract grower.

CHALLENGES

Barn and equipment maintenance
While contract growing certainly takes some risk out of the operation, Phil says that the maintenance of the barn and equipment might pose a potential challenge.
“Pigs are naturally curious animals,” explains Phil. “They can be destructive with equipment inside the barn. You have to keep up on the maintenance.”

Animal health challenges
As with any natural being, “health challenges can come in every now and then,” says Phil. When a potential healthcare issue does arrive however, it’s often supported through the integrators to help growers work through those challenges.

Unaligned expectations
Consideration of the amount of time it takes to feed and care for growing pigs is another potential challenge growers should think about before building a contract barn.
“As long as you have the right things in place and the right mentality of why you're doing it and how you're going to feasibly do it, it can be an awesome way for families to add things to their farm.”

Here’s a glance at this episode:

[01:30] Guest Phil Hord introduces himself and explains how their family farming operation has diversified over the years, through developing their own feed milling division to partnering with local farmers for grain purchases and growing partnerships.
[5:28] Phil explains the breeding and farrowing aspect of the business.
[7:41] In the 80s and 90s, Phil recounts the shift in the pork industry from a farrow to finish model to contract relationships.
[8:15] Phil explains how a contract grower relationship works, including the process from agreement to barn build, and the responsibilities and risks (or lack there of) for the contract grower.
[16:11] Phil gives examples of benefits contract growers see from partnering with a breeding and farrowing operation.
[20:51] Matt and Phil discuss siting of contract barns, an important part of the build process that analyzes ways to reduce smell and mitigate dust.
[23:18] Libby asks Phil what potential challenges contract growers face.
[25:40] Phil leaves with where interested contract growers can find more information on their website.

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Bios

Guest Phil Hord

Phil Hord is fifth generation pig farmer, and one of the family members who own and operate Hord Family Farms headquartered in Bucyrus, Ohio. Hord Farms is a multi-generational farm that breeds and births pigs, and works with regional farmers to grow their 800,000+ pigs per year. They have over 300 team members and growing contract partners combined, a grain elevator and feed mill, and also row crop farm as a family over 8,000 acres in the Crawford county region. Today, Phil is responsible for helping leading the business overall, but specifically focuses on leading the teams at the breeding and birthing farms, as well as directing nutrition and research for their swine business. Phil has a wife, Becca, who is also on the team at HFF in their Team Member Services department, two children, as well as two golden retrievers. He enjoys his work at the farm, flying planes, as well as being involved in their church and other humanitarian efforts.

Host Matt Adams

Matt serves Paulding County as an account officer at AgCredit. He has worked in ag lending for over four years and previously worked in farm equipment sales for 11 years. He and his wife farm in northwest Ohio with their two daughters and son. His favorite part about AgCredit is the people. From the member-borrowers to the internal team at AgCredit, every day keeps getting better. Matt hopes to bring insights to ag lending and some laughs to the AgCredit Said It podcast.

Host Libby Wixtead

Libby has been an account officer for eight years serving AgCredit members in Marion County. She grew up on a 200-acre grain farm and was very active in 4-H and FFA. Today, Libby and her husband operate a 2,400-head swine finishing barn. Her favorite part about working at AgCredit is working with local farmers from the same area where she grew up and seeing their operations thrive. She loves working in agriculture and helping her customers be successful year after year.

Transcription

Voiceover (00:08):Welcome to AgCredit Said It. In each episode, our hosts sit down with experts from all parts of the agriculture industry to bring you insights and must-have information on all things from farming to finances and everything in between.

Libby Wixtead (00:26):Welcome back to AgCredit Said It. I'm Libby Wixtead, and I'm here with Matt Adams for today's episode.

Matt Adams (00:32):It's great to be back with you, Libby. This is my first episode of season two. Looking forward to getting back into the old podcast routine, something very enjoyable. I told one person, I say, "If I could just make podcasting my full-time career, that and farming, and then just do you know the account officer thing on the side a little bit." No, I'm kidding, but this is just a great thing that we can do here.

