Colorado Conference Series – Poultry Farm Economics with Vance Keaton
To finish our conference series, we’ll take a closer look at poultry farm economics with Vance Keaton from Live Oak Bank. Keaton presented several charts during his presentation using Live Oak portfolio data from various geographic regions that illustrated key issues and trends in the poultry farming industry between 2014-2022 based on:
- Gross cost per foot (total debt + total equity)
- Net cost per foot (gross cost − upfront new house incentive)
- Net operating income (NOI) per foot (gross revenue − operating expenses)
- NOI efficiency (NOI per foot / Net cost per foot)
- Average 10 year US treasury (UST) yield
Using these metrics, he first compared Gross Cost vs Net Operating Income (NOI). The data showed that in the last two years, farms’ gross cost per foot has gone up while their NOI stayed rather constant, meaning they have become less profitable.
Keaton then compared Gross Cost Per Foot vs Avg. 10 Year U.S. Treasury (UST) Yield. Gross cost has been steadily rising since 2014 with a sharp increase in 2021, while treasury yields stayed relatively stagnant until 2020. During this time, the UST yield significantly dropped, but gross cost was still increasing. Now, due to inflation, the UST yield has returned to its previous rate, and costs remain high.
Keaton concluded his presentation by commenting on various themes at play in the industry. He first spoke about the increase in site selection scrutiny due to permitting requirements, urban sprawl, distance from property lines, tract size, and topography.
He then pointed out that increasing project costs are reducing the pool of potential growers, as fewer people have the means to enter the industry. This drives the need for farm owner consolidation, increased equity, and improved government loan programs.
While these barriers to entry are an issue for new entrants, they may extend the economic life of existing facilities by enhancing their value and creating an incentive for retrofits. Keaton suspects this will result in larger owners leasing their existing farms to growers, allowing them to focus on their birds as opposed to their debt.
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