Despite the talk of $10 milk for the past four or five months, the dairy industry is still in the early stages of this financial crisis, a panel of lenders reminded producers attending the Professional Dairy Producers of Wisconsin annual business conference here in Madison Tuesday.
"We're pretty early into this thing,” says Greg Steele, VP of Agricultural Capital, AgStar Financial Services.
So the key thing is to continue to communicate with your lender, your vendors and even your milk processor, he says.
Steele has some clients now talking with him weekly, describing cash flow and any other changing financials. Vendors also need to know if you're going to be late on payments or if you have special needs, particularly heading into the planting season. And some milk processors are offering special payment schedules, extending credit by paying more for milk now and then recouping those higher payments when dairy commodity prices rebound later this year.
"How you managed your dairy business over the past three years will determine how get through the next six months,” says Doug Hein, senior ag lending officer with the State Bank of Newburg, Wis.
"Right now, we're looking at what kinds of losses producers are incurring through this period of low milk prices. We may be setting up operating lines of credit to absorb those losses now, and then looking at what period of time will be required to pay those lines back. In some case, borrowers may need to pay those notes back over three years by restructuring their debt.”
"Your track record as a borrower and as a manager will determine what we can do,” adds Brad Guse, VP and ag banking officer with M&I Marshall and Haley Bank. "But you'll also have to have skin in the game. How can you cut 10% out of operating expenses?”
If you're current on loans and paid down debt when milk prices were high in 2007 and 2008, lenders will be more willing to go the extra mile for you now. They may be willing to go interest-only on some notes or restructure debt.
Although all three lenders say capital is available, the cost of that money will go up. Even though the prime rate is low, capital markets are requiring a premium because of the added risk in both money markets and economy in general.