Swine Facility Value Considerations, By Garry Streich from Compeer Financial

Being out in the field and interacting with a wide variety of market participants, it is common for appraisers to share market information with buyers, sellers, brokers, and other interested parties.  Depending on the appraisal assignment, property owners may have very specific questions pertaining to their property value which an appraiser has the obligation to answer.

With a depth of experience regarding swine facilities, it is fairly common for property owners to ask very specific questions in a casual conversation.  One example recently encountered was “What is the value per pig space for a 3,000 head hog finish facility that was built in 1998?”  Another was “What is the value per sow for a 2,400 head sow farrow facility that was built in 2002?”

As appraisers, we are tempted to provide a quick “off the cuff” answer to those questions to demonstrate our market knowledge or to be helpful.  However, doing that could provide an inaccurate number due to the lack of information on the property in question.  More importantly, according to appraisal licensing regulations, if an appraiser provides a verbal value opinion, they are required to have documentation in their file demonstrating how they arrived at their value opinion.

Appraisal regulations do not govern anyone who is not a licensed appraiser.  Therefore, someone who is not an appraiser can provide a value opinion without needing any analysis or documentation.  One adage comes to mind in this situation in that “you get what you pay for.”

What impacts value?

There are a number of variables in a swine facility that can affect its value.  One of the important aspects to consider is to determine the number of acres involved in the assignment.  Many swine properties consist of a building site on small acreage, however it is equally common to see a swine property that has cropland acreage in addition to the building site.  Along those lines, it is also important to consider the barns’ location relative to road access and the distance from existing houses or adjacent sites.

Another crucial element in properly evaluating the subject property’s hog facilities is to understand what, if any, updates the buildings have received since their original construction.  It is common to see some type of updating or remodel work completed on barns over 15 years old.  Some of the items that are often replaced or updated over time include:

  • roofs,
  • gating,
  • feeders,
  • flooring,
  • curtains,
  • ventilation systems,
  • feed systems,
  • insulation,
  • crates,
  • rafter gussets.

Gaging the condition of all of these items is also a highly important aspect in determining the overall economic life of the buildings and equipment. As a rule of thumb, barns that were built with higher quality at the time of construction tend to have longer longevity compared to those with lower quality and inexpensive construction.

The functional aspects of the building can have a significant impact on the property’s value.  Some hog finish facilities have small offices, no load chute, and no standby generator.  The industry over the years is steadily trending toward larger offices with shower & laundry, an attached enclosed load chute, and standby generator.

Similarly, the number of pig or sow spaces along with the overall building dimensions of the barns have an impact on the property’s value opinion.  There is some variance in how producers estimate hog facility capacity.  This calculation can be attributed to individual producer stocking rates and pig sizes, especially in nursery barns.  There also can be some variance in how appraisers estimate capacity.   Regardless of how pig capacity is calculated, it is imperative that an appraiser be consistent in their analysis for how they calculate capacity.

Barn Capacity

The initial step to determine maximum capacity is to document the feedlot permit/registration.  It is typical for facilities to operate under a larger permit capacity than needed, however other facilities may be slightly low on the permit capacity.

One standard and recognized method to determine hog finish barn capacity, is to measure the exterior of the building and calculate its total square footage (without office).  Next, divide that by a factor of 8.2.  As an example, one 41’ x 200’ has a total footprint of 8,200 square feet (SF).   Dividing this total square footage by the factor yields an indication of 1,000 head standard capacity.

Nursery barn capacity is commonly calculated using a factor or 3.5.  Using the dimensions in the previous example, that same building would now have a total capacity of 2,400 head.

There are other property items that can affect the value including:

  • production contracts,
  • land availability for manure application,
  • pen sizes,
  • type of feeders,
  • feed bin scales,
  • amount of storage or shop area,
  • GDU or isolation barn sizes/capacity,
  • air filtration systems.

Given the multitude of factors involved in a swine facility, it is best practice for an appraiser to obtain complete property information before providing a value opinion.  If you would like to learn more about Compeer’s full line of appraisal and valuation services, please reach out to one of our team members.