Today’s market prices mean bigger contract grower risks

Sometimes a topic comes up that doesn’t fit my sort-of weekly writing schedule. Yesterday I had a field person for a contract production system ask about emergency drop curtains on a double-wide tunnel barn. The curtains had been ‘ruined’ by a power-washer so the grower inserted bubble wrap into the curtain opening to make it tight again so the correct negative pressure could be attained at the inlets for proper air distribution.

The grower has an on-site auto-start generator that is tested monthly with written logs of the test and an alarm system that is also routinely tested. The question was – does the grower need the side drop curtains for emergency ventilation?

Now it gets fuzzy – it depends on the trust you have in the monthly testing of the generator and alarm system. If you have faith in these systems, no curtain drop is necessary. If you have doubts, a sidewall curtain drop that opens at least 2 ft is an added safety measure.

With the run up in market prices this spring, I don’t think contract growers fully understand their financial risks. In most contracts, the grower is financially responsible to the pig owner for losses while the pigs are under their care, custody and control. Last week the USDA average net value for all barrows and gilts slaughtered under federal inspection was $245 per pig. If you have a barn of 2450 pigs that dies near market weight due to a ventilation failure, fire, etc, the total value become $600,250. This is approaching the total cost of building a new barn and for sure was the cost of a barn that is several years old.

For several years Eldon McAfee, a lawyer often employed by the Iowa Pork Producers Association, has talked about ‘care, custody and control’ insurance as one means of offsetting this risk. This insurance is purchased by the contract grower payable to the pig owner and pays out in the event of a loss while the pigs are under the ‘care, custody and control’ of the contract grower.

Yes, there have been problems with some ‘care, custody and control’ policies but in general they have become an effective tool for contract growers to manage the financial risk of contract feeding. When they have a financial risk exposure over $600,000 it is in the best interests of contract growers to have a discussion with their insurance carrier(s), attorney and lender about this risk and appropriate mitigation of the risk. In some instances, pig owners have already done their homework on ‘care, custody and control’ insurance carriers and policies and should also be part of the discussion since it is their pigs at risk.

It’s not fun for anyone involved when a loss occurs and you end up in court trying to sort out responsibility for the loss.

 

2 thoughts on “Today’s market prices mean bigger contract grower risks

  1. Monthly generator (and transfer switch) testing is nowhere near adequate. Weekly testing is usually recommended and failures have been known to occur even with that frequency of testing.

  2. Monthly testing is the minimum but you are correct that weekly is better. In either case, date and sign a log indicating that you have witnessed a successful transfer of power. In the event of a ventilation failure this is your proof that the system was maintained and functioning. Increasingly insurance carriers are requiring submission of a test log prior to payment in the event of a ventilation failure.

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