Hormel Foods, the powerhouse Minnesota brand that's practically synonymous with meatpacking, said Thursday it is selling its large processing plant in Fremont, Neb., exiting the hog-slaughtering business it started in more than a century ago.
The Austin-based company will continue a close supply partnership with the plant's new owners, WholeStone Farms LLC, a recently created firm that itself represents a new turn in agriculture.
WholeStone Farms is a consortium of 220 hog farmers and producers from southwest Minnesota, South Dakota and beyond. WholeStone said it initiated the deal in hopes that the farmers can capture a greater percentage of the value for the hogs they raise.
Neither Hormel nor WholeStone disclosed the sale price for the Fremont plant, with Hormel citing a required "quiet period" ahead of the release of a quarterly financial report next week. The property is valued at more than $14.2 million, according to Dodge County, Neb., records.
While Hormel has about a dozen plants around the country to make various meat and grocery foods, it relies on two facilities for slaughtering hogs — the one in Fremont and another in Austin.
The Austin plant is run by Quality Pork Processors Inc. (QPP), a Dallas-based company that bought the facility from Hormel in the late 1980s. QPP sells exclusively to Hormel.
Under the deal announced Thursday, WholeStone will sell its Fremont-produced pork exclusively to Hormel for at least three years with an option to extend. Hormel has owned the Fremont facility since the 1940s. It employs roughly 1,500 people and produces the company's meat products like Spam, bacon, pepperoni, pork sausages and lunch meat.
The transaction is also a dramatic step for WholeStone's members who say they are fighting for the survival of their family farms and rural livelihoods.
"In today's market conditions, producers receive 65 percent of the meat value for our hogs," said Luke Minion, chairman of the board of directors and interim chief executive of WholeStone Farms. "We live in rural communities and we aren't able to capture the value of our hogs. That is putting our producers' survival at risk."
Hormel executives plan to explain the deal in greater detail on an earnings call next Thursday. The deal is expected to close by December.
"The strategic decision to transition the Fremont facility to WholeStone Farms reflects the long-term, changing dynamics in the pork industry and, most importantly, is aligned with our vision as a global branded food company," Hormel chief executive Jim Snee said in a statement.
It's part of Hormel's long-term move into the consumer foods sector, which often has better margins, said Michael Boland, professor of agricultural economics at the University of Minnesota.
"If you think about meat slaughter, it's not a high-margin business," Boland said. "It's labor intensive, you've got immigration issues, you have to be close to the product."
Hormel will take the capital from that plant and spend it on innovation or new brands, Boland said, including non-meat products. The company has made a number of acquisitions in recent years, including Skippy peanut butter, Wholly Guacamole, Muscle Milk and Justin's Nut Butters.
Fremont's existing management team and workforce are being offered jobs with the new company. Minion said he expects wages and compensation packages to be similar.
WholeStone is an offshoot of the Pipestone System, a farm management system based out of a livestock veterinarian office in Pipestone, Minn. The Pipestone System sells shares to small hog producers in the Midwest — from Illinois to the Dakotas — and consolidates various functions of the hog farming process in order to help family farmers benefit from economies of scale.
The Pipestone System has grown to become a formidable pork producer, raising 12 million pigs per year and farming nearly 400,000 acres of crops used to supply the operation with feed.
Buying the Fremont plant gives its members access to a plant to slaughter their own hogs.
"And now we also can sell the meat, which is pretty important," Minion said. "From our side, the farmer-producer out here, we think we've got something unique."
WholeStone is incorporated in South Dakota, according to federal filings. Minion said they plan to establish a corporate headquarters in Fremont and locate executive functions there.
Hormel stock on Thursday rose more than 1 percent to $38 a share, its highest level in nearly two years.
Analysts who follow the company saw the deal as a good strategic move, but they said Hormel's profits will take a hit without the plant's revenue. Robert Moskow, an analyst with Credit Suisse, lowered his estimate for Hormel's fiscal 2019 per-share profit to $1.82 from $1.95.
"This marks another important step in Hormel's efforts to decommoditize its portfolio by getting itself out of the fresh pork business," Moskow wrote in a note to investors. "It also reduces our concern about Hormel's exposure to declining pork-packing margins as new capacity from competitors comes online."