As you are aware, the financial position of many farms is stressed, at best. Low prices persist in most all commodities.
Ohio State University Extension Educators and Specialists recently updated a number of Dairy Issue Briefs (DIBS) that were developed during the last period of low milk prices.
These one- to two-page reports target critical management issues. All DIBS include a short explanation of the issue, the conclusion, and contact information for the author(s).
You’ll find 35 DIBS categorized by subject areas:
Animal health; career changes; dairy beef; facilities; feeding management; financial management; heifer management; labor management; manure/nutrient management; reproduction.
The following DIBS have been updated:
Veterinary Feed Directive; Therapy of Clinical Mastitis in Tough Economic Times; To Dry Treat or Not Dry Treat?; Agricultural Careers: Opportunities DO Exist; How Do I Get Started in Dairy Beef?; Introduction to Feeding Holstein Beef; Identifying and Managing Commodity Feed Shrink; Feeding Low Forage Diets to Dairy Cows; Short Season Forages to Fill Supply Gaps for Dairy Farms; How Do I Answer Big Financial Questions?; Can I Reduce Costs by ‘Limit Feeding’ Heifers?; Evaluation of Dairy Manure as Fertilizer; An Evaluation of Starter Fertilizer in Corn Silage Production.
I want to share information from one of the fact sheets updated by Dianne Shoemaker, Ohio State University Extension dairy farm management field specialist, and adapted for use today. It’s a timely article and serves as an example of the format for all DIBS.
Are there opportunities to decrease my current debt payments? Maybe.
Interest rates dropped dramatically between 2007 and 2009 and remain low, so it may be possible that you have longer-term loans with higher fixed interest rates than are currently available. If so, it may be possible to shave a little, or a lot, off of these fixed-rate loans by refinancing the loan at a lower rate.
There is typically an up-front cost or conversion fee to refinance a loan, so the potential savings in interest has to be greater than the cost to refinance.
Loans with flexible or variable interest rates have payments that fluctuate with interest rates and will already reflect lower interest rates. Just be aware that the payments will also increase as interest rates increase.
Potential savings are greater for loans with later maturity dates. More of each payment is going towards interest than principal. In the last year or two of a loan, most of the payment is going towards the principal rather than interest, so savings may not be worth the fees charged to refinance the note.
Visit with your lender to find out what the opportunities might be and push a pencil before making a decision.
Example: A mortgage note with a current balance of $317,800 and interest fixed at 5.5%. There will be 120 monthly payments at $3,461 each. A new rate of 4.6% is assumed with a one-time conversion fee of $1,500. New monthly payments for the remaining 10 years would be $3,319. The difference in monthly payments would be $142 per month.
In this case, it will take more than 10 months before the farm actually realizes savings from the change (the length of time it will take to recoup the fee). However, the farm will save an additional $15,566 in interest over the remaining life of the loan.
Bottom Line #1: If you have not recently reviewed and refinanced your existing debt, there may be an opportunity to lock in lower interest rates, decreasing your total debt payments once conversion fees have been covered. Because of the fees involved, most savings will be realized in future years.
Bottom Line #2: If you have variable interest rate loans, consider converting them to fixed-rate loans to lower the risk of interest rates increasing rapidly in the future.
Learn more: To read about additional DIBS, visit: http://dairy.osu.edu/DIBS. Many existing DIBS are in the process of being revised and new ones will be added. I encourage you to visit the site to read about those topics of most interest to you.
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