Jumping ship on dairy biz? Think it out

UNIVERSITY PARK, Pa. — Penn State’s Dairy Alliance team is working to develop educational materials for producers interested in exiting the dairy business.

Although information is available now via the Dairy Alliance Web site, two team members are hopeful a program about this topic will be available through extension educators this fall.

John Becker, professor of agricultural law and economics at Penn State, and Brad Hilty, business and information management specialist with Dairy Alliance, have identified issues for dairy farmers to consider before calling it quits.

Here is a brief overview of their recommendations.

1. Analyze the situation. Hilty said the worst thing producers can do is blindly react to bad economic news.

Assess your financial situation, the market situation, your legal relationships and your other employment possibilities.

2. Seek help. Involve your lender and accountant from the very start of your planning. Talk to your support system and, if needed, professional counselors.

3. Think it out. Hilty recommends producers determine their “threshold equity,” the amount they want to walk away with after selling the business. Should you exit now or will better economic conditions lead to appreciation in your assets?

Becker recommends checking out restructuring policies with lenders or looking into liquidating some assets before you make the final decision to exit.

Also consider any government program relationships that you have. Not fulfilling the program’s commitment may result in an unexpected consequence.

4. Know your true equity position. Hilty and Becker said there are many factors that should go into your final decision.

Examine the value of your assets, and consider having your cattle and equipment appraised. You might have to adjust real estate values.

Be sure to include deferred taxes, and consult your accountant. Unpaid taxes should also be factored into the equation.

List your debts by category — secured, unsecured and cross-collateralized. For secured debts, be sure to include how they are being secured (through mortgages, cattle, etc.).