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Panelists offer ideas for fixing money crunch

rookman/iStock/Thinkstock red barn and machinery buildings
PAY OFF DEBT: Look over your machinery and sell anything that is nonessential, like a corn planter, four-wheeler or newer pickup truck.
Agrivision: Suggestions range from selling land or machinery to taking out a short-term loan.

My son and I milk 125 cows and own 450 acres. We owe about $150,000 combined to the feed mill, vet and machinery dealer. I am wondering if we should sell off 80 acres down the road to clean up our bills and pay down our mortgage. We owe about $200,000 on our mortgage. I bought the 80 acres in 1992 for $1,200 an acre. Decent cropland in our area is bringing $6,000 to $7,000 an acre. We have a 23,000-pound rolling herd average milking twice a day. We got behind with our bills, and we can’t catch up. What are your thoughts?

Hodorff: To answer the question about selling land, I am making some assumptions: First, I am looking into the future. Second, I am assuming you want to farm for a few more years. Let’s tackle the short-term debt first. To get rid of the $150,000, look over your machinery and sell equipment that is nonessential. Most farms have some equipment like that, such as four-wheelers, a corn planter, a newer pickup truck. Another thing you can sell is heifers. Heifers are a cash drain on your budget. You must be disciplined on paying down this short-term money.

I would also talk to your banker and see if you could borrow money to get current. I don’t think the 80 acres is affecting your cash flow. Start to look at all costs to help become more productive. A couple more pounds of milk could make a big difference.

Miller: Selling the land will likely pay off the mortgage, clean up the bills and pay the capital gains tax on the appreciated value. Visit with your certified public accountant or tax adviser to determine what the estimated tax would be on the sale of this land; then put together your financial information, including a balance sheet, income statement, cash-flow statement, and projection or forecast to see if reducing the debt service on your mortgage will allow you to keep your other bills current and pay the family living and labor expenses of the business. Contact your local Extension ag agent, Dairy Business consultant or banker to assist in this analysis.

Wantoch: I believe there are several farm owners and managers who might be in the same predicament you are in. Income from your commodity sales may be slightly down as compared to prior years; however, the cost to produce that commodity has either stayed constant or continued to increase. Economists define this as profit margins getting “squeezed”; thus, your inability to stay current on your bills.

I encourage you to schedule an appointment with your lender to discuss your situation. It appears you may be able to borrow against the equity you have in your farm, which is the net between assets and liabilities. Be prepared, in case your lender asks you to provide a plan on how your business will pay back this loan and continue to weather this downturn in commodity prices. It’s never an easy position to be in, but hopefully a short-term loan will get you back into a better operating position and prepare you to withstand the future.

Agrivision panel: Doug Hodorff, Fond du Lac County dairy farmer; Sam Miller, managing director, group head of agricultural banking at BMO Harris Bank; and Katie Wantoch, Dunn County Extension agriculture agent specializing in economic development. 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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