INTRODUCTION
(1) We have had dairy crises before. The crisis of the mid-1980’s and in the early 1990’s being the most serious in memory, but also the downturns in the dairy economy in 2002-2003 and 2006. Some dairy farmers will experience real pain and there could also be some big winners. In this presentation I am going to focus on options to consider when a dairy farm is facing severe financial crisis.

(2) Two previous fact sheets entitled, Fireside Chat on Managing During a Dairy Crisis and Do’s and Don’ts When Facing Financial Difficulty are available from the author and provide the setting for this fact sheet.

(3) The options for consideration included in this fact sheet are predicated on a business that has implemented the more easy strategies, such as refinancing and improving the business as much as possible. These options are for those who have built up accounts payable to the point where no additional dealer credit is possible, their credit cards are at the maximum limit and are about to become or are delinquent in their scheduled debt payments, with limited interest from their lender in extending additional credit

PREAMBLE
Before discussing options, a reminder on what should be done before implementing any drastic changes in the business are as follows:

(1) Meet with your lender and share your financial management analysis and cash flow projections. Communicate with your lender often and provide periodic updates regarding your financial situation.
(2) Cash flow management is the key to surviving difficult economic times. Continually review and update cash projections and partial budgets.
(3) Meet with suppliers to develop payment arrangements.
(4) Communicate current financial situation often with management team/family members. Seek and welcome their suggestions and involve them in key financial decisions.
(5) Seek management advice and analysis assistance from cooperative extension,
consultants, FarmNet and others.
(6) See personal counseling and advice from close friends, clergy, FarmNet and
others.

OPTIONS TO CONSIDER
These options are listed in no particular order. They can be combined in part or in total with other options to best fit your situation. Which option(s), if any, are that best for you may be different from those that are best for other situations or other businesses. Also, there may not be sufficient equity in assets to make the options possible or the income tax implications are so large that too little cash remains. These options are drastic and may or may not enable the business to continue. Also, these options may be so dramatic as to be not acceptable to many.

(1) Sell field machinery. Lease or own only those items necessary to feed and care for the cows. Custom hire all crop related tasks or rent the crop land to others and buy back the feed as needed.

(2) Sell the field machinery and cropland. Keep the house and buildings. Lease or own only those items necessary to feed and care for the cows. Purchase feed as needed.

(3) Sell the cows. Raise crops for sale and to continue to feed the heifers. As heifers approach calving, market them, or reconsider entering back into the dairy business. Perhaps rent the buildings to someone else, custom board heifers, custom board milk cows, or house animals in some other means to utilizing the feed produced on the farm.

(4) Sell all heifers. Focus on the milking herd, and buy replacements as needed.

(5) Sell field equipment and lease back needed only needed items or have the field work done by a custom operator.

(6) Declare bankruptcy, but only after discussing the legal and financial implications with a qualified attorney and tax accountant. Bankruptcy and its various chapters are too complicated to discuss in this fact sheet. Keep in mind that for bankruptcy reorganization, the plan to continue must be reasonable and provide for restructured debt payments.

(7) Determine if the creditor will write down the debt or allow interest only for a period of time.

(8) Sell all of the farm assets, except for the cattle, and rent another facility.

(9) Approach other dairy producers about creating a joint venture, and become affiliated with a dairy business that can provide liquidity, management, and other resources that may allow the business to thrive in the future.

Evaluate these options for use in your business by determining the projected cash flow after debt repayment and income taxes for each option or combination of options. In order for the business to be successful, it must cash flow in the very near future. If it cannot cash flow, total liquidation may be the only option.
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