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Serving: WI

Use CFAP funds to pay open accounts first

SimplyCreativePhotography/Getty Images Landscape of a red barn and silos
OPEN ACCOUNTS: Vendors are not in the business of lending money to their clients. If many clients are not current for services rendered, this puts a strain on the vendor’s ability to provide services and raises the cost of doing business for all clients.
Agrivision: Prioritize other debts and pay down those with high interest rates.

We just signed up for the Coronavirus Food Assistance Program through the Farm Service Agency. My son and I milk 200 cows and farm 580 acres. We owe about $390,000 on our mortgage, $60,000 on a tractor we bought in 2016 and $30,000 on open accounts to our veterinarian and feed mill. I expect to get an initial payment of about $62,005 (80%) for our milk production. We have no money in reserve. We are current on our mortgage and tractor payment. Who should we pay first and how much?

Tom Kestell: Congratulations on having a successful dairy operation with your son. It appears that your debt level is manageable, and as you say, you are current on your long-term commitments. You find yourself in a similar situation that many other farmers are experiencing with negative cash flow. This can be a serious financial hurdle for both you and your vendors.

CFAP will be substantial and is designed to cover losses that farmers are currently experiencing. You ask who should be paid first with these funds? The answer is quite simple: the people who have extended credit to you, such as your veterinarian, feed mill, breeder and any other open accounts you have that are not current. Vendors are not in the business of lending money to their clients. If many clients are not current for services rendered, this puts a severe strain on the vendor’s ability to provide their services and raises the cost of doing business for all of their clients.

I think this is a great time for everyone to evaluate how we do our daily and monthly business. We need to set up a budget, and that includes covering both short-term and long-term expenses plus planning for long-term needs. I would pay all of the money owed to vendors as soon as possible after receiving the funds. I would then hold some money in reserve for paying for future shortfalls in income, so you do not run into a similar situation in the future. Depending on how much money you will receive from this program, and how much will be left after covering current open accounts, I would then consider paying your tractor payment ahead of schedule.

I would also talk to your lender about an operating line of credit so you can take advantage of cash discounts in the future and not have to pay high interest rates on open accounts, as well as relieve the stress that open accounts create for your vendors. The next period of time will likely be very stressful for the farming community, so the better you can position yourself, the greater the chance of your farm thriving in the future. An overall plan for financial success will give you and your son peace of mind and financial security.

Sam Miller: The onset of the pandemic has created a great deal of change and uncertainty. Fortunately, you have signed up for the programs available through FSA and expect to get some financial assistance. I suggest prioritizing the funds to clean up any accounts where you are paying late fees or interest; then keep accounts current, or pay early, if the opportunity exists to get a discount. If possible, hold some cash reserves. These funds are a cash infusion now but may not last if markets move lower in the coming months. Continue to keep your mortgage and equipment payments current.

Lastly, you may want to look into the Dairy Revenue Protection insurance or Dairy Margin Coverage plan as price risk management tools. The DMC should provide full coverage for your dairy, but you won’t be able to sign up until next year if you are not already in the program.

Katie Wantoch: COVID-19 is affecting many people, communities and businesses. Government economic stimulus payments, such as CFAP funds, will be providing direct support to businesses that have been impacted by 5% or greater decline in prices or losses due to supply chain disruptions from COVID-19. When these payments do start to arrive, you should take time to consider your options. First, I would suggest that pay your open accounts and any outstanding bills. Then I would encourage you to prioritize your other debts and consider paying down those with high interest rates.

Cleaning up some older debt is OK as long as you do not put yourself in a cash flow bind when unexpected expenses occur. Finally, it never hurts to have a “war chest” saved up to pay for income taxes, unexpected expenses, repairs, etc. The reason to plan is to make sure you are spending your money on things that are the most important to you.

Options for more forage

My wife and I milk 125 cows and farm 225 acres in northeastern Wisconsin. We are grateful that we were able to get our corn planted by Mother’s Day this year, and it is up and looking good. But our alfalfa is hit or miss. We have a couple of fields that look great and a 40-acre field that I plowed under after taking off what little first crop there was. I planted that to corn for silage. What are some of our options to help boost our forage inventory for 2020 and spring 2021?

Tom Kestell: I’m glad you experienced success with getting your crops in early this year. This situation should greatly give the potential for much better corn yields than last year. However, in Wisconsin, not all crops fare the same in a given year. You did not mention what other crops you planted. Do you have small grains, soybeans, winter wheat or any other row crops?

Small grains can be used quite successfully for emergency forage. However, they do need to be cut at the proper maturity stage for overall digestibility and value. Wheat acres can be planted to either peas and oats after harvest or sudangrass, and provide additional high-quality forage also.

You also mentioned that you planted 40 extra acres of corn silage that you had not planned because of alfalfa failure. This will provide a tremendous amount of forage. You will need to work with your nutritionist in advance to see how you can allocate the different forage feedstuffs you will have available. Many times, allocation of available feed is almost as important as the feed that is available.

I would also work with your remaining alfalfa fields to maximize both quality and total yields on these acres. Extra corn silage can be stored in temporary storage such as bags or drive-over piles. Incorporate any temporary storage into an overall feeding plan that will use the qualities that each forage crop can provide. Remember, it is always best to have too much feed properly stored than to be at the mercy of the markets come spring of 2021. Good luck for a successful 2020 and 2021 feeding season.

Sam Miller: There are several options available to you. First, visit with your dairy nutritionist about what adjustments can be made in the ration given the feedstuffs you have and expect to have. Additionally, you may want to purchase forage from neighboring farmers, particularly crop producers. This could be corn for silage or hay for haylage. Another option is to purchase local or western hay. Again, your nutritionist can assist in sourcing hay. Fortunately, feed costs are lower, and there is greater availability of hay this year compared to a year ago, providing options for your business. Good luck making this decision.

Katie Wantoch: Forage needs for lactating cows is much different from other livestock. I would suggest you continue to feed alfalfa and corn silage to this group. Other groups of cattle would be best suited for other emergency forages. The optimum crop to plant for emergency forage should be determined by 1) when and how it will be used, 2) the forage quality needed, and 3) seed availability and cost. The best crop to plant to reduce the forage loss from winterkilled alfalfa depends on the time of need and intended use.

A small grain is the best option where tonnage is needed quickly to replace first cutting, so oats, triticale or barley are good choices. For high season and long yield, corn for silage is the best high-tonnage option. For haylage, seeding Italian ryegrass with alfalfa is a good option. Sorghum-sudangrass will produce the most tonnage if you want grass hay.

University of Wisconsin-Madison and Extension educators have conducted research trials on growing emergency forages and feeding these forages to livestock. Visit Extension’s Team Forage website.

Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; Sam Miller, managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, Extension agricultural agent specializing in economic development, Dunn County, Wis. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919, or email [email protected].

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