Source: Farm Credit Services of America
By Linda H. Smith, FCS America
No time is a good time for a disaster to hit, but it’s especially devastating when you are one signed document away from an investment scheduled to boost your efficiency and expand your operation. Scott Ramsdell, president of Dakota Layers, was to meet with Jeff Coit, vice president of Agribusiness Finance (ABF) and a poultry specialist with Farm Credit Services of America (FCSAmerica) for just that purpose on Thursday, May 14, 2015. The day after the deadly H5N1 “Highly Pathogenic Avian Influenza” (HPAI) virus was confirmed as it rampaged through his family-operated Flandreau, South Dakota, laying hen houses.
“We put our plans on hold and focused on developing a clean zone,” he recalls. This was no small job with 1.3 million hens and possibly contaminated supplies to dispose of. “We used employees for as much of the work as possible so we could keep them employed as long as possible. Once everything was removed, we devoted ourselves to cleaning all our buildings.”
Dakota Layers was diligent about documenting all losses and actions taken to ensure they would qualify for disaster aid. “We have received some payments, but the government is still behind,” he says. “When you take someone’s business away for a year, it’s very hard to survive.”
Russ Winterhof couldn’t agree more. He felt the pain of HPAI when it hit his custom feeding turkey operation in Aurelia, Iowa, on April 30. Faced with no income for six months, he was forced to let all his employees go. Even government disaster aid went to the company that owned the birds; as a contract grower, he received nothing. To survive, Winterhof worked on USDA cleanup crews while the virus wreaked havoc in the Midwest.
Thankfully, these operations now are able to begin repopulation. Ramsdell completed a trial run with a small flock that was tested to be sure they are virus-free after entering the facility. However, he says purchased pullets will arrive in three waves, and Dakota Layers won’t be back to its full 90,000 dozen eggs/day capacity until September of 2016. “When you need pullets, it isn’t simple to just go out and buy them,” he says. In addition, you want ages staggered. Ramsdell is moving ahead with his plans for a pullet barn to produce his own laying birds, helped by funding from FCSAmerica and the state of South Dakota. “This allows us to preserve our capital reserves to help us through the coming down cycle,” he said.
He pointed out that losses due to the virus resulted in historic profits for fortunate producers who escaped the scourge. “Not only did we miss the upswing in prices, but based on history, it’s likely the market will soon be flooded with excess supply,” he said.
USDA reports table egg production in third-quarter 2015 was 1.6 billion dozen, down 11 percent from a year earlier, pressuring wholesale prices upward to $2.36 per dozen, a gain of more than a dollar from a year ago. However, USDA says: “As egg producers whose operations were impacted by the HPAI outbreak are gradually able to acquire replacement hens and repopulate their operations, production is expected to increase. A combination of strong prices and somewhat lower feed costs is expected to provide a major incentive to producers to expand production, and table egg production is forecast to be above the previous year’s level in the second quarter of 2016.” Overall table egg production in 2016 is forecast to total 7.0 billion dozen, up 3 percent from 2015.
The normal seasonal increase in demand in fourth-quarter 2015 is forecast to keep prices at relatively high levels, between $1.96-$2.02 per dozen. Wholesale egg prices are forecast to be stronger in the first half of 2016 but to drop below year-earlier levels in the second half. For the year, prices are expected to average $1.61 to $1.74 per dozen, down 11 percent from the forecast average for 2015.
Producers aren’t the only ones who suffered due to HPAI. Using Dakota Layers as an example, about 60 employees lost wages and a large portion of the 1 million bushels of corn and 10,000 tons of soybean meal normally purchased by the operation in a year from local sources wasn’t needed. Pullet purchases also dried up overnight. Transport demand shrank, and the lost income trickled further to local shops and restaurants.
Nationally, between December 19, 2014 and July 17, 2015, some 219 detections were reported and almost 50 million birds died: 101 detections were in Minnesota and 75 in Iowa, the top two states by far.
From a bird loss and economic standpoint, Iowa was hit the hardest. A study commissioned by the Iowa Farm Bureau Federation estimates that more than 30 million laying hens and 1.5 million turkeys were lost in the state resulting in an economic hit of about $1.2 billion. Lost wages totaled $427 million due to 8,444 jobs lost; taxes were reduced by about $145 million in the state.
In Minnesota, the top state for number of confirmed cases, 40 percent of the pre-outbreak inventory - more than 9 million birds - were lost and direct poultry and related business losses were almost $310 million, when both lost birds and future lost production were included. Brigid Tuck, a Minnesota Extension analyst, calculated 2,500 jobs were affected in some way and lost wages, salaries and benefits totaled almost $172 million. In terms of jobs affected, wholesale trade and transportation impacts actually exceeded those of producers.
Importance of Biosecurity
The main government and industry response to the disaster was to ramp up biosecurity measures. The Dakota Layer operation includes both production houses and a processing business, which used to handle eggs from outside purveyors. They will no longer take the risk of eggs entering their premises.
FCSAmerica/ABF’s Coit is well-versed in the recommended practices and has helped finance many adjustments. ABF works with 10 of the largest egg producers and seven of the largest turkey producers in the country, accounting for 23 percent of egg layers nationally. “Outside of buildings, which have to be emptied, cleaned, disinfected and tested, potential trouble zones range from employee interaction and movement to trucks entering and leaving with feed and other supplies, manure and product,” he notes. “Even dust from gravel can carry the virus.” And while you can control humans, it’s harder to keep out contamination from migrating birds, rodents, etc.
“I can’t yet begin to guess our increased cost of production due to stepping up security measures,” Ramsdell says. While employees have always showered in and out of the buildings, security is far more rigorous now. They disinfect the outside of all buildings daily in case a bird flying over drops a feather carrying the virus. They’ve had to install a guard at the gate to the business to triage arriving vehicles. “We have three zones requiring different levels of disinfecting,” he explains. Eventually they are likely to put in more blacktop.
Winterhof’s biosecurity measures have intensified as well. “We’re using the so-called Danish entry system, with double-sided curtained entrances, keeping outside clothes outside and inside clothes inside. We’ve switched from plastic boots to rubber and make sure they are changed between buildings. It’s hard to get super confident about it, though.”
USDA is closely monitoring migrating waterfowl in the northern reaches of the flyways. So far no HPAI has been found. Because birds’ southerly migration moves more rapidly than northerly, most in the industry are mainly concerned about a possible recurrence in the spring.
While producers would like to have vaccines as an option, USDA is not in a hurry to allow their use, mainly because they would interfere with exports, which already are running below last year’s levels. Should USDA decide to employ vaccines in certain cases, only USDA and state veterinarians would have the authority to authorize use and monitor their administration.
Useful Avian Influenza Links
Click here for more information on biosecurity, including additional links.
Click here for USDA/APHIS response resources.
Farm Credit Services of America is a financial services cooperative that supports rural communities and agriculture today and tomorrow via credit and crop insurance services for farmers, ranchers, agribusiness and rural residents.