In It Together

Members who overcame the poultry industry’s 2008 economic downturn and how Farm Credit proved members’ needs are a priority.

Any business can claim to put customers first. As a lender, Farm Credit of Western Arkansas (FCWA) had the opportunity to prove it in 2008 when the western Arkansas poultry industry faced a significant economic downturn.

Downturn may be too casual a term, especially to the more than 90 FCWA customers whose farms and livelihoods were financially impacted in varying degrees.

A perfect storm of circumstances triggered the 2008 industry slump. Supply and demand flipped, the cost of corn jumped from $3 – $8 per bushel for a variety of reasons (including the increasing popularity of ethanol fuel), and less demand for poultry overseas.

FCWA management recognized the impending impact and strategized as to how members might be affected. Current CEO Brandon Haberer was Chief Credit Officer at the time. He met with AgriBank (FCWA’s funding bank) senior managers who had experienced the 1980’s credit crisis.

Brandon and fellow senior managers formed a plan of how to help affected customers and mitigate the association’s losses. FCWA’s board of directors firmly supported management’s plan and allowed them to manage the business risk associated with the poultry complex closures.

According to Brandon, Farm Credit felt fortunate that poultry growers were coming off a strong year and that loans are stress-tested for financial strain up front, and structured accordingly. Fortunately, most poultry growers also had money in Funds Held that could be called on to make payments. Senior management prepared employees for possible customer impacts, as well.

IMPACT ON THE FARM

Economic ripples ran through the entire poultry industry. Western Arkansas integrators across more than 30 complexes felt the impact on some scale. In turn, poultry growers across western Arkansas experienced everything from extended time between batches (decreasing annual income) to loss of contracts, entirely.

HEATH AND JUDY AGERTON

Heath and Judy Agerton of Strong, AR in Union County were both working full-time on the farm in 2008. They had ten years of poultry-growing experience and a four-house broiler operation when they received word they’d be out of a contract upon completion of their current batch of birds. They had seven days to reinvent their livelihood and make a plan for keeping their farm.

“I’ll be honest,” Heath said, “that first meeting with Farm Credit was tense.”

“We weren’t in our right minds,” Judy adds. “It almost felt like the kind of grief you would feel if you had lost a family member. We didn’t know what to do.”

“I immediately started looking for a job and took the first one I could find which was a truck driving job,” Heath explained. “Income of any sort was our priority. We had two kids in college.”

“We went to Farm Credit with our entire savings and paid everything we could on our loan. I said, ‘this is all we can do’. If we couldn’t work something out, our only choice would have been bankruptcy.

It took a series of meetings between Farm Credit and the Agertons to negotiate a final plan. The Agerton’s loan officer is Shaun McKamie in Magnolia. While Shaun wasn’t their loan officer in 2008, he worked with customers similarly affected in the Texarkana area at the time.

“The $100,000 from the national aid package helped. Farm Credit proposed putting our loan on hold and that gave us time to sort things out,” Heath explained.

The Agerton’s waited four years for a new poultry contract. Farm Credit financed the conversions they had to make to their existing poultry houses to switch from a broiler operation to growing pullets.

“The last thing we wanted to do was go into bankruptcy. The 20 acres the poultry houses sit on are family land, so we had to make it work,” Heath shared.

“If Farm Credit hadn’t given us time, we would have had to declare bankruptcy and that would have been much harder to recover from,” he added.

“Our friends were in the same position as us, but they’d financed with a bank,” Judy explained. “Unfortunately, they had no option but to sell their home and farm.”

FARM CREDIT’S APPROACH

The assistance Heath referenced was the Poultry Grower’s Assistance Program (PGAP), an emergency USDA grant that then Senator Blanche Lincoln lobbied for on behalf of growers. PGAP provided up to $100,000 to each grower impacted. FCWA was willing to work with members and, in essence, put their loan on hold for up to five years because they were confident the poultry industry would correct in a few years. Farm Credit said the key was members’ willingness to meet them halfway.

The majority of FCWA's affected customers regained contracts within two years.

“I hadn’t been with Farm Credit for long at this point and I was amazed at how differently Farm Credit approached business,” newly appointed CEO Brandon Haberer explained.

“Coming from a commercial bank, my experience was very black and white,” Brandon continued. “My mentors here had decades of Farm Credit experience and, I quickly realized, had a much different approach to the situation than I anticipated. I saw the value of Farm Credit’s cooperative principles at work.”

“We worked to understand each member’s unique situation,” Brandon said. “We allowed them time, we presented viable alternatives and options, and we even worked to locate and secure poultry contracts with other integrators on behalf of our members.”

Phillip, Beth and Tony DeSalvo with Farm Credit loan officer Hank DeSalvo

Lindsey Holtzclaw | Farm Credit of Western Arkansas

PHILLIP AND BETH DESALVO

The DeSalvos built three chicken houses in 2003 so Phillip could farm full-time. They live on the same Center Ridge farm as Phillip’s father Tony DeSalvo and farm with Tony. Tony had two existing chicken houses.

“We were notified on August 11 that we’d be out of a contract on August 18,” Phillip remembered. “We had some cattle and planned to grow the cattle side of our business but, honestly, we were a few years away from being ready to do that,” he continued.

