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The Huron Expositor, 1998-03-18, Page 84Page 28A — Farm Progress '98 For all your plumbing needs! call Dawson's Pumps & Plumbing . A ......... ©0l110©o©©oa ©■ ■© 0 Take the "Puzzle" out of increased productivity with an affordable Motorola 2 -Way Radio ® MOTOROLA Authorized roscrWay Rack Dealer COMMUNICATIONS 400 Huron St., Stratford, ON 273-3300 1-800-565-9983 Broilers won't cash flow at high quota prices, says credit advisor by Perry Wilson Amodern broiler barn almost runs itself. It looks like a great diversification ven- ture but current quota costs make broilers a poor investment when all, or most of the project, requires financing. In the past few years, new broiler chicken facili- ties have popped up not only on existing poultry farms, but also on mid- sized dairy or cash crop operations. Could this be a way to diversify your farm business without adding unmanageable labor bur- dens? What makes modern broiler barns attractive is Vanden Heuvel Construction Ltd. COMMERCIAL AND AGRICULTURAL BUILDINGS • Poultry • Hog • Dairy R.R. 2, GODERICH, ONTARIO N7A 3X8 TELEPHONE: 519-524-9176 FAX: 519-524-9240 After 6 p.m. Call Ken at 519-522-1858 1a cANAoUM GARY SURDERS ASSOCIATK*4 STEELWAY PRE•ENOINEERED aur SYSTEMS that they usually have computerized automatic temperature control, feed- ing, watering, and lighting. In these facilities, time spent in the barn averages out to two or three hours • Industry minimum space requirements is 0.65 square foot per bird, how- ever, most new buildings allow one square foot per bird. This leaves room for increased quota allotment Quota prices have risen dramatically over the past two years or so, from about $15 to $17 unit range to $25 to $27 unit range. per day monitoring flock health and making sure the feeding and environmental control technology is oper- ating as it should. This is.a consideration for folks wanting to diversify, or work around off -farm jobs. Management standards are: a death loss of two to three per cent, and feed conversion of 1.85-1.9 for a 1.75 kg bird. Feed costs and conversion rise for heavier birds which carry price incentive, but also added risk of death loss. Common profiles of new entrants to the indus- try include retired dairy farmers and European buy- ers. Dairy farmers regard broiler production as hav- ing the potential to provide the income they are used to while requiring signifi- cantly less labor. They can also reinvest the proceeds from the dairy quota sales without impact from the capital gains tax. In costing a broiler pro- ject, I'll use the example of a producer who owns a 100 acre parcel of land free and clear, and intends to build a new broiler barn and purchase quota. The following are costing guidelines: • Building c( sts for new broiler barns range from $12 to $165 per square foot. This cost includes automated feeding and watering equipment. and future expansion. • Assuming the barn will house the industry mini- mum of 15,00 units, and at a building cost of $14 per bird, the total cost is $210,000 for a state-of- the-art broiler barn. • Quota prices have risen dramatically of the past two years or so from How would it cash-flow? approximately $15 - $17 unit range to $25 - $27 unit range. Quota for a 15,000 unit operation costs $375,000 at $25 per unit. Building and quota costs now total $585,000. The security value would be: land $300,000; building $150,000 (at 70 per cent of cost); quota $375,000 (100 per cent transferable); for a total of $825,000. Additional security may be required, depending on the property value and the lending policies of the financial institution. Allowable production per year is 11.407 kg/unit of quota. Net available revenue for living and debt servicing is 26 to 30 cents a kg depending on man- agement, feed conversion, etc. A 15,000 -unit opera- tion would therefore gen- erate between $44,00() and $51,000 for debt servicing and living. As a guideline, these operations (land, building and quota) should cash flow over no more than 15 years. However, because of the uncertainty of future quota values; it may be in the best interest of both lender and borrower to amortize quota loans over no more than five to seven years. In this example, pay- ment on $585,000 over 15 years at seven per cent is $65,000 per year. This enterprise will not pay for itself when quota is at $25/unit. Quota prices need to come down to the $13 - $17 range for the business to pay for itself and allow some residual funding for living expens- es. The numbers become more attractive if there is more equity in the broiler enterprise. Other options include buying an existing broiler operation. Broiler farms have recently changed hand in Ontario for $28 - $35/unit for land, build- ings and quota. With some cash or equity in other properties along with off - farm income, this may be viable. Another option is reno- vating an existing structure which may only cost a fraction of a new building, thus allowing a less expen- sive entry to the business. Lastly, a producer can wait for quota prices to fall. (Wilson is a credit advisor with Farm Credit Corporation, Wyoming office). Farm safety fact Harvesting as opposed to planting activities are associated with more non - tractor, machinery fatali- ties.