Dairy operators face the big wipeout

By: John Lindt - Visalia Times-Delta

http://www.visaliatimesdelta.com/article/20120818/ROI/308180016/John-Lindt-Dairy-operators-face-big-wipeout?odyssey=mod|newswell|text|Frontpage|s

More dairymen are throwing in the towel this month as the price of feed, their banks, feed suppliers and their checking accounts all tell them the time has come.

Tulare County dairyman and Western United Dairymen president Tom Barcellos expects “double-digit bankruptcy filings” by local dairymen in coming weeks as the feed price crunch caused by the Midwest drought hits the credit crunch at home this summer.

“Dairymen are getting out of the business — sending their cows to slaughter as fast as they can,” said Barcellos, whose family has been milking cows on their ranch near Porterville since the 1940s.

Barcellos ships milk every day to his co-op, Land O’Lakes in Tulare, one of the largest milk receiving locations in the nation. “In the past week Land O’Lakes has been receiving 1.1 million pounds of milk less every day than a week ago. That’s not the summer heat, which reduced milk volume earlier this summer — that’s due to cow liquidation.

“People are exiting this business in droves. I would say catastrophic just about describes the situation.”

Tulare and Kings counties make up the most productive dairyshed in the U.S., accounting for about 38 percent of the milk in California.

Hanford dairyman Joaquin Contente says, “Everywhere I go around my area I see vacant dairies or places being put up for sale. These are my neighbors — people who have been in the business a long time, some three generations. Now they just want out. It’s the big wipeout.”

Fresno bankruptcy attorney Riley Walter agrees. “This is just a bloodbath. In the past 18 months I have worked on 58 dairy bankruptcies. Remember that does not tell you the whole story when you include going into receivership with your bank or voluntary dissolution,” a sale or auction for example. “These are all ways dairymen are getting out.” Add to this that the pace of filings “has increased dramatically in the past few weeks,” said Walter, who has been doing this “for a very long time.”

The typically volatile dairy business was made worse this spring with a surge in production resulting in a glut of milk that further lowered prices. At Land O’Lakes-Tulare, they retired 17 dairies in April to try to right-size the milk supply.

Now the issue is feed costs that have surged this summer, taking not just corn but soybeans, other grains and hay up to to levels not seen ever. “There is not enough money from their milk check to pay the feed costs,” said California Dairies Inc. CEO Andre Mikhalevsky.

Corn's impact

USDA says this week that corn prices on the cash market have soared and the season average price for 2012/13 is now projected at $7.50-$8.90 per bushel, a substantial increase from July’s forecast $5.40-$6.40 per bushel.

Back in 2009, banks and feed companies would back dairymen up, carry them for a while to tide them over. Dairymen had equity, but in many cases after the tough years of 2009-10, that’s not true anymore, explains Barcellos. They still owe money and banks and feed companies can’t wait anymore this time.

In a domino effect, that leaves the lender — whether in the feed, supply or finance business — holding the bag on some of this debt.

“I am doing OK because I grow most of my own feed,” Barcellos said, “but I also supply some of my neighbors and I hope I get paid.”

In the relatively small business community, local feed companies are being forced to say no to longtime customers. “I would say this is the worst I have ever seen it with dairymen going out of business, farms on COD and lots of bankruptcies. I don’t know what to tell you except it just sucks,” laments Visalia grain dealer Kevin Kruse.

Attorney Riley Walter says from the feed companies’ point of view, the super volatility of the corn market is making their business more risky. “I had a feed guy tell me what they have to face. They call Omaha and order a 100 unit train of corn and the guy says wire me $4 million. By the time the corn is shipped and sold here, the local grain company is waiting 70 days before he even starts to collect. Even if he is sympathetic to the plight of his dairyman customer, he has a lot tied up.”

Driving around the backroads of Tulare County, “you definitely see depopulated dairies,” said UC farm adviser Jim Sullins. “It’s mostly the little guys who can no longer hang on.”

Others say what has changed is that “it’s the big guys going out now.”

A prominent multi-location dairy operator, Alvin Souza of Tulare, filed for bankruptcy this spring, making news because he employed nearly 200 workers.