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Future for Livestock Businesses May Rest Upon Their Financial Position

Future for Livestock Businesses May Rest Upon Their Financial Position
Those that have land to fall back on will be in better shape.

Livestock losses for dairy and pigs seem locked in until next year when the effects of more culling and reductions in the size of herds can take effect. That's how Chris Hurt, Purdue Extension specialist, views the current situation livestock producers find themselves in. There was no way to anticipate run-ups in corn price and soybean meal resulting from a one in 25 years or one in 50 years drought.

Land assets: Livestock producers who also have other assets are likely better positioned to survive the current bloodbath, Hurt says.

How well big operations survive may depend upon whether they're strictly livestock with only a few acres, buying almost all of their inputs, or whether they have farmland to fall back on as well. Ultimately, it will come down to a talk with their banker, Hurt believes. Bankers may be the ultimate arbitrators in cases where lots of red ink paint a dismal financial outlook for the business.

One farmer who is part of a very large dairy operation but who also has a sizable amount of real estate in the operation says that's how they weathered the last storm ending just a couple of years ago. Since land values are high, farmers have equity that they can fall back on and likely satisfy bankers.

The question is: How many times can you go to that well? If you're in a weaker position now than before 2008 and 2009 began, can you still withstand losses in 2012?

Having land and outside resources so that you're not totally dependent upon the livestock operation will likely help, Hurt says. In the final analysis it's again going to come down to a discussion with your lender. Do you have enough collateral that he's willing to stay with you until things improve? Or are all you have primarily buildings and livestock?

The problem when things go south in livestock is that lenders don't tend to put very high values on livestock facilities. However, they still will put good values on land, which remains in demand.

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