The Rural Voice, 1998-06, Page 40Get it in writing
If you're thinking of signing a
contract to grow pigs, make sure you
get all the details in writing and you
understand what it means, chartered
accountant Monty Smith says.
By Keith Roulston
Thc crash in pork prices has failed to dampen the
interest in raising hogs on contract, but farmers
entering contracts seem to be seeking more security
and less risk.
That's the assessment of Monty Smith of DBO
Dunwoody in Stratford, a chartered accountant who,
working in the heart of pork country, has advised
participants in many contracting situations.
Smith spoke at OMAFRA's "Comparing Swine
Production Systems" seminars at Shakespeare last August
and since then has seen clients still pursuing contractual
arrangements, despite the downturn in prices. Three of four
clients he advised in the past few months arc going ahead
with construction of new barns. People feel the long term
in the business looks good even if the short term prices are
poor, he said.
The trend, however, is for people building the barns to
seek some financial security in being paid per pig or
36 THE RURAL VOICE
If you are borrowing money for a new barn to contract
pigs, you'd better make sure your contract protects you.
Monty Smith says.
getting a flat monthly payment, Smith observed. When
you're borrowing hundreds of thousands of dollars to build
a new barn you need to be sure of having the cash-flow, he
says.
However, gaining more security comes with the price of
not participating in the profits if the price cycle reverses.
"They're leaving the 'up' side on the table," he says.
There is no standard contract, Smith says, with each of
his clients seeking a different arrangement. In one case the
arrangement was for a strict flat rate per pig in a nursery
operation. In another, the contract required the barn owner
to invest in the loop, in effect buying the weaners in and
selling the finishers at the other end, but sharing in the
profits. Another finishing barn contract was for a flat per -
pig rate with a bonus for reaching low mortality goals.