Finance: What lenders want

Financial institutions expect more from borrowers – especially communication.

By Susan Harlow

You’ve heard it before, but it’s worth repeating, say agricultural lenders – communicate, communicate, communicate. So emphasized panelists from financial institutions at a recent Vermont Feed Dealers Association’s annual meeting.

Tough financial times make it more imperative than ever that producers talk to their lenders, as well as to suppliers to whom they owe money.

“Our worst losses are when a farmer is in denial and we hear they are in trouble from suppliers or others,” said Sarah Isham, senior agricultural loan officer for Vermont Agricultural Credit Corporation (VACC), a nonprofit lender with  a $50 million ag portfolio.

Vermont FSA lent a total of $45 million in the first three quarters of 2010 compared to $42 million last year. In a typical year, said Robert Paquin, state executive director, FSA would lend $25 million. During this latest dairy industry downturn, the agency has helped 200 borrowers restructure debt.

The lenders on the panel – from FSA, VACC, Yankee Farm Credit, and Community National Bank based in Newport, Vt. – all said they have money to lend producers. But they make sure their customers are qualified.

“We are making new loans, if you can show profitability, a good debt-to-asset ratio, and good management,” said Jennifer Conger of Community National Bank. The bank requires at least 20% equity to borrow, although beginning farmers can get by with less.

Institutions like Conger’s bank are busy restructuring loans through reamortization, temporary interest-only payments, and shifting equity.

Lenders said they want to see:

better records and financial training. FSA now requires every borrower to do a year-end business analysis.

Ditto for her bank, said Conger. “And we want year-to-date figures and projections – those are really key. Cash flow is very important.”

“We’re stressing better records now, and are putting that condition on loans,” said Ken Buzzell of Yankee Farm Credit. “There are covenants that we may not have had before.”

Buzzell said he’s asking for semi-annual – not just annual – financial statements. “We don’t want any surprises. We want balance sheets to be prepared, because the biggest protection people can have is working capital.”

no management slippage. “Farmers need to maintain high standards for production – make sure forage and milk production is good, keep good records and make sure your decisions don’t negatively impact milk production,” Isham said. “Good production is key to profitability when milk prices improve.”

risk management strategies. None of the lenders require marketing or risk management plans from their borrowers, but it’s something they like to see from their customers. “We risk-rate all loans – risk management would give them a better rating,” Conger said.

Whatever your credit plans for next year, don’t leave your lender in the dark.

“It’s like early detection – if you find a problem and can get ahead of it, we can do something about it,” Paquin said. “There are also more tools to use before you get behind in loan payments.”

Sweetening LGM-Dairy

The USDA/Risk Management Agency (RMA) has made some changes to its Livestock Gross Margin for Dairy (LGM-Dairy) program, in hopes of attracting more producers. The revised 2011 LGM-Dairy insurance plan will be available for sale on Dec. 17, 2010, and does not apply to policies sold before that date.

The program insures the difference between the expected and actual gross margins of milk over feed costs, using Chicago Mercantile and Chicago Board of Trade prices for Class III milk and corn and soymeal. It guarantees a minimum income over feed cost.

The pilot program is available in 36 states. Thus far, about two-thirds of the enrollments have been almost equally divided between Pennsylvania and Wisconsin.

Because of the cost of premiums, producers have been reluctant to sign up, said Gene Gantz, risk management specialist for USDA /RMA in Pennsylvania.

“We all know most producers have had limited cash available to try anything new during the past two years,” Gantz said.  When LGM-Dairy was started as a pilot program in 2008, “there was a horrible wreck in income over feed costs,” he said. “The first enrollees got a lot. But it takes a while for producers to get used a new program, and many missed this early opportunity.”

The changes include:

• The federal government will subsidize producers’ premium costs from 18% at no deductible, to 50% at $2/cwt. deductible. Currently the only subsidy is a reimbursement for administrative costs.

• Add another deductible level, at $2/cwt. Current deductibles run up to $1.50/cwt.

• Require premium payment at the end of the coverage period, instead of in advance.

• Adjust the amount and value of feed costs, based on information provided by National Milk Producers Federation.

“The subsidy and higher deductible level will likely change the dynamic towards cost,”  Gantz said. More producers will probably chose a higher deductible and apply it to more pounds of milk.

Gantz said producers are already looking more favorably on the program. The calls have changed from “How can you make this affordable?” to “How soon can we sign up and get the new changes?” he said.

The program will benefit any size dairy, he said. “Producers may treat it like when a new seed variety comes out – give it a try on a low level at first. They can take as little as one hundredweight per month and choose which months,” he said.

“The program is an opportunity to monthly enroll all or part of your milk to build a financial safety net and build a business plan for the next 10 months,” he said.

LGM-Dairy is sold on the last business Friday of each month. The sales period ends at 8 p.m. the following day. If expected milk and feed prices are not available in a particular insurance period, LGM-Dairy will not be offered for sale for that insurance period.

For more detailed information about LGM-Dairy, visit the RMA Web site at


Gene Gantz, RMA/USDA, 717-497-6397,

For more information on Livestock Gross Margin for Dairy, contact a crop insurance agent. To find an agent, go to:

• Sarah Isham, Vermont Agricultural Credit Corporation, Montpelier, Vt., 802-828-5463,

Bob Paquin, Vermont Farm Service Agency, Williston, Vt., 802-658-2803,

Jennifer Conger, Community National Bank, Derby, Vt., 802-334-7915

Kenneth H. Buzzell, Yankee Farm Credit
Newport, Vt., 800-370-2738,

Fill your financial management toolbox

Dairy business managers have more tools than ever to analyze current conditions and aid future management decisions. The following list by no means identifies all the available tools – just the ones brought to the attention of the Eastern DairyBusiness editor through press releases and e-mails.


Free, easy-to-use, on-line, decision-making tools are divided into seven categories: 1) Feeding; 2) Heifers; 3) Reproduction; 4) Production; 5) Replacement; 6) Financial; and 7) Price Risk. They are available at

Center for Dairy Profitability

A number software programs, spreadsheets and CD-ROMS to improve production efficiency and profitability are available. For ordering and price information phone (608) 263-5665 or visit Making Tools.htm.

University of Illinois

Several Microsoft Excel based spreadsheet tools are available at under the heading of FAST Tools (Farm Analysis Solution Tools).

University of Nebraska

G2034, Dairy Farm Income and Cash Flow Calculations is available at

Michigan State University


Ohio State University

Visit and

Iowa State University




University of Vermont

Penn State University


University of Florida