Dairy farmers reel from milk prices

EATON – One of the nation’s biggest dairy operations filed for Chapter 11 bankruptcy earlier this month, owing millions to creditors and suffering from industry-wide conditions that are worrying operators of all sizes.

Johnson Dairy, which opened in 2003 and has grown into the largest dairy operation in the state, filed for bankruptcy on Jan. 8, citing assets of $10 million to $50 million and debts of between $50 million and $100 million.

John D. Johnson, owner of Johnson Dairy, also filed for personal bankruptcy protection and both cases have been joined together in U.S. Bankruptcy Court for the District of Colorado. A meeting of Johnson’s and the dairy’s creditors has been set for Feb. 17.

Neither Johnson nor his attorney, Jeffrey Weinman, responded to telephone calls for comment on this story.

Chapter 11 bankruptcy allows the filer to continue operating during the bankruptcy’s court proceedings, but Johnson has been facing creditor challenges that threaten the dairy’s survival. On Jan. 19, Daniel and Susan Kruse petitioned the court to force Johnson Dairy to continue making monthly payments of $90,500 for the lease of 3,780 of their dairy cows. The petition also indicated that Johnson was leasing another 5,000 cows, which would account for nearly all of the dairy’s 9,000-cow operation.

Judge Sidney Brooks denied