Minding Ag's Business
Marcia Zarley Taylor DTN Executive Editor

Wednesday 11/11/09
Lessons About Erasing a Lifetime of Equity

Mike Salisbury, of Lookout Ridge Consulting with offices across the upper Midwest and Plains states, has been an agriculture consultant for over 30 years. But based on the debt workouts he's managing for clients these days, the crisis in the pork and dairy industries dwarfs anything that has gone on in the past, Salisbury told DTN's Elizabeth Williams this week.

Consider this: The U.S. hog industry has lost $5.4 billion since September 2007, or $23 on each hog marketed, according to the National Pork Producers Council. Dow Jones reports that North Carolina's Coharie Hog Farm, a 30,000-head sow operation, filed for Chapter 11 bankruptcy protection on Nov. 6, joining fellow state producer Coastal Plains Pork, which sought bankruptcy protection Sept. 28, and Bunting Swine Farms LLC this past May. Minnesota's MHF of Freeborn County Inc. declared Chapter 11 in October while Illinois-based Leading Edge Pork LLC filed for bankruptcy protection in September.

In the 1980s it was a credit crisis – overleveraged real estate, over-investment in machinery, sky-rocketing interest rates. Now, it is a profitability crisis, said Salisbury, and it is victimizing efficient, well-established operations. Hog producers have lost $25 to $40 per head for a couple of years. The dairy producers went from the highest prices ever received to the lowest within six months.

There hasn’t been a lot of media attention on this, but the fallout will come, he cautioned.

If we learned any lessons from the 1980s, it is don’t wait too long to get out in an industrywide recession, Salisbury added. Some producers are so far under water, they can be hard to salvage. He's encouraging them to preserve their equity now. Stop the bleeding – rethink their operations. "You really have to be a business person and put your hopes and dreams aside. Can you breakeven this year? Do you have the liquidity and equity to support a loan?" Salisbury said. Those with a strong balance sheets have wriggle room.

Some of Salisbury’s clients have sold out. One couple in their mid-50s got out of dairy because they wanted to have something for retirement. Another family operation sold their sows and are contract finishing with a large integrator in the area. But there is not enough employment on the farm for the entire family, so they have to look for off-farm jobs. And this is not a good time to look for an off-farm job, but there are some jobs out there.

It is not a pleasant situation. But when collateral values tank as drastically as they have for pork and dairy producers, you need to be proactive, Salisbury said. Take command of your business restructuring before the bank does.

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Posted at 11:50AM CST 11/11/09 by Marcia Zarley Taylor
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