Protecting Your Pork Assets: Time to Reorganize, or Get Out?
If you’re a swine integrator or producer, chances are high that 2023 has not been kind to you. More integrators are filing for bankruptcy protection or seriously considering it, which puts the producers who grow pigs for them at risk—and, in turn, their employees.
Even if you haven’t faced the potential of bankruptcy or debt organization, you’ve likely seen your income take a hit. Various factors are responsible for this, even before the U.S. Supreme Court upheld California’s Proposition 12 last May, in a decision that will be felt across the pork industry for a long time.
One integrator Ag & Business Legal Strategies is working with was losing approximately $1 million in income per month earlier in 2023, and will ultimately end up shuttering their 200,000+ head business because they cannot find sufficient funds to continue operations. This loss will cascade down through the 102 producers who supply the integrator, who must each either find a new buyer or go out of business.
This is far from an isolated incident; there are much larger integrators losing that much per week. In just one three-week period earlier this year, two sizable integrators in Iowa alone either filed for bankruptcy or liquidated their assets and went out of business.
California Law Causes Concern
Let’s look just briefly at the impact of Prop 12. It requires that all pork sold in California have a certification that each gestating sow had minimum gestation pen space of 24 square feet. Since California consumes 15% of the nation’s pork production but only contributes 3% of it, this law affects top-producing Midwest states including Iowa, Indiana, and Illinois.
Most gestation houses in this region did not comply with that mandate as of May, which means the producers caring for those sows essentially have four choices: get out of the pig-raising business, retrofit their facilities, construct new facilities, or sell only to processors that separate their California pork from their pork for the rest of the country. It may actually be less expensive and simpler to build new than to retrofit!
The ramifications of Prop 12, coupled with hog producers trying to stay in business in the short term, are staggering. States with large concentrations of swine production could see economic hits to rival the 1980s farm crisis.
Trouble Brewing for Swine Integrators and Others
In Iowa alone pigs outnumber people by a factor of more than 7:1, More than 22 million head are distributed through every county in the state. If the swine industry takes a big hit, the impact will be far-reaching and devastating. Loss of their integrator forces a producer to go out of business or find another job if they cannot find another buyer, but it also puts each of their workers out of a job. Then there’s the ripple effect of the producers’ inability to pay off loans for finishing houses, related facilities, and operating loans. This will impact the banks involved, and the loss of these producers affects the whole supply chain—local veterinary practices, feed mills, and more.
All of this brings up many questions for swine producers who have taken on debt for the animals, facilities, and labor to supply integrators. Even if an integrator stays in business, they may cut operating costs—likely starting with their least-efficient suppliers. How might this affect you, the producer?
How will you make payments on your loans if you cannot find another integrator? If you need to take a lower payment per pig-space from an integrator, how low can you go and still keep the farm going? How long can you afford to feed and care for the animals while you search for a replacement integrator? Where can you sell your pigs if you cannot stay in business? After all, closing a gestation or finishing house is not like shutting down a factory. Finally, if you do exit your business, what do you do about any personal guaranties you may have signed with the bank, putting your own assets up to ensure repayment of business-related loans?
It is important to consult with experts who can honestly help you evaluate your situation and move forward with making informed decisions about your own financial future as well as your business’s, whether you are a producer or an integrator. Ag & Business Legal Strategies can provide this kind of legal review and clarity, as well as negotiate with creditors on your behalf; help you file the necessary liens if you are a producer not being paid; and assist with debt restructuring, exiting the business, or filing for bankruptcy—whatever is appropriate.
Contact us today to set up a consultation. Don’t stall until it’s too late to plan adequately to protect your assets or your production future.
At Ag & Business Legal Strategies, we want our clients to be honest with themselves and have a solid business plan. Our attorneys and financial strategist will help you create and execute that business plan, and, if necessary, assist you with the legal, tax, and practical aspects of debt restructuring or bankruptcy.
Don’t wait for the problems to become insurmountable. Connect with someone you can trust today, not tomorrow. Contact us here!
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Categories: Chapter 12, Economy, Legislation