Financing hog barn conversions can be overwhelming

Question: when is a decade’s notice not enough to overhaul your barn to comply with animal welfare codes?

Answer: when that barn still carries a mortgage and the operator has struggled to squeeze enough profitability out of it to afford renovations or pay for a new barn.

That’s the underlying situation for some independent hog producers who called for the 2024 deadline for converting gestation stalls for sows extended to 2029. For some, the money and credit isn’t there to pay for the change by 2024.

“Securing financing for something like this is increasingly difficult,” said Gary Stordy of the Canadian Pork Council.

“We have a number of producers for who, just because of where they are within the life cycle of the barn, it doesn’t work.”

Building a new open housing barn from scratch isn’t more expensive than it is to build a traditional barn with gestation stalls.

But trying to take an old barn and convert it from stalls to open housing can be extremely expensive.

Stordy said it costs about $500 per cow for the cheapest conversion. From there the cost can increase all the way up to about $3,500, which is the ballpark cost for a completely new barn.

If a barn is paid off and a farmer is carrying little debt, getting financing from a lender for either a new barn or re-engineering an old barn might not be impossible.

But if a barn is still carrying a mortgage or if the producer is carrying a lot of other farm debt, he might not be able to qualify for a loan.

That will have a lot to do with profitability, which even for the best producers in recent years doesn’t tend to be high. The current COVID-19 shock to the markets destroyed much equity in the early months of the pandemic and sustained profitability will be required to rebuild farmers’ financial positions.

Since open housing does not appear to provide increased profitability, any additional debt required to convert to open housing will have to be borne by existing revenue.

Estimating the cost of barn conversions is a difficult job because “we are discovering that no two barns are alike,” said Stordy.

About 30 percent of Canadian production has already transitioned to open housing, either through barn conversions or with new barns.

More conversions and new builds are planned, Stordy said.

However, that leaves a large number of independent producers who don’t believe they can finance the transition without a few extra years to build up their financial position.

“It looks like (most farmers’ intentions) is to build new barns with the new system,” said Stordy. Borrowing hundreds of thousands of dollars to reconfigure an old barn doesn’t make sense to a lot of producers.

But to be able to borrow enough to build a new barn will probably require years of profitability beyond 2024, and that’s why they’ve asked to be given until 2029, Stordy said.

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