Farm lenders "kept the walking dead alive" in the dairy industry the past two years, but that reprieve will end for many stressed operations as loans are renewed this spring, predicted Dick Gilmore, a financial consultant with 30 years experience in farm lending. The Charlton, Mass., consultant now works with some of the nation's largest ag lenders to appraise property and manage troubled farm accounts, including dairies.
"Lenders hesitated to shut down stressed livestock operations in 2009 and 2010 because the assets were worth only pennies on the dollar and were too far under water," Gilmore told a recent meeting of the Association of Agricultural Production Executives (AAPEX) here. Breathing room benefited pork and cattle producers as their margins rebounded last year, but during that same period, many dairies just narrowed their losses. Many drained their equity when the price of cows slipped from $2,500 at the peak of dairy profits to a mere $1,000 today.
When industry-wide calamity struck, a lot of the collateral securing loans just went "poof," Gilmore added.
One 3,000-cow Idaho dairyman in the audience said he averaged costs of $15 per hundredweight (cwt) in 2010, but Tier III prices have remained above that level for only a few months since mid-2008. "We've dug a very big hole the last few years," he said.
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