Will the Dairy Price Incease Save the Farmers in Time
The National Agricultural Bankers Conference is meeting in San Antonio, Texas this week. Marcia Zarley from DTN/The Progressive Farmer has a good overview of what the bankers are talking about.
Farmers who are in the dairy and pork industry are really feeling the pinch of low milk and pork prices right now. Many of the farmers are liquidating their assets now since filing chapter 11 or 12 bankruptcies does not make sense. Under a chapter 11 or 12 bankruptcy, you mut be able to show income to pay off lower levels of debt. With the current pricing of milk, they can not show any income left over for debt service. It makes more sense to liquidate and retain what equity they do have.
Most of the dairy industry experts seem to predict that milk prices in 2010 will average closer to $15 to $16 which is up substantially from the $9-$11 range per hundredweight that they have gotten for most of 2009.
“This downturn has damaged the dairy industry so badly that there will be a certain number of dairymen who will never recover, no matter how good prices are going forward” said Curt Covington, senior vice president and agricultural division credit administrator for Bank of the West in Fresno, CA. The average California dairy lost about $6 per hundredweight through the first half of 2009. Contrary to past experience, it is the dairy with about 1,000 cows, older facilities and low debt that have weathered the crisis better than the mega-sized operations.
Eastern Pennsylvania with their large concentration of Amish and Mennonite dairy farmers have been extremely hard hit. I have visited this area with my sons on East Coast trips and I can say this is some of the prettiest farm county in the whole USA. These farmers have been under assault by the collapse in global protein demand and high feed costs for the last 24 months. Many of the bankers are urging their farmers to liquidate the farm land while prices are still high. They can at least net cash, a home and some savings. However, for many of these farmers, this is their way of life and that may be extremely hard to do.
The key to survival is getting the dairy’s expenses down as low as possible. Bankers indicate if you can get those expenses under $15-$16 per hundredweight, you may be able to make to 2010 and beyond. However, if they can not get it under $17, it is better to liquidate now and save what they can.
There is some glimmer of hope in 2010 for the dairy industry, but the worry is can they get there from here.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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