“Lenders are not yet running away from dairy,” Hosterman says. “They are still supporting the industry and supporting the clients they work with, protecting what they have.”

“There’s not a lot of room for changing lenders,” although producers with strong financial plans might still see some opportunity there, he says.

Hosterman says he can’t emphasis enough that lenders need a solid business plan from dairy farmers. That includes knowledge of cash flow and cost of production, and demonstrating herd and business management abilities.

In today’s environment, “Do you have a cash flow budget?” is the lender’s primary concern, he says.

They are requiring strong financial plans with quarterly budgets and accurate cost of production figures in these times of tight margins. Lenders are “really trying to assess if producers can handle cows, can handle crops. No lender asks for a mission statement.”

Budget planning

A good producer, with a reasonable cost of production, will find that lenders are still willing to do business. Producers who can get their cost of production down below $18 per hundredweight will be “positioned well for the future,” Hosterman says.

A budget analysis for 2019, including a projection looking ahead for the next three to five years, is a necessity. Know what you need to buy. Quantify your needs for capital. This includes your cost of living too, which is often overlooked. These numbers will help producers outline how they are going to get to their goals over time.

Mark Mapstone, a certified agricultural consultant with Farm Credit East, agrees that lenders will be focusing on solid business planning and record keeping.

“Putting the effort into timely, accurate records and the willingness to track and provide information makes it easier for a lender to work with a farm during challenging financial times,” Mapstone says. “It’s a win-win for the lender and the producer. The first step a producer needing a loan can do is to provide accurate and timely financial and balance sheet information to their lenders as needed.”

Planning is fluid and ongoing, and is not something to do once and file away. Timely monthly or quarterly reports, along with forage, feed and cattle inventories and updates, plus a realistic operating plan are all important aspects of financial planning.

“An operating plan should build upon strengths that the farm has, along with addressing weaknesses and opportunities,” Mapstone advises. “The goal of the plan is to work towards improving cash flow and lower breakeven milk prices.”

Finding assistance

Dairy farmers will continue to face challenges in 2019 and, in the short term, will still be struggling to recover from the financial impacts of 2018, Hosterman warns. Approaching a lender to restructure debt is a viable option and can have a large impact on cash flow.

“Vision for the future is important during tough times,” Mapstone says. “You may not be in a strong financial position now, but what are the things you’re planning to help get you there? Lenders like to see where you could be in the future and what changes are needed in order to get on board with the plan.”

Producers don’t have to go it alone. Assistance is available, and Mapstone and Hosterman agree that seeking help is a sign of strength, not weakness. Taking advantage of any available programs is a good step toward sound financial planning, and a positive one in lenders’ eyes.

“Lenders have some flexibility with how they can structure loans,” Mapstone says. Lenders are currently showing willingness to lengthen loans to decrease payment amounts. “You need to be proactive now,” and approach your lender with solid budget and business plans in place.

Farm Credit East’s Dairy Benchmarks Program analyzes each participant’s operation in terms of production, labor, milk, cow management, capital and financing, and then allows each producer to compare their own performance against data compiled from comparable Northeast dairy farms. This in-depth assessment provides farmers with insight into their own situation, and allows them to see how their financial health compares to similar operations.

Profit Teams is another tool to help position a dairy for long-term success. Loan officers serve as a part of these teams, as do dairy business consultants, nutritionists and crop advisers. The Center for Dairy Excellence offers assistance to Profit Teams in Pennsylvania, and the New York Farm Viability Institute (NYFVI) does so for producers there.

The new Dairy Revenue Protection (DRP) program is a “tool that dairies of any size can participate in for risk management,” Hosterman says. Knowing your cash flow budget allows informed decision-making regarding the best way to protect your revenue through risk management programs.

Cost of denial

A first step to protecting your farm is to assess your operation’s financial health now, and to take steps to move the operation onto solid ground in the future. Producers who aren’t willing to put the effort into accurate financial records are going to find it difficult, if not impossible, to find a lender, Mapstone says. Those who are in denial about their operation’s weaknesses, and are unwilling to change management strategies to lower costs, enhance profitability and plan for the future while meeting today’s challenges, are not good risks for lenders.

“Producers who aren’t willing to focus on continued operational improvement; producers who have the attitude that things are good enough; producers who tend to blame everything on low milk price ... instead of looking at what they, as leaders of their farm, can do to effect change in their numbers – these type of producers tend to look at their lenders to bail them out instead of working to make things better for themselves,” Mapstone advises.

Instead, a focus on financial management “needs to become part of their culture,” Hosterman says of dairy farmers in general. “Producers need to know their cost of production, do more planning than historically they’ve ever done, including three-to-five year projections. Lenders want this.” 

AgChoice Farm Credit has 10 branch offices covering central, western and northern Pennsylvania, as well as four counties in West Virginia. Farm Credit East has 20 branch offices covering Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, New York and New Jersey.

Tamara Scully, a freelance writer based in northwestern New Jersey, specializes in agricultural and food system topics.