APPRAISING HOG CONFINEMENTS — Spurgeon Appraisals

by Mason Spurgeon, Certified General Real Estate Appraiser

October 2016

There are several different kinds of hog confinements. In this newsletter, I am going to concentrate on the buildings that are most commonly built in this area, wean-to-finish barns. Piglets are placed in a wean-to-finish barn at between 10-15 pounds just after being weaned from their mothers. There are several different styles of wean-to-finish buildings, and the style changes with each passing year. New ideas and innovations are instituted to maximize the weight gain of the pigs and insure the health of the animals. No expense is spared on these buildings. They cost hundreds of thousands of dollars to construct depending on the head count of the building.

When appraising these barns, we must assess the overall condition of the building. This is sometimes very difficult to determine, which is why we must perform a physical inspection. Pigs are very hard on equipment, gates, and buildings, which is why the equipment is expected to have an economic life of 10 years and the building is expected to last only 20 years. However, with proper cleaning and maintenance when empty of hogs, the life of the equipment and building can be prolonged. For this reason, the effective age is sometimes much less than the actual age of the building in our reports.

While the barn type and condition is very important when completing an appraisal on these types of properties, the most important part of the farm appraisal is the contract. The integrator (the person or company that supplies the hogs and feed) and the operator (the person or company that owns the barn and cares for the pigs while they are in the building) must agree on terms and a price per head. The most common type of building built in this area is a 2,480-head building, and the operator is paid based on the head capacity per year. For this amount, the operator must care for the hogs and maintain the building. If the operator loses too many hogs, the integrator could terminate the contract. There are many clauses throughout the contracts that an integrator and operator must abide by, and the contracts could be terminated with reasonable notice. This could leave the lending institution and the borrower in a sticky situation.

It is important to pay close attention to the contract and determine if it has renewal clauses. If not, the building could be worthless after the contract expires. Furthermore, many integrators do not want to renew contracts on older buildings without substantial upgrades. The need to upgrade could even leave the building unusable if the cost-to-cure is much higher than the benefit. On the other hand, buildings might continue in use without being upgraded if the buildings are well-managed. For example, older style buildings use double-sided curtain buildings while newer style buildings are tunnel ventilated. The older buildings can still be very effective if they are well managed, though they often have a lower per-head rate.

The last thing to mention about hog buildings is the manure easements. This is often overlooked by many in our profession, but it is extremely important, along with local and state permits (this varies in Missouri, Illinois, and Iowa) and zoning. These buildings are often appraised on a small number of acres, less than 10, which is not enough ground to dispose of the manure. There must be an agreement in place to dispose of the manure on neighboring farms. It is usually not a problem to get a neighboring farm to take or buy the manure because it is a great fertilizer for the farm crops. Many farms even build these buildings for the manure to save on crop input costs each year, which is just another benefit to owning a hog confinement building. But if the manure must be hauled a long distance to another farm, it can get very costly. The cost of this is often the responsibility of the operator.

At Spurgeon Appraisals, we strive to complete detailed and accurate farm appraisals on wean-to-finish barns and other specialty farm properties. When accuracy matters, call Spurgeon Appraisals.

Spurgeon Appraisals regularly appraises a variety of property types. We have experience appraising farms, residences, and commercial properties. We pride ourselves on providing excellent customer service and quality appraisals. Contact our team to see how we can meet your appraisal needs and exceed your service expectations.