A Reality Check

It’s time for a reality check. Maybe I’ve missed something. I’ve been in the dairy industry for almost 40 years. I got my first job in it when I was in my early teens. Now, I think I’ve seen it all. A program for banks called TARP (Troubled Asset Relief Program) now being in need of a new name: TRAP! Let me tell you why I’m so ticked off.

Recently, a client of mine has been up for their annual renewal of their credit lines.

In 2008, they refinanced their real estate loan with an insurance company.  Perfect timing! The result: $0 against a herd valued at $ 1,500,000 with 650 cows and 450 heifers – all free and clear. At Fiscal Year End, they owed     $100,000 vs. a feed inventory in excess of $ 400,000. All well within normal industry standards. What’s especially interesting is that this client showed the highest 2008 profit they’d had in eight years! WOW!!! So, it’s buyer beware…their bank has some issues within its own portfolio makeup.

We were presently positioned where we wanted to be, going into the recent downturn.

To review: 22% LTV on feed; 6% LTV on Herd and Feed…Best profits ever in 2008… As Warren Buffet said “It’s economic times like these, when the tide goes out, that we find out who has been swimming naked.”

Here’s our response to the bank’s plan to reduce our feed line amount, make it non-revolving now and raise the interest rate. We’ll start shopping it. There will eventually be a bank looking for positive deals.  Here are the steps:


1.     Develop our plan.

2.     Determine our needs.

3.     Talk to other banks and potentially change lenders.

4.     And, as Dan Sullivan of The Strategic Coach says about recessions: “We can now stop investing time and money in things when they are no longer useful and productive.”  That includes weak banking relationships!!!

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