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Published in Food/Agribusiness

‘Too Many Negatives’: Michigan farmers continue to feel weight of financial blows

BY Sunday, January 19, 2020 02:44pm

West Michigan’s farmers will be wading through the confluence of negatives brought on last year ranging from extreme weather, volatile commodity prices and trade wars well into 2020. 

In fact, “pockets” of operations that were especially hard hit may not survive.

That’s according to Paul Anderson, executive vice president and chief credit officer at GreenStone Farm Credit Services. However, many more of the region’s farmers will continue to dig into what reserves they still have stored from a period of growth that lasted from 2002 to 2012, he said. 

Furthermore, resources from the federal and state governments will continue to keep a majority of farmers afloat, at least through 2020. 

“Crop insurance really helped out,” Anderson said. “People that were properly insured are going to come through this with a few dings, but not a significant financial blow. Those that took the chance and couldn’t afford to take the chance and Mother Nature squared them up, those are going to be tougher conversations.” 

Extensive rain and flooding last spring forced farmers to cram weeks’ worth of work into a few sunny days and left about 10 percent of cropland in the state unplanted, according to data from the U.S. Department of Agriculture. Coupled with a dry, cool summer and wet fall, the 2019 growing season had calamitous effects on the state’s agricultural communities.

Amid persistently low commodity prices and rising costs, farmers and ranchers also continue to struggle with low and declining overall working capital. Farm debt, already at an all-time national high of $416 billion, is expected to continue climbing. 

Anderson predicts an increasing number of farmers in West Michigan will be forced to sell parcels because of financial constraints. 

“What we’re seeing is an increase in real estate lending and a contraction of short-term lending, which is indicative of a low profitability environment,” said Anderson, noting that GreenStone’s farm portfolio is growing at a rate of about 3 percent annually. 

“Our growth has been very modest, which means our farmers are pulling in their horns and not buying a lot of stuff,” he said. “They’re focused on paying down debt. We’ve worked on stretching out amortizations or going interest-only and assisting them while they realign their business to be more efficient and be able to start to be successful in this type of environment.” 

Although bankruptcies have increased for GreenStone, still only five out of about 12,000 total farm customers in the lender’s portfolio are in active bankruptcy. 

“When you read the statistics that bankruptcies have doubled, they’ve gone from little or nothing back to closer to average,” Anderson said. 

Dairy doldrums

Perhaps no sector of agriculture has taken more continuous hits in recent years than dairy. Plummeting prices and overproduction have soured the industry, which continues to be shaken after two of the nation’s largest dairy organizations — Dean’s Foods and Borden Dairy Co. — recently filed for Chapter 11 bankruptcy protection within weeks of each other. 

The simple explanation is that too many dairy producers have been operating at a loss for too long, according to Stephanie Shafer, owner of Westphalia-based Jem-Lot Dairy and a district director with the Michigan Farm Bureau. 

In the past decade, total returns for milk sales have exceeded the total economic costs to produce that milk only once, according to data from the Illinois Farm Business Farm Management Association. 

In 2018, the most recent year for which data are available, the average net price per 100 pounds of milk was $16.48, lower than in 2017 and less than the total costs of production, which were $19.72. Per cow, total returns were $3,913, a net negative of $747 per cow compared to the total cost to produce milk.

Milk prices are projected to be higher in 2020 than in 2018 but still will not exceed production costs. Instead, dairy farmers will break even in 2020, according to the data.

Shafer expects some Michigan dairy farms, some of whom have been in operation for generations, to quit the business in 2020 before bankruptcy becomes the only option. 

“There are guys looking at it and going, ‘You know what, I’m not giving up any more equity,’” she said. 

Since 2014, the last time dairy operators were in the black, Michigan has lost a quarter of its dairy farms, according to the Michigan Department of Agriculture and Rural Development. 

However, there are still nearly 10 percent more milk cows in the state than there were five years ago. As well, thanks to technological advancements, today’s cows are more productive than ever. 

In addition, a new $555 million, 146-acre dairy processing facility in St. Johns, north of Lansing, is expected to significantly improve long-term prospects for Michigan’s dairy farms. Mid-West Cheese LLC plans to convert 8 million pounds of milk per day into cheddar cheese and whey protein powder, creating a market for nearly 25 percent of the state’s current milk production. 

The plant won’t open until at least November, but farmers like Shafer are hopeful that it will help turn the tide. 

“The plant going into St. Johns is processing capacity, so at least we can get this stuff processed,” she said. “Now, the other problem is that we’ve got to ask everybody to eat about a pound of cheese more so we can use it up. But it’s got to be a positive. You have to think about it as a positive because there are just too many negatives.”

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