The economic difficulties facing the U.S. dairy industry are well documented and have been reflected in efforts to provide relief in recent months. Congress approved $350 million in aid to dairy producers -- $290 million in direct payments and $60 million in the purchase of dairy products to help bolster the market.
USDA's Farm Service Agency (FSA) is now also taking extra steps to help dairy farmers who borrow from the agency for their operating capital and more.
According to a directive sent to state and county FSA offices, they note "many FSA direct and guaranteed dairy farm borrowers will find it difficult or impossible to survive this decline. FSA is committed to use all available authorities, consistent with prudent lending practices, to assist borrowers in surviving this period of short term unprofitability."
So what steps will FSA take?
Law currently allows repayment of annual operating loans to be scheduled beyond 18 months "under extenuating circumstances -- including recovery from economic reversal."
FSA says that if this option is used for operating loans, they:
- should be repaid in the shortest timeframe possible, and consistent with cash flow projections
- may be extended beyond 18 months, only when necessary for a feasible plan
- will not exceed seven years.
In determining whether to extend loans beyond 18 months, FSA stresses the loan must be secured by basic security. But FSA also cautions that going this route "can deplete borrower equity and reduce FSA's ability to provide additional loan assistance." For that reason, FSA cautions loan staff in the countryside to "have a candid discussion with borrowers about the implications of these payment structures for their operation.”
While many smaller producers have been able to get help via the Milk Income Loss Contract (MILC) program, FSA cautions that even thought MILC is authorized in law to run through 2012, "it is projected that milk prices combined with the 'feed cost adjuster' will not be low enough to trigger MILC payments in 2010."
FSA also says that proceeds from milk sales that are usually earmarked for farm loan program debt reduction can be released for "essential family living or farm operating expenses."
Also, for those borrowers in financial distress or who request debt restructuring, FSA said that can be done while the borrower is still current "if it would help retain their satisfactory credit rating." They further note that all restructuring options available for distressed borrowers will be considered, including the following:
- deferral for one to five years.
As for guaranteed loans, FSA said that law allows for lenders to schedule repayment of annual operating loans and lines of credit for up to seven years when recovering from an economic reversal and to schedule unequal installments on term loans if needed to recover from an economic reversal.
"These extreme measures are authorized to assist dairy producers with long-term viability in obtaining operating capital in these difficult times," FSA said, noting the policies are "temporary and should be used with care and caution." The requirement to use a "feasible plan" still applies and lenders are directed to "structure repayment over the shortest period of time practical, based on these cash flow budgets."
If your county office has any questions, ask them to refer to National Notice FLP-554 for more information.
Roger Bernard is Farm Journal Policy & Washington Editor.