Some scattered bankruptcies reported, but no 'great wave' of foreclosures on farms

By CAROL RYAN DUMAS
Capital Press

Most dairymen have been hemorrhaging equity and accumulating debt over the last year as milk prices fell to unprofitable levels.

It will be a long and steep climb out of the financial hole and industry representatives say the next several months hold specific threats to dairymen's viability.

In California, dairymen have their eye on the Legislature and any new environmental regulations or fees that could arise, said Michael Marsh, executive director of Western United Dairymen.

"The regulatory atmosphere is not favorable for dairies," he said. "It's an extraordinary burden. It's just a hard place to do business."

A $25 billion state government budget deficit has dairymen on edge. They suspect some legislators will try to fill that gap with new fees on farmers, Marsh said.

Lenders are watching the issue closely as well and will make financial determinations based on any new regulatory costs to dairymen, he said.

"Financing continues to be an issue and will continue to be an issue for dairies," he said.

In the short term, bankers want to see how much recovery will take place and how long it will last, Marsh said. Dairymen's debt-to-equity ratio will have to be acceptable to bankers.

As milk prices have increased, cattle prices have increased, which should help dairymen's collateral, he said.

"But we've got such a big hole, it's going to take a long time to fill it back in," he said.

Western United Dairymen expects the 1,750 dairies California in 2009 will be down by 10 percent when all is said and done. That would be about 175 dairies out of business.

"Horrendous, that's the one-word description," Marsh said of the state's dairy plight.

So far, he thinks lenders are trying to stick by their dairy customers, but said they will be cautious when reviewing farm portfolios.

"That's understandable from their perspective," Marsh said. "But gosh, a dairy has to have cash flow to operate."

He hasn't heard of any recent liquidations, but said that the next three or four months will be critical. He said as things start improving and collateral rises, banks might force operations to close because the higher value of the assets will mean less of a loss for lenders unwilling to wait on a possible financial recovery.

"We're hoping we'll be able to weather this thing with most of our producers in tact," Marsh said. "But it's not over yet."

Idaho

Bob Naerebout, executive director of Idaho Dairymen's Association, said it's hard to get a handle on how many dairymen might have left the business due to financial reasons, but he knows some took the Cooperatives Working Together buyout.

"I hear people talking about other people but not talking about themselves," he said. "There are some bankruptcies and a lot of people are in special assets. I understand banks are scrutinizing every loan."

He said times are still tough, but he thinks they have reached bottom.

"It's just a matter of coming out of the bottom. They want to eliminate as much of their dairy debt as fast as they can eliminate it."

Washington

Jay Gordon, executive director of the Washington State Dairy Federation, said he hasn't heard of any foreclosures, but has heard rumors of a couple of bankruptcies. Producers are also nervous about the financial health of their lending institutions.

Federal regulators shut down Bellingham, Wash.-based Horizon Bank last month. The bank reopened three days later, taken over by Seattle-based Washington Federal Inc.

"The last report was there are some 80 banks in Washington and 19 were under cease-and-desist orders, which is a pretty good percentage," Gordon said. "They're not huge in ag lending, but it is a piece. We're definitely nervous about that."

Another concern is that commercial banks aren't interested in working with USDA Farm Service Agency loan guarantees. Gordon said he doesn't know if the problem lies with the banks or the agency.

"The safety net out there is the FSA program ... there's something wrong when the FSA guarantee is no good," he said. "We want to know why it's not useful. We may need it."

Oregon

In Oregon, producers are watching feed prices closely, as those input costs have a big impact on the bottom line.

Jim Krahn, executive director of Oregon Dairy Farmers Association, said he's not seeing catastrophic fallout in Oregon's dairy ranks.

"I'm not saying there won't be a bankruptcy or two, but there's no great wave now," Krahn said. "Not that it's not tough, most banks are watching things closely and most producers are having a tough time."

Krahn said he talks with bankers regularly.

"They're doing everything they can to stick with the people they think can get through," he said. "I'm a little surprised by that."

The numbers

State 2009 dairies

California 1,750

Idaho 580

Washington 450

Oregon 300

Sourse: State dairy associations

State Milk Cows Jan. 1, 2009 Jan. 1, 2010

California 1.84 million 1.76 million

Idaho 554,000 550,000

Washington 244,000 243,000

Oregon 115,000 114,000

U.S. 9.332 million 9.080 million

Source: USDA