Libby Wixtead (00:56):Yeah, we're excited for season two. You guys get me for two episodes in a row. October is National Pork Month, so we are here today in Bucyrus with Hord Farms. We're having a discussion today with Phil Hord.

Libby Wixtead (01:09):Phil is the first of the fifth generation to work on Hord Farm and currently leads the farm’s sow production teams as well as research and innovation initiatives for the business. Welcome, Phil. Thanks for joining us.

Phil Hord (01:22):Yeah, great. I'm glad to be with you guys today.

Libby Wixtead (01:25):Can you tell us a little bit about yourself and about Hord Farms?

Phil Hord (01:30):Absolutely. I've been back at our business for about seven years now. I have a wife and two kids, Hallie and Mia. They're three and one. Girls can be pig farmers. That's the motto around here these days.

Phil Hord (01:44):But my sister and I are the next generation that are currently working in the business. I work more on operations side, and Colleen works in our finance and accounting office. It's been really fun. I've got to do different things around the business as I've came back and really enjoy learning. I feel like there's always something new to learn and get into every day.

Matt Adams (02:11):I think it definitely seems like the livestock industry is ever-changing, probably changing faster it seems, and maybe even the crop production side. Now you guys with Hord farms, are you integrated livestock and grain?

Phil Hord (02:26):Yeah. Pigs would be our main line of business, but we also farm 8,000 acres of row crops and grasses. My grandfather also finishes out about 1,000 head of beef cattle every year. So we’re able to utilize some of our screenings from our grain and just some of the forages and things that we also grow on the fields.

Phil Hord (02:53):We also have our own feed milling division, so we purchase grain from many farmers, some may be even listening here with us today. Really enjoy that relationship that we have with our community of farmers in the area to purchase grain that then is fed locally here to livestock within the region.

Matt Adams (03:12):So really a diversified business that you guys have here.

Phil Hord (03:17):Yeah. We've taken the approach of “how do we control more of the process?” Not just from an act of controlling it, but more about how do we ensure quality, how do we improve the processes? A lot of that's just from controlling feed milling, for example. One of my roles in nutrition, formulating our own feeds and delivering that, getting the right ration to the right pig at the right time is really important. It's a huge part of what we do every day is delivering feed to pigs.

Libby Wixtead (03:50):Yes, we passed a lot of feed trucks at least on my way up here today.

Matt Adams (03:54):Yeah, and I will tell you Phil, thank you for inviting us to your facility, a very beautiful facility where we're recording today. One thing Libby pointed out, and I think our listeners know, we look at Hord Farms and just looking around your office, the culture that you guys promote within, with family and the vision statements, that's very impressive. I think it's one of those things that might be missed on a lot of family businesses.

Phil Hord (04:19):Yeah, it's definitely hard. I think there's not a playbook for how to run a family business as it is, but obviously within agriculture too, we look at ourselves as a family of a lot of different people. We have obviously our family in and of itself, but then we have team members that work in the business. And then we also have our family of growing partners and our guys and gals we purchase grain from as well. It is a big family and being in the community and being an agribusiness in the region is, it's a honor and a huge responsibility that we don't take lightly.

Libby Wixtead (05:02):Personally, I mean obviously Adam and I have a barn with you guys and Adam works for you guys, we definitely feel that down with me and then even obviously my son-

Phil Hord (05:14):Yes.

Libby Wixtead (05:14):... with our kids going to school together. We definitely feel that here personally. I think we would like to ask you some of our questions here on what you guys exactly do as an integrator. Can you explain that?

Phil Hord (05:28):Yeah. We have the opportunity to explain what we do on a very basic level to people that maybe have never seen a pig before. I'll start basic and then we can get as advanced as you want. Maybe our listeners have more than a basic understanding of agriculture and how we get food on the plate.

