Focus Management Group

Dairy Industry Restructuring Considerations

Dairy Industry Restructuring Considerations

By Juanita Schwartzkopf and Robert Miles

Focus has prepared an industry overview and restructuring strategy discussion to assist stakeholders in their review of portfolio dairy industry operators. For a copy of our detailed analysis, download the eBook.

Purpose

The purpose of this analysis is to provide a single source for statistical information relating to the dairy industry in terms of both outputs and inputs. Background into dairy-related markets will be explored, and concepts relating to analyzing dairy farm financial operations, as well as suggestions for restructuring efforts, will be discussed. Also included are financial and operating analysis tools used to understand an operator’s ability to achieve break even, as well as a framework for discussing restructuring alternatives with dairy farm clients or their stakeholders.

Objectives

  • Discuss the microeconomic and macroeconomic environment in which a dairy operator conducts business.
  • Address the methodology used to assess an operator’s opportunities for successfully achieving break even operations before debt service, and an operator’s ability to service various levels of debt.
  • Identify financial and operating information needed to adequately assess restructuring efforts, including performance of the operation, asset valuation and debt levels.
  • Address out of court and court protected restructuring opportunities and potential strategies.
  • While the understanding of the marketplace and the operations of the dairy farmer are being developed from a financial and operating perspective, it is important to conduct a thorough legal review of loan documents, debt levels, unsecured debt, existing contracts, etc. that is part of any restructuring effort.

The future for dairy farmers is difficult to assess. Insight may be gathered by regularly reviewing futures prices, and performance risk may be reduced by continuing to improve efficiency. However, volatility in the markets (milk and feed) will always result in periods of tightening margins and periods of expanding margins. The successful dairy farmer must prepare for the periods of tightening by stockpiling cash and become adept at managing through high levels of uncertainty and, therefore, related risk. Restructuring efforts will require stakeholders to understand the risks and develop alternative strategies quickly.

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