“It wasn’t the best timing, but at least in the cattle business you eat steak when there’s no money for groceries,” Beth joked.

The family had already experienced a trying year with two tornadoes damaging their property in May.

"We had to ask ourselves what we were going to do," Phillip said.

"I like to think we're pretty optimistic people, but we'll admit there's about two years of time that's pretty fuzzy for us. I'm not really sure how we did it," Beth added.

“It did force Phillip to look at our business in a different way, and that was good. Raising cattle was no longer a hobby, it became our business. It was our only income and we were going to have to make it work with some very expensive barns,” she chuckled.

“Cow castles,” Tony corrected with a grin, referring to the five poultry houses.

The DeSalvos' cattle in their "cow castle"

Lindsey Holtzclaw | Farm Credit of Western Arkansas

The DeSalvos transformed their five chicken houses into barns they use for calving, weaning, an annual registered bull sale, and hay storage. A former litter shed now holds feed.

They raise registered Brangus and Ultra Black cattle along with commercial beef. Beth also sells custom beef at a local farmer’s market. They’ve found their niche in the cattle business with registered bulls and hold a fall bull sale on site that draws buyers from surrounding states. Phillip holds a leadership position with the Arkansas Cattlemen’s Association and is a passionate cattle industry advocate. The DeSalvos were named Farm Family of the Year in 2012.

Phillip said they presented loan officer David Duffle (now retired) in the Morrilton office with their cattle plan when they met to discuss the loss of their poultry contract. (Jim Taylor of Russellville now serves as their loan officer to avoid a conflict of interest with Morrilton loan officer Hank DeSalvo, Tony’s nephew and Phillip’s cousin.)

Travis and Valerie Sims

Lindsey Holtzclaw | Farm Credit of Western Arkansas

TRAVIS AND VALERIE SIMS

While western Arkansas poultry growers first began feeling the impact in mid-to-late 2008, Travis and Valerie Sims of Center Ridge weren't affected until 2010.

The couple worked full-time on the farm with a four-house poultry and commercial cross-breed beef operation when they received news they were losing their poultry contract.

“It was mind-blowing,” Travis said. “It put us in a real bind.”

Travis said he immediately found an off-farm job excavating for a gas company to make ends meet.

“We went 20 months with no birds and when a new integrator picked us up we had to do significant, and expensive, upgrades to the houses,” he explained.

The Sims had a long-time working relationship with Hank DeSalvo in the Morrilton office. “It wasn’t an easy conversation to have with Farm Credit,” Travis remembered. “We were overwhelmed. Having worked with Hank for a while helped. We trusted him. It didn’t take long to see that Hank and Farm Credit were going to work with us as we got back on our feet.”

To the Sims, that meant growing their cattle operation. Today they have 200 head of momma cows in addition to their poultry houses.

CHANGING BUSINESS MODELS

According to the Sims, they now maintain more savings and have become more conservative business people as a result of their experience. They include both cattle and poultry in their long-term farming plan because they say they realize anything can happen.

Like the Sims, the Agertons now believe in the importance of diversifying their farm and business. They are enlarging their cattle operation, getting into the logging business, own two small businesses, and Judy continues to maintain an off-farm job.

“We’re better protected today and have options now that we didn’t have then,” Heath explained. “We look at business differently after this experience.”

Like the Sims and Agertons, the DeSalvos agree they gained perspective from 2008 challenges and are happy with their decision to focus solely on cattle.

TRUST WAS THE KEY

The common thread woven through these three stories is trust. Farm Credit trusting members. Members trusting Farm Credit. All three families remain Farm Credit members.

“Farm Credit stood with us,” Phillip said. “They kept us on track and worked with us as we transitioned to cattle.”

“It’s a big deal to be able to trust the people you’re doing business with and it goes both ways,” Heath shared. “Shaun and Farm Credit can trust us, too. They know us and know we’re committed to holding up our end of the agreement.”

Travis said trust played a key role from the minute he received the news their poultry contract was being cancelled.

“In that moment, I was glad I had a solid relationship with Hank,” Travis said. “I knew I could trust Hank and Farm Credit to be fair and work with us.”

WINS FOR FARM CREDIT

Not only did the unfortunate situation provide an opportunity for Farm Credit to build additional trust with customers, but it also demonstrated the confidence members had in their cooperative.

Farm Credit learned their prudent industry knowledge serves members well. While new poultry houses have a 25-year lifespan, Farm Credit structures loans with a 15-year repayment period – allowing room for adversity and loan restructuring, if needed.

NATIONAL BENEFITS

FCWA lobbied their lending bank and regulator on behalf of growers to more accurately reflect poultry industry needs in regard to regulation. The regulatory changes that FCWA influenced now benefit poultry producers across the country.

“By influencing system-wide poultry policy in a positive way, we were able to strengthen the power of cooperation,” explained Brandon Haberer, CEO.

“Cooperation and serving member needs is Farm Credit’s core mission as a financial cooperative. I’m proud that in this adversity we were able to demonstrate that member needs are truly our priority,” Brandon concluded.

Travis and Valerie Sims speaking to Hank DeSalvo with Farm Credit

Lindsey Holtzclaw | Farm Credit of Western Arkansas