Phil Hord (05:48):But ultimately, we have sow farms or what we call breeding and birthing farms where we have sows, we bring them in as gilts, which is an unbred animal. We actually breed and birth our own replacement animals, so we're starting with an animal that started on one of our farms. All the new moms, if you think about it that way.

Matt Adams (06:10):So you have your own genetics that you guys are raising.

Phil Hord (06:13):Yeah. We work with a genetic company that provides us with that on the terminal side, on the semen side, but then we haven't brought in a female, as what we call a gilt, onto our farm from externally for quite some time, well over a decade if not two at this point. What we're doing is taking that specialized female, and they're going into our breeding and birthing farms. We're obviously breeding them.

Phil Hord (06:42):We utilize artificial insemination. The product is not artificial. The semen product is collected at a specialized boar stud site that we then distribute out to our farms, breed those animals, and then about 115 days later they give birth to piglets.

Phil Hord (07:02):From there, obviously there's a lot that goes into that process in terms of getting those gilts to the point where they come into the farms and then are bred and give birth and that whole process. But once those pigs are born, they stay with the sow for about three weeks and are then weaned into growing barns, into the farms that our contract partners would operate for us.

Matt Adams (07:28):Taking that one step further, we talk about, we've started from the breeding end to now we have piglets. They're weaned off their mom. We're going to a finish barn. How's the contract finish barn side work?

Phil Hord (07:41):There's kind of different strategic ways. You look across the pork industry as a whole and some families or companies like ours would own and operate and manage their own finishing barns. Back in the '80s, I would say, early '90s for sure, we started to really get into, and you saw the industry progress through contract relationships with farmers that they did not have the resources or didn't even have the desire to get into the breeding and birthing side but wanted to raise pigs and have a part of that process.

Phil Hord (08:15):That's exactly how it is today. There hasn't been a lot of changes to that whole process. Obviously, building designs can change and things like that, but ultimately, that relationship or the way that process works is that, for example, Libby, if she has a barn, which she does, so this is a real life example, but if she didn't, she would build a barn, she would build it to our specifications. If Libby had some ground, she may be able to utilize that as a collateral for her building that she's about to build and get going.

Phil Hord (08:51):And then we would write an agreement that Libby would do certain things for her barn. She would obviously own the facility, which she would be having an investment in a barn. But then we would compensate her for her time to care for the pigs, which is one of the components. She would also have utilities that she would pay for. That's in that agreement.

Phil Hord (09:13):And then from there she would also have the manure that she can handle and figure out what to do with. That's a whole other conversation here. Recently, the manure has been valuable for a while, but obviously in our high input pricing on our cropping operations, the manure has been extremely valuable here, especially the last year here.

Phil Hord (09:36):Really at that point, Libby's just taking those pigs that we retain in our ownership, we're providing her with the feed, we know what age her pigs are, that process is kind of seamless. From a healthcare standpoint too, from a veterinarian care, we provide any sort of interventions that she would need.

Phil Hord (09:56):Really her goal and how the relationship works is a lot of the things that may be more difficult to coordinate or to have from Libby's end, we take that out and that's what we would provide. The pigs and the feed and all the other inputs are things that we would provide, but the basic everyday care and loading in and out and the washing and preparation of the barn for new pigs, all that would be on Libby. That's what we would be working on.

Matt Adams (10:27):You kind of talked about early '90s when really the industry made a change where I would guess a lot of farmers that were hog producers at the time maybe had like 20 to 30 sows and ran from start to finish an operation where when that switched, an integrator like you guys come in, now your contract finisher still has liability and risk in this game, but you guys are more mitigating that risk by working with them being a contract grower. Has production gotten better being able to control those type of aspects?

Phil Hord (11:05):I think so. I think that allows us to focus on one part of the process. Not that we don't help Libby through anything that she would need, but it allows our efforts, our management team, everything to focus on different areas.

