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1709 PD: What to discuss with your banker before the end of 2009

Larry Davis Published on 19 November 2009

The past 10 months have been some of the most challenging times the dairy industry has faced in over a generation. With low milk prices combined with high feed costs, many dairy farms have suffered significant losses throughout 2009. Although we have seen some seasonal improvement recently, it appears that the suffering will continue into 2010.

Here are a few thoughts as to what a progressive dairyman should be talking about with his banker before the end of this year, heading into 2010.



The first thing a dairyman needs to be prepared to discuss is the financial results of the past 12 months and what has transpired with the operation. Hopefully, the dairyman and the banker have had a continuous dialogue during the spring, summer and fall of this year. The tendency on the part of some dairymen may be to not communicate freely with their lender.

This is not a wise choice because no lender likes surprises. It is very important to communicate on a regular basis and to keep the lender up-to-date on the status of the operation and what is happening with milk production, operating costs and gross revenue.

Many lenders will require some type of monthly or periodic update and/or information sent to them, such as a copy of the milk check, DHIA report summary, or quarterly financial statement. This allows the lender to see on a consistent basis the results of the operation. If your lender has not asked for this information during this calendar year, it is important that you are able to provide this information, as it will be the basis of discussion going forward into next year.

The second area to consider when speaking with your bank is what does the future look like with the operation headed in 2010? It is important to have an understanding and appreciation of what the “experts” are forecasting for milk prices as well as operating costs for 2010.

This will aid in developing a budget/forecast for your own operation. It is very important to be realistic when developing a forecast because the lender will be making decisions based upon the information that is provided. Future prices change every day, as well as input costs, so it is important to identify those variables in the forecast and explain their significance and why those numbers were used.


This forecast is very important because if you are going to have needs for operating funds, equipment financing, or land acquisition, it should be identified in this forecast. This provides you with a basis for discussing your plans for 2010 and the needs that you will have going forward. It is important that the underlying assumptions used in the forecast can be defended while also allowing for the possibility of other potential scenarios that could significantly impact the plan.

The third area, which would obviously go hand-in-hand with the first two considerations, is the current debt structure and whether or not things should be restructured going forward. Again, hopefully there has been an ongoing dialogue between dairyman and lender so there are no surprises in this discussion. Because of the low milk prices of the past 10 months, there have been many operations that have had significant cash flow strains and have needed to either borrow more funds to cover expenses or have increased their accounts payable with the feed company, vet or other suppliers.

Now is a good time to be talking about how debt can be restructured to allow the operation to function more effectively. Providing good information and having good communication on a consistent basis throughout the year is always the best recommendation for building a solid relationship between dairyman and lender. The exact “appropriate” level of these two important items will depend on each dairyman and lender.

For example, dairy operations with a small amount of debt relative to their size may not need to supply a significant amount of information during the year. Conversely, operations that are heavily leveraged will probably need to supply some type of information each month. Also, the amount of communication between dairyman and lender will vary based upon individual style and the needs of each party.

This has been a very trying year for the dairy industry. Many experts see the first part of 2010 being only slightly better. When a progressive dairyman meets with his lender at the end of 2009, he needs to be able to articulate with facts where his operation stands and where he intends to take it over the next year. This is the best time to adopt the ideas presented in this article as we move into 2010. PD

The ideas expressed in this article are not intended as legal, financial or accounting advice. Before making major business decisions, contact a trusted consultant.


Larry Davis
Vice President
KeyBank Food and Agribusiness Team