Eric Clifford’s herd in Starksboro.
Lenders see large increase in borrowing for expenses
State officials and lenders say Vermont dairy farmers have been losing $100 per cow a month. That means the average farm with 120 cows has lost about $84,000 since milk prices plummeted to historic lows in February. Large farms of 700 to 1,000 cows have lost $490,000 to $700,000 in the last seven months.
Those heavy losses are forcing many farmers to go deeper into debt.
Statewide demand for emergency loans through the USDA Farm Service Agency is up 60 percent this year, and more than 100 farmers borrowed low-interest loans of $58,000 on average from a pool of $8 million in emergency funds offered through the Vermont Agriculture Credit Corporation, according Jo Bradley, executive director of the Vermont Economic Development Authority, which operates VACC.
Dale Thompson, loan specialist for the state FSA program, says his agency normally lends about $23 million to Vermont farmers. This year, he says, “we’ll be in the $40 million range before it’s all said and done.” Eighty percent of the 900 direct loans and bank loan guarantees FSA offers are for dairy farms, he says.
“We were providing, especially this spring, a lot of loan assistance for farmers that were strapped for cash to put crops in the ground,” Thompson says. “That was a priority.”
The outstanding loan volume at Yankee Farm Credit increased 19 percent, from $171 million to $204 million from June 2008 to June 2009.
“Normally growth for us with some variation would be about 4 percent per year,” said George Putnam, president and CEO of Yankee Farm Credit, a government sponsored enterprise, which serves 1,200 customers in New England.
Figures for this quarter are not yet available, but Putnam says he expects to lend more money in the coming months to farmers who need to buy feed and pay for other operating expenses. On average, the 500 New England farm customers listed in Yankee Farm Credit’s blue book are carrying $3,000 of debt per cow, Putnam says.
“We did a number of credit actions with farmers where we lent them an additional $500 per cow back in the spring with the expectation that would last them through six months and now the six months is about at an end and now we’re seeing farmers come back in to do that again,” he says.
Cow devaluations affect balance sheets
In the meantime, farm assets have declined as cow values have dropped from a high of about $1,800-$2,000 last year to roughly $1,000-$1,200 this summer. Though lenders say they will likely devalue cows in the coming months, the downgrade won’t be as dramatic as it could have been because lenders say they didn’t inflate cattle prices. Yankee Farm Credit increased values by about $100 per cow last year and may have to drop them that amount this year, Putnam says.
Even what appears to be a small a shift in cow values can depress a farm’s assets by tens of thousands of dollars.
Lenders offer short-term deferments
Many lenders are restructuring and refinancing loans. They are also allowing farmers to make interest-only payments on loans.
At FSA, Dale Thompson expects to restructure 130-150 loans before the end of the year. The agency is giving farmers the best rates available, which are currently running at 3 percent, and extending terms for operating loans up to 15 years, he says. Currently, farmers are paying only the interest on their FSA loans through the end of the year.
“The lenders are either stopping the payments or they’ve made agreements with the farmers that they’re going to continue to pay the interest only and not cover the full principal,” says Thompson. “Everybody’s kind of pushing everything back so that’s been going on pretty much since the first of the year. It was in hopes that milk prices by fall would rebound. We’re not seeing that great of a rebound yet.”
The question is, if milk prices stay low and farmers don’t break even until next summer, as projected by long-term USDA predictions, how long can banks and government lenders defer principal payments on loans?
Thompson says there are no easy answers. “It’s a really bad issue,” he says. “That’s why everybody’s trying to get Washington, the USDA, to change the milk price formula and raise supports or kick in more money in the Milk Income Loss Contract program.”
Copyright, Vtdigger.org