Phil Hord (11:19):We still have people, we have service technicians and a team that would be out supporting those like Libby, I keep using her in my example, having check-ins, helping work through issues, just any sort of coordination. But certainly it takes that risk out for someone like Libby to be able to have a barn and we assume a lot of that risk on our end.

Phil Hord (11:44):Once those pigs are raised throughout the process, we would then work with Libby in this example to schedule loads. When those hogs are ready for market, we schedule those loads with her. She would work to get those on the truck. And then from there, Libby doesn't have to think about them again. There's no direct involvement in the marketing process, and that would be on our staff and on our relationships with the processor side to have a home for those at the processing facility. That would be on our end of the deal.

Libby Wixtead (12:17):Going back to the '90s, the whole piece of getting to a processing plant and marketing, that's so difficult right now for anybody that wants to be independent. Having that piece taken out of it and still raising hogs, I mean, it's a win-win for everybody. Can you share a little bit, how long are your contracts typically?

Phil Hord (12:43):It's going to depend on a lot of variety of things. If you're building a new barn, we would generally help you out by maybe writing a little longer of a contract. That may be what Libby needs as a lender to be able to make that happen. She likes to see those long-term deals.

Phil Hord (12:58):But those work out really mutually. It's hey, I kind of know that the financial side is more or less locked in at that point depending on obviously the product that they would be working with you on at AgCredit. For us, we know that hey, we have that space. We are working with that farmer for that period of time. It's been very few times where we've had to exit those agreements. We've been able to find amazing people, people that do really well with animals.

Phil Hord (13:28):It's kind of interesting. It's kind of always been this way through this model, but it's allowed smaller farms to be able to add a family member back to the business or to maybe even allow that current farmer to continue in business. That is a really cool thing for us to see.

Phil Hord (13:49):Now that we've been doing this for so long, we're starting to see that next generation of young farmers be interested in this kind of a model. I think we'll see more of older individuals that are getting to the point where, hey, I don't want to do this as much anymore. And maybe there'll be some more transfer of ownership of those kind of assets that are already out there.

Phil Hord (14:13):We'll see what happens. But having next generation, having young people, sometimes I feel like we're a little on this island where there's fewer of us than ever before. But there's a lot of opportunities. It kind of takes out, hey, I know what's required of me when I go into a contract like this. I don't have to worry about X, Y, and Z, the nutrition side, the marketing side, like you mentioned. It takes a lot of the variables out and provides a way to add income back to each individual farm.

Libby Wixtead (14:49):If you are a young beginning or small farmer looking to build or purchase a contract barn, contact your local AgCredit branch about the AgStart program. We all start somewhere. Start here. Learn more at agcredit.net.

Libby Wixtead (15:05):I know at AgCredit we talk a lot about diversification and having younger members enter that way when the row crops aren't going to support the family, having that family member come back in. At least from the loans that I've done for contract barns, that's what it's been. It's as exciting for us to be able to see those members come back to the farm and do what they love and continue on.

Libby Wixtead (15:32):It's funny that you talk about the next generation coming in because I don't know about you, Matt, but that's what I've seen happen in our area, just we've been working more with that next generation coming in.

Matt Adams (15:43):I think that's one of the big things that we see now is, especially with land prices increase like they have with through our whole area, the next generation coming back to the farm, like you said, it's just not sustainable to add that many more acres. The cash rent ground out there really isn’t available. But with this, it would bring the other member into the operation and kind of sustain growth for the future.

Matt Adams (16:11):Kind of what we touched base on Phil, you talked about some of the benefits of being a contract grower. I'm a farmer and I'm going to put up a contract finish barn. Why should I? What are the benefits I'm going to see on my end? Sell it to me.

Phil Hord (16:30):Lucky for our listeners, I don't work in sales, so this should be real interesting. No, it's actually been quite the opposite in terms of needing to sell the process to people. It's been around long enough that the basis of the whole idea has been verified or validated that it works, that you can have a 10, 15, whatever, a 12-year loan, whatever the length of a loan would be or however long that amortization needs to work out.

