Equity Helped Some Livestock Producers Survive Lean Times

Many large and semi-large dairies and hog farms still operating.

Published on: Mar 19, 2012

The last four years retaught a painful lesson, especially to livestock producers who had little land or assets beyond their barns, equipment and cows. When ethanol started the corn price increase, and high feed prices continued, those without other equity were caught in a bind.

Bankers tend to put low values on barns and facilities when an industry is hurting and prices are sinking. The same thing happened to many pork producers in 1998 after a perfect storm of circumstances, never fully explained, took live hog prices to $8 per hundredweight. Those who were buying nearly all their feed and who only owned buildings struggled, and many didn't survive.

Equity Helped Some Livestock Producers Survive Lean Times
Equity Helped Some Livestock Producers Survive Lean Times

The same thing happened this time. As one dairyman who weathered the storm and who is expanding with the younger generation today puts it, he ate into equity 'for the privilege of milking cows' a couple years ago. Now the bleeding has stopped and milk prices are at a profitable level for good managers. However, it takes time to repay what was lost during the blood bath that occurred when feed prices shot up before milk prices went up. Similar scenarios played out in hogs and poultry. Prices have finally gone up, unfortunately, because many people were forced to exit the business, cutting supply available to consumers.

Equity can come in many forms, but often it's land. With land values escalating at the same time livestock profits vanished and turned into red ink, those with land could still put together a stable balance sheet. Those relying on their ability to sell milk or hogs at a profit with little or no other equity outside of the business found it tough, if not impossible, to survive.

One dairyman who had acquired considerable land over the years by putting dairy profits into land when times were good said he did so more to make sure he always had enough land to meet manure application guidelines set for confined animal feeding units. He didn't want to have to be dependent upon someone else to have enough land to spread manure for as many cows as he might milk someday.

The fact that he had the land paid off handsomely when he needed equity to fall back on to convince bankers that his operation could weather the storm when high feed prices and low milk prices made for  a difficult couple of years.