Costco Opens Doors to Farmers

11:00AM Nov 20, 2018
Nebraska farmer Colten Schafersman (left) purchased 100 acres from his grandfather, John Snover, (right) to build two hen houses and one rooster house for pullet production.
( Row-crop operations are taking acres out of production to add poultry barns )

Sixth-generation Nebraska farmer Colten Schafersman, 26, has a lot to cluck about. He recently signed a 15-year contract to raise pullets that will eventually lead to the chickens that will be processed at Costco’s $440 million poultry complex in Fremont, Neb., beginning in September 2019. The food retailer will contract with up to 125 growers in a 60-mile radius to supply stores with its popular $4.99 rotisserie chicken.

Retailers are integrating their supply chains to guarantee the availability of popular products. That means operators ready to pivot can add profitability by diversifying.

“My whole goal with this project is to actually fasten myself to the farm, and buy back into the farm, not just work at the farm,” Schafersman explains. His family operates 2,500 acres of corn, soybeans and some cattle, and he is headed into his sixth season of farming. He learned about the Costco opportunity from his lender.

The opportunity to bring young farmers into agriculture is important to Costco, explains Jessica Kolterman, external affairs, Lincoln Premium Poultry. Costco created Lincoln to manage live poultry as well as food processing.

“The thing we’re the most excited about with this project is seeing how many kids are able to come home and farm on the family land through this project,” Kolterman says. 

Economic Gains. Nebraska proved a natural place to expand Costco’s poultry operations for four key reasons: availability of corn and soybean meal; a secure water source in the Ogallala Aquifer; workforce access; and farmer participation.

Yet a fifth factor made Nebraska more attractive than other states competing for the project: the collaborative nature of stakeholders including state government, local government and nonprofits.

The farm economy and geographic layout of Nebraska also are important factors, adds Will Sawyer, lead animal protein economist at CoBank and author of a report on Costco.

“Converting some corn and soybean ground into four or six chicken houses, that’s a very logical move for a lot of producers,” Sawyer says. “It also makes a lot of sense given growing demands by chicken producers to put in significant gaps between houses and growers” to ensure proper biosecurity. 

Nationally, CoBank estimates up to eight new chicken plants will be built in the next 18 months, including Costco’s. Schafersman’s family has set up separate LLCs for the land, the poultry barns and the overall farm. He also has interest in selling grain back to Costco that would eventually feed poultry in the region. The birds are expected to consume 350,000 bu. of corn weekly and 3,000 tons of soybean meal. 

Lasting Legacy. The Costco contract will provide Schafersman with 52 paychecks per year. The barns are built to last, meaning it’s feasible his son could join the operation with a renewed contract 15 years from now. He acknowledges nothing in farming is guaranteed, and he’s managing risk with insurance as he would with any venture.

He advises other young farmers to talk to the people most important in their life and business if they are presented with this kind of an opportunity. Be sure it’s a good fit. 

“Be open with your family and your banker,” he says. “A banker relationship is a big deal, and we’ve got a great relationship.”

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