Phil Hord (17:00):But the point being is you have an asset at the end. You're building equity in something. Especially for our crop guys, especially if they own land, even if it's not alot, if you own a piece of land, you can use that to kind of back… You talk about land value increasing. Well okay, that can help a little bit on this end of things. We won't talk about interest rates.

Phil Hord (17:25):But the way our contracts work would be, okay, if you're interested, it would be where do we want to site the barn, or what is your background first, if we just go way back, what is the capability that you would have to do that? If you are a one-man show trying to run a 1,000 acre farm, that's probably not going to work. You wouldn't have the ability to do that, or the time. I know us as farmers think we can do anything, but I'm learning quickly that's not possible.

Phil Hord (17:55):So let's start with the feasibility just from what the structure would be. From there, okay, we feel like you can get a loan for what you would be looking for. We would meet with you to discuss what the barn design could look like. We could start talking about siting. I say siting, it would be, hey, where are we going to put this?

Phil Hord (18:14):In Ohio, we have a scoring system, and we want to be good neighbors too. A lot of our family and team members work and also live near farms, so we are already aware of how we want it to work. We don't want to cause issues from siting a barn. So site placement is super important.

Phil Hord (18:38):From there the process keeps going. You say, "Hey, this looks good." We discuss obviously the financials. We would break that down with you. We have projections of what we believe in barn price, facility costs is crazy, fluctuating.

Matt Adams (18:52):I'm sure that's been a challenge for you guys in the last 24 months especially.

Phil Hord (18:56):For sure, it is. It's not any easier for us than it is someone like you looking at it. It's so difficult. I just heard recently maybe from the highs of where lumber was, we're down 50% from those highs. Things are coming down a little bit, but by all means, that's taken into consideration when we look at agreement, where you would need to be in order to make it feasible, because ultimately it has to be a win-win.

Phil Hord (19:25):You would not do that project if it wasn't going to be able to create a return for you because that's what you have to look at. What is your ROI on your investment? What is that not just short term, but what's that long term? There's a lot of things, but no-

Matt Adams (19:41):That's one good thing your account officer always likes to hear is return on investment. Tell me how we're going to pay for this.

Phil Hord (19:46):Yeah. But okay, that moves forward. We sign an agreement, you get going. We start building the site. From there, the process is easy. I mean it seems relatively easy to us because we deal with it a lot. But we would have a support person there to walk through everything from how do I run these fancy fans that come on when they're supposed to and how do I make sure that my feed's getting into the barn.

Phil Hord (20:13):Working through those kind of things would be part of the onboarding process. It's not rocket science as long as we have the right things in place and the right mentality of why you're doing it and how you're going to do it, how you're going to feasibly do it. It can be an awesome way for families to add things to their farm.

Matt Adams (20:35):As a grain farmer, I think one thing you touched on earlier is that benefit from the manure that your barn is going to generate to help with input costs on our crops right now, especially with what fertilizer has done and is going to probably continue to do.

Phil Hord (20:51):Yeah. Nature gives us gold. Sometimes it smells worse than others, but for sure this year it smells more like gold I think to a lot of people.

Matt Adams (21:02):We should tag that. That'd be a great podcast name for this episode.

Libby Wixtead (21:06):Yeah.

Phil Hord (21:07):Oh boy. Our PR people are going to go crazy on that one. I think for your point, there's obviously years where that's been better than not. The other thing is, if you are building on a piece of land, we have farmers that work with their neighboring guy, their neighboring farmers. If they don't have land right there, they work through that. Depending on if that's a sale, that can be even yet another income stream for that particular farm. But we're finding how valuable it is. The natural organic manure, you can't hardly beat it.

Matt Adams (21:42):And when you talk about siting the barn, and one thing I've noticed just with members I work with and friends that are contract growers, the technology that I think is coming to your industry, the barns now from even say 10 years ago, you can drive by a lot of facilities, you know it's a hog farm, you don't smell the hog farm. Is that something that you guys are always continually trying to improve on?

