Appraising a Poultry Farm

a growing industry

Approximately 30 federally inspected companies are involved in the business of raising, processing, and marketing chickens using vertically-integrated, quality-controlled practices. About 25,000 family farmers have production contracts with companies representing 95% of chicken production. The remaining 5% are company-owned and operated. More than 9 billion chickens and half a billion turkeys are processed for food in the U.S. each year, representing more than 95% of product produced for meat in the country. The consumption of poultry in the U.S. has continued to grow. According to the U.S. Department of Agriculture, consumption per person has more than tripled from 27 lbs. per person in 1970 to 93.5 lbs. per person in 2018. Poultry, or broilers, are chickens that are bred and raised specifically for meat production. Farms vary in the amount of space allocated for meat or egg production with the top 5 broiler producing states including Georgia, Arkansas, Alabama, North Carolina, and Mississippi.

The U.S. is the second-largest exporter of broiler meat in the world. As the price of beef and pork increases, the demand for broiler meat has served as an inexpensive alternative. While the business, or going concern, of the farm, is not the focus of the appraisal, demand analysis and review of the supplier contract will impact value; conversely, without an ability to show demand for the real estate (the land, structures, and improvements) a negative impact to value will be exhibited.

The Chicken or the egg | A Business model on tight margins

Poultry farmers often enter into a contract or license for the production of eggs or broiler meat. It is these family farmers that create the infrastructure with commercial companies (Tyson Foods, Pilgrim’s Pride, Sanderson Farms, Perdue Food, Koch Foods, etc.) providing the birds and feed. The type of bird and how it will be used has a significant impact on the business value. Grandparent stock are at the top of the genealogy, producing the eggs that produce the hens that produce eggs for broilers. Some hens are designated for the explicit purpose of egg-laying and are eventually processed for meat while others are never put into egg production at all. In all cases, male chicks are selected out of the process.

If the hens are to be used for laying eggs, a farm will receive pullets – young hens that are approximately 20 to 22 weeks old. These hens will remain on the farm in egg production for approximately 43 to 46 continuous weeks, at the end of which, they will be picked up and processed. The farm will typically have an “out-time”, the time between flock processing, of 10 to 14 days to perform maintenance and/or cleaning. For broiler meat production, baby chicks are delivered to the farm at approximately one day of age and are generally kept in an initial brooder/chick house (0-8 weeks). Depending on the type of farm, chickens can have anywhere from 67 square inches of space; less with battery cages stacked in tiers, more if free-range or pasture-based methods are used.

Egg and broiler meat production methods have shifted in recent years as consumer demand seeks out more humane methods of production away from battery cage and high-density confined spaces to cage-free, free-range, or pasture-raised methods. These more modern and humane methods are financially lucrative and result in higher margins per chicken (these birds tend to be heavier and live twice as long), 4x the cost of a regular table egg, and happier chickens who are more closely living in a manner for which they have evolved.

Old mcdonald would be jealous

The primary difference in real estate components is associated with the density/conditions for which the birds are grown and the type of operation (broiler meat or egg production). Processing of the birds is often off-premises. The majority of broilers are raised in long barns with concrete floor pads covered with a mix of wood shavings, peanut shells, and rice hulls. These climate-controlled barns are supported by automated thermostats and generators to protect the flock from the elements. Free-range broilers are raised in large open structures or grow outhouses. Pasture-raised broilers are just that, raised in pasture and allowed to roam freely with barn protection in the evening from predators. Whatever the operation, these barns must have strong ventilation systems, heaters, water delivery systems, and mechanical food delivery systems.

Modern barns have heavy fabric curtains or tarps which retract to allow for air and natural light to permeate through the facility. Why the importance of recycling air? Excess waste produced by the chickens will lead to increasing levels of ammonia which burn the feet and eyes of the flock. The grow-out houses often measure 400-500 feet long and 40-50 feet wide. Battery cage egg-laying operations often are tiered in nature and have conveyor-based shovels to remove waste automatically.

Growing operations focusing on the welfare of the flock operate at a decreased density with lots of natural light, straw bales, and space. Free-range broilers live in conditions similar to free-range egg-laying hens and organic broilers with restrictions on in-feed or in-water medications and limited stocking density (2,500 birds per hectare).

For structures with unique components, the appraiser must test if the component is to be part of the real estate or a fixture. How? By identifying what the original intention was when the component was installed. If ownership never planned to remove the component, then it is considered real estate.

don’t count your chickens before they hatch

The type of operation will impact value (broiler farm egg production, modern methods vs. traditional). Operators use caution when granting contracts or licenses to locally owned farms. This oversight is high due to the risk of zoonotic transmission of infectious diseases and risks for the birds, workers, and eventual customers. When a farm is taken offline, there may be health hazards and limited future use and the costs of renovation may exceed the cost of replacement.

Values of the farm will consist of the barns, pastures (if applicable) as well as support structure improvements including areas for disposal of expired birds, sufficient land to building ratios, physical depreciation of the structures, and functional obsolescence of the farm, if any. Local area sales (expand to regional if needed) should be assessed and a good unit of comparison to be used is square footage of poultry house per hen. Income and expenses should be based on income and expenses extracted from market for a typical operation compared to an integrator’s projections.

all in the family

Like all assignments sticking to best standards and practices is often desired; however, when dealing with family operators, there are differences that only become apparent after visiting the farm and talking with the operator or farmer. Do you have a farm for poultry that needs an appraiser who will approach it with critical thinking, care, and experience? Call the expert team at Argianas, we understand the nuances of local family business because we’re one too. We look forward to talking to you!