Guidance currently in place for loans to contract poultry operations meant to protect them from questionable business practices will now be expanded to include contract pork operations. In making the announcement, Ag Secretary Tom Vilsack explained that USDA currently provides guidance to county offices on the analysis and evaluation of applications for direct and guaranteed loans for contract poultry operations, and how those loans are serviced. The purpose is to avoid making loans that may exacerbate integrator business practices that have left some producers suddenly without contracts and unable to pay back their FSA loans.
Recent increases in energy and feed costs coupled with reductions in demand have affected profit margins and returns in the industry. In response to these conditions, some companies who contract with producers to supply poultry and pork have closed processing plants, reduced placements, and declined renew contracts. This has left some producers holding sizeable loans on their facilities.
In addition to the contracting guidance expansion to pork production, USDA's Farm Service Agency will issue an Advanced Notice of Proposed Rulemaking to solicit input from the pork and poultry community regarding the prevalence of type of contracting situation. FSA will be soliciting proposals for the best way for USDA to address these contract situations in the long term.