Phil Hord (22:09):Yeah. When we look at siting, we're trying to place near natural buffers. If those natural buffers don't exist, we have many, many sites that have planted trees or planted shrubs, whatever we want to look at doing to try to create that. But being intentional about placement, there's a lot of sites that were placed before we really started thinking about this, or there's been development that's occurred around those sites. Unfortunately, we can't change a lot of that.

Phil Hord (22:35):There are some really cool things coming down in the future I think, ways to reduce smell through nutrition. There are some farms out west that have been working on ways to mitigate dust transfer out of the farm. There's a lot of cool stuff that's going, but you can't replace a good sited facility, a good sited barn regardless of what kind of livestock it is as your first line of defense towards trying to be a friendly neighbor. It has to start there. But I think there's lots of things coming that will help us continue as an industry mitigating that challenge for sure.

Libby Wixtead (23:18):Other than the siting piece of it, which is challenging, I do know, what other challenges could potential growers face that they don't think about when they first initially are thinking about putting up a contract barn?

Phil Hord (23:34):I think if the mentality of that I'm going to be in and out of the barn in 10 minutes every day, okay, that's a problem.

Libby Wixtead (23:45):That does not happen.

Phil Hord (23:45):That doesn't happen. Libby says it doesn't happen at her barn, so we're all good. No, for sure. That's one thing we would kind of move into. Maybe that's more as you get into a routine and it's several years down the road. We just have to have realigning of expectations of how much care we have, how much time.

Phil Hord (24:06):And then the maintenance thing, that's another big thing. You have to keep up on maintenance. Pigs, they can be destructive with equipment inside the barn. They're naturally curious animals. You have to be aware of that. So maintenance is another kind of surprise some people have over time.

Phil Hord (24:25):Ultimately, just some of the challenges that come with. Pigs are natural beings. So there can be some health challenges that come in every now and then. That's where our team is there to support and help that individual as we work through any of those kind of various challenges.

Libby Wixtead (24:43):Yep. And just again, my personal experience, a lot of the things that Phil just had talked about, you guys have supported us through all of those things, especially on maintenance and healthcare issues. Those are good challenges to think about. And again, just to reiterate, you will not be in and out of the barn quickly. You just have to keep that in mind. It's not going to take you a long time to do chores, but it's just-

Phil Hord (25:12):Won't take half a day to do anything. Depending on the age and the size of pig, that really matters too. They get older, they become more self-sufficient. It's kind of like a child growing, right?

Libby Wixtead (25:21):Yes, absolutely. Yep.

Phil Hord (25:23):They get a little easier as they get older. And then the process starts all over again.

Libby Wixtead (25:27):Yes.

Matt Adams (25:30):Well Phil, where can a potential grower go to find information on the barns? And if they want to get more information on to grow with Hord Farms, who can they contact?

Phil Hord (25:40):Absolutely. We have a website. It's pretty easy, just hordfarms.com. We have a section on there to point people to fill out a little form, a growing partner contact form. That's probably the best way. You can also email us at hello, H-E-L-L-O, at hordfarms.com that can get you to the right direction. And by all means, our office doors are open, so come see us sometime as well, if that's of interest.

Matt Adams (26:09):Well, thank you very much, Phil, for being part of this with us today. And thank you everyone for joining us on today's episode. For more information on livestock facilities and how AgCredit can help you get started, please reach out to one of our branches or visit us online at agcredit.net. Don't forget to leave review if you like what you hear and tell a friend. We'll talk to you the next time on AgCredit Said It.

Voiceover (26:37):Thank you for listening to AgCredit Said It. Be sure to subscribe so you never miss an episode. While you are there, leave us a review to help others find the show. Let's talk ag in between episodes. Follow us on Facebook, Twitter, and Instagram at AgCredit. For more tips and resources, visit agcredit.net.