The economic situation in 2009 affected all producers, but some suffered more than others. Negative cash flows were experienced during most of the year and a severe constriction of ag credit limited a dairy’s ability to obtain extra cash.
“It looks like credit will remain tight for the next couple of years,” says Paul Dietmann, director of the Bureau of Farm and Rural Services at the Wisconsin Department of Agriculture, Trade and Consumer Protection.
Due to the lack of credit from lenders, suppliers and service providers, credit cards are now carrying a lot of farm debt. Dietmann has worked with producers who are carrying credit card debt well in excess of $100,000 and accruing interest at rates as high as 29 percent.
He suggests now would be a good time to turn to the Farm Service Agency, as it has been granted more credit to be available to farmers.
One indicator of the financial stress is the volume of calls to the Wisconsin Farm Center’s farmers’ assistance hotline last year. The number of calls began to increase in early 2008 as production expenses rose and took a large jump in early 2009 after milk prices crashed. Some callers were on the verge of bankruptcy or foreclosure. Some had no food and no money to buy it. Some could no longer afford to pay their health insurance premiums. An increasing number of callers faced utility disconnection due to unpaid bills.
This level of stress is taking a toll on families, Dietmann says. The farm center has fielded calls from producers contemplating suicide and from family members concerned about domestic abuse. It had a 140 percent increase in the issuance of mental health vouchers. Prior to 2009 the vouchers given were split equally between men and women, but last year Dietmann says more men were asking for help, and he took it as a hopeful sign that people were calling when they needed help.
He predicts the demand for help with mediation will likely increase in 2010. Lenders won’t want to go through foreclosure and would rather work through mediation with farmers needing to exit the business.
Despite the increased traffic to the hotline and the substantial difficulties faced by many producers in 2009, a relatively small number of the Wisconsin’s milk producers are in imminent danger of going out of business. According to Dietmann, those that were most vulnerable heading into 2009 were those that started farming in 2007 or 2008, made major capital investments in the two prior years, had more than $7,000 of debt per cow at the end of 2008, suffered severe flood or drought damage or lost an off-farm job within the household. Producers who had to purchase significant amounts of feed in 2008 were generally left in a precarious financial position at the beginning of 2009.
On the other end of the spectrum, some producers employed a more fiscally conservative approach and entered 2009 with significant prepaid expenses and strong cash reserves.
Going forward, potential risks remain, Dietmann says. More volatility in the market may cause more people to leave the business. People who may have considered closing the farm are holding on now to build back lost equity, don’t see any non-farm employment opportunities or just aren’t ready to retire yet. Added volatility may leave them with no other option.
Land values haven’t been tested yet. If there are forced farm sales, those values may drop and have an effect on a farm’s already diminished equity.
The failure of a major ag lender or farm supplier/service provider may also have a big impact at the farm level.
The slow stabilization of ag credit will certainly hamper a farm’s ability to bounce back from 2009.
On the flip side there are a lot of hopeful signs, Dietmann says. There has been some price recovery and some drop in cost of production. Changes have been made in on-farm financial management. There’s an emphasis on building working capital in terms of cash, an extreme caution in borrowing and further scrutiny of feed and labor costs. There was also a large investment in infrastructure, particularly in Wisconsin, prior to 2009 on farms and at the processor level that has added strength to the state’s inventory.
Last year will have a resounding impact on the dairy industry for years to come, but Dietmann cautions making drastic changes in mindset because of it.
“I worry most about people (including lenders) making all of their decisions based on one extremely bad year,” he says. PD
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