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I find many of my clients do not understand the loan covenants nor do they understand the manner in which the particular bank wants them calculated. I must admit at times I am unsure of the calculation the lender is attempting to perform. In general, prior to 2009, the only firm loan covenant monitored by the bank was the advance rate (or loan-to-value) on the collateral base (cows, feed, etc.).

With the recent improvement in a typical dairy’s margin over feed cost, most dairies are starting to see some improvement in their cash flow. This improvement allows dairy producers to catch up on any bills that may not have been current, start doing some deferred maintenance and — possibly — look at making some capital purchases. The strong current margins are causing some producers to think about what is next for their operation.

With winter kill and prevent plant last year, many producers were able to get a good handle on their 2012 feed inventories as inventories were lower than they have been in quite a while. The effects of last year are still leaving some uncertainty among producers this year on how alfalfa fields will be affected by this winter. Unfortunately with weather conditions during our growing season, many producers are having feed-quality issues in forages, which are affecting production. The main thing to keep a close eye on is ensuring you have enough feed to get through until the 2014 harvest.

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