The Carthage System was built to help family farms cost effectively grow in the pork industry. We believe in the importance of having independent producers directly involved in our nation's food supply chain. The Carthage System, which is managed by Professional Swine Management, works with independent producers to optimize all phases of pork production. This allows family members to remain on the farm and increases productivity and profitability through economies of scale.

Sow shares have been a tremendous growth vehicle over the past 25 years. Approximately 40% of owners within the Carthage System own shares in multiple farms. Many have doubled or tripled their ownership since their initial investments. Some strategically do this to manage pig health risks and other related production challenges. Others simply do this as a growth tactic. Buying shares in new sow units as the home farm organically grows has been a successful plan implemented by many families.

Shares are typically bought based on a desire to receive a percentage of the sow farm's output. Each owner receives an allotment of pigs based on shares that are owned, matched to their home operation's pig flow needs. The system brings together like-minded individuals who understand the value of outsourcing their weaned pig production. The sow share owners typically grow their own feed, own or lease the finishing barns and are able to utilize the manure nutrients on land they farm. Through ownership, the sow farm owners are leveraging capital intensive investments to drive down their production costs. They also recognize the difficulty in managing labor-intensive breeding and farrowing operations and the advantages a management company provides to increase production.

Building for the next generation
There is no bigger joy than to have a front row seat watching a family transition occur. We've watched children return to the farm and parents handing down the keys to their sons or daughters. We are routinely asked to help provide input during family succession planning. Bringing back the next generation is a common theme. Mapping out the succession plan is a critical component to ensure that family members have the opportunity to continue living the livelihood. This can also include discussions around growth and investment opportunities. Buying shares into a sow unit has become a seamless vehicle for justifying new family members into the operation.

Recently, we had a shareholder in the Eastern Cornbelt invest in a new sow unit. The operation has been raising pigs for 40 years and continued to grow since the 1980's. They were currently raising approximately 125,000 pigs per year, through a combination of an older sow farm that they managed and purchasing groups of pigs. Recently, both a son and a son-in-law returned to the home operation. They approached Carthage about opportunities to grow through sow ownership. They made the strategic decision to focus on feed production and wean-to-finish operations, while closing down their sow unit. Investing in a new sow farm aligned well with their competitive advantages and allowed them to outsource the wean pig production. All while eliminating some labor management responsibilities that had become inefficient with an aging facility.

There are typically several reasons someone can or should consider owning sow shares to create more opportunities for the next generation to return to the farm:

Added diversification and increased revenue potential
We've recently seen land prices spike at levels never seen before in the ag industry — $15,000 to $20,000 per acre of Class A farmland has seemingly become normal. Adding additional acres to farm is difficult, with a modest return on investment. This isn't always feasible for beginning farmers. However, adding a finishing barn could be. Not only does this increase the need for more human capital, it can provide a diversification to an operation that previously only had row crops.

History has shown us that grain and livestock don't always correlate. While both are experiencing high prices today; they may not always in the future. Adding livestock to an operation's mix may provide a natural buffer if a down cycle returns in the grain markets.

Utilizing manure nutrients to reduce operational costs
Supply constraints on fertilizer are highlighting the value of manure nutrients. Potash has risen over 100% since January 2021 to over $800 per ton. Anhydrous ammonia has increased by nearly $1,000 per ton over the same time period. Utilizing the nutrient value of livestock manure directly adds to the bottom line of crop production costs.

Consider that a 2,500-head finisher barn can fertilizer approximately 160 acres. This can add $15,000 to $20,000 of value annually. This helps maximize revenue per acre on the acres that are currently being farmed.

Securing a consistent flow of pigs
Independent pork producers remain core to the Carthage System. With better access to marketing agreements and the ability to remain nimble; they are well positioned for the future. Producers who rely on purchasing open market pigs may have the ability to enter and exit the market easier; but they also can struggle with finding a long-term pig supply.

Limiting the number of sources helps manage health risks, which saves time and money. Sow share ownership has also allowed producers to ensure they have pigs coming at a consistent cost, even when open market pigs are trading at $80 - $100/weaned pig.

Growing equity and capitalizing on tax advantages
A modern sow farm can last for 30-40 years and has proven to be a great investment. It's also been a great way to build equity while maintaining a sound balance sheet.

Typically, the process creates a group of shareholders. With a new barn, the group will invest enough capital to secure a bank loan. The collective group then uses debt to finance the rest of the unit. Lenders typically like to see 30-40% equity in a new sow farm.

Over time, the note on the sow farm is paid down, creating additional equity for the producers. As the price of construction increases, it wouldn't be uncommon for existing structures to maintain their value 10-15 years later. Additionally, there can be some immediate value with tax strategies available to aggressively depreciate the building. Depreciation can help offset other gains within the operation.

Overall, sow share ownership has been a great avenue for producers looking to expand in the industry. Grouping producers together provides value by driving economies of scale and implementing industry best practices. Providing a consistent source of pigs has allowed independent producers to focus on raising the pigs instead of finding a source or managing health challenges. Most importantly, sow share ownership has allowed farm families to remain competitive and relevant in a commodity driven business.

Source: Steve Toohill and Ted Ufkes, who is solely responsible for the information provided, and wholly owns the information. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. The opinions of this writer are not necessarily those of Farm Progress/Informa.