Dawson Buying Station Network

April 1999
Interview with: Carmen Fernholz
Goal: Pool small-scale hog deliveries to fill large-scale processing demand
Date Established: June 1998
Area Served: Central Minnesota
Number of Members: 20
Key Challenges: Loss of marketing flexibility
Helpful Resources: National Farmers Organization

Carmen Fernholz is an enterprising leader in the Dawson, Minnesota farm community. When his local buying station closed down in May 1998, Fernholz quickly began making calls to investigate alternative delivery and marketing options. Only six months after the Dawson buying station shut its doors, Fernholz was coordinating a weekly buying and marketing network of 20 hog producers in cooperation with the National Farmers Organization (NFO).

Why market collaboratively - identifying a need and an opportunity

Hog packers and processors typically negotiate contracts and purchase hogs in semi-loads or larger. A buying station, like the one that operated in Dawson for years by Swift Company processors, accepts delivery of hogs from small-scale producers and arranges for pooled shipments to packing houses.

Without the Dawson buying station, many smaller-scale hog farms in West Central Minnesota were at risk of losing their markets. Most other buying stations are located too far away for economical delivery. Likewise, as individuals, many producers in the area don’t raise enough hogs to supply the regular semi-load volumes (200 head) demanded by packers. Fernholz realized the need for quick action to preserve the local Dawson market for small-scale hog producers like himself.

Exploration of an idea

Almost as soon as the buying station closed, Fernholz contacted NFO. "I was very honest with myself about what role I wanted to play," Fernholz says, recalling his decision to involve NFO. "I knew that I didn’t want to be responsible for all of the paperwork, transportation, weights, and grades." As a solution, he turned to NFO, which has a history of assisting pooled marketing networks.

Together, Fernholz and NFO representatives, John Rasmussen and Karen Mikelson, explored the feasibility of reopening the buying station. "When Fernholz called to talk about reopening the buying station, we contacted Swift and other packers to see if a market existed for weekly semi-load deliveries of hogs," Rasmussen recalls. "Swift said they would be interested in purchasing the Dawson group hogs, so the next thing we did was to call the buying station owner and negotiate a rental agreement." After some number crunching and an agreement from Fernholz to act as liason between NFO and local hog producers, the Dawson buying station reopened in November 1998 to pool hogs once each week for sale to local processors.

Operations

Fernholz organizes deliveries to the buying station between 8 to10 a.m. one day, each week. He assists with weights and writes up invoices stating the number of hogs available that week through the network (usually 90 to 110 hogs or half of a semi-load). "By the time I fax invoices over to NFO, I am done by 11 a.m. that same day," Fernholz says. "We have the process pretty well streamlined."

After receiving an invoice from Fernholz, NFO then contacts several local packers, including Swift, to negotiate delivery based on hog quality and prices. Producers also have the option of forward contracting hogs through NFO, who negotiates and assumes delivery responsibility directly with the packer. Once prices and delivery are arranged, an NFO-contracted driver loads the Dawson hogs into a semi-truck at the buying station and then moves on to other buying stations in nearby cities, if necessary, where more hogs are collected in small groups to fill out a semi-truck. Shortly after delivery to the packer, NFO receives final carcass grades, which are passed on to Fernholz along with payments for each of the hog producers in his network.

A regular marketing fee, equivalent to $0.50-$0.60 per hundredweight, is charged by NFO to cover the costs of building rental and other expenses related to weighing and Fernholz’s staff time. Fernholz continues "running the hogs" and coordinating deliveries at the station. Marketing fees are deducted from each producers’ final check, which is issued by NFO within one week of delivery at the buying station.

Challenges and opportunities

For the most part, the buying station’s closure has meant relatively few changes for Dawson hog producers thanks to Fernholz’s initiative and NFO services. Producers are still able to deliver hogs in small loads for nearly the same service fees. The changes that have occurred relate to marketing flexibility. Producers can no longer sell their hogs on a live weight basis at the station. All sales made through the network are priced on a carcass merit or grade-and-yield basis. Moreover, producers must arrange delivery at least one week in advance so that NFO can reserve transportation and shackle space. Previously, when selling to the buying station, producers could deliver hogs with little advance notice, which gave them the option of selling on a daily basis according to market prices. In order to balance this loss of marketing flexibility, Fernholz and other network producers have created a new culling service to assist producers with the sale of low-quality sows, boars, and hogs to specialty markets. "The culling service has been very successful," Fernholz says. "It’s something that the old buying station didn’t offer."

Membership benefits, responsibilities, and recruitment

Collaborative marketing at the Dawson buying station gives local producers an opportunity to market their hogs on a smaller scale, at more negotiable prices, and without the expense of long-distance transportation costs. In addition, Dawson hog producers who market through the buying station have access to other NFO services, including forward contracting and a regular newsletter containing market price information.

Because the buying station is not a formal organization, it does not have an official membership. However, all producers who regularly market through the buying station are asked to join NFO and make verbal commitments to market a portion of their hogs through the organization, although no contract is signed. "We let new producers try out our services several times before asking them to become a member," explains Rasmussen. NFO membership costs $75 annually.

Twenty hog producers, who originally sold through the buying station before its May closure, are now marketing collectively on a regular basis as a result of Fernholz’s initiative. "Membership" recruitment is on-going. "The more producers who market through NFO at the buying station, the better chance we have to negotiate higher prices," explains Mikelson. Fernholz now produces a one-page newsletter every month describing the Dawson buying station activities. The newsletter is distributed by NFO to more than 100 local hog producers, most of whom are not currently marketing through the station.

The success of the Dawson buying network is due equally to the combination of NFO’s financial and technical assistance as well as Fernholz’s hard work and overall vision. "My long-term goal is to attract more producers so that we can increase our weekly load size and develop more bargaining power with the packers," Fernholz says. "In the meantime, we have a place for small producers to market their hogs."

December 1999 update

Over the last year, the group working with the Dawson buying station has focused on making forward contracting a viable marketing option for their members. They have done this by organizing members to deliver together on a single forward contract so that they can meet the volumes required by the contracts - volumes none of them could meet individually. The group is negotiating the contracts through NFO and Fernholz has continued to work with the producers to coordinate the delivery of the hogs. More and more this is being done through e-mail, which helps to save time. As Fernholz explains, "The use of forward contracts is helping to provide a safety net for the producers involved because they know they will be able to sell a certain number of their hogs at a guaranteed price." Also, this approach helps overcome unforseen inabilities by an individual producer to deliver on a contract because the other producers in the group can cover the production shortfall and still meet the terms of the contract. "All of this means reduced risk for us, the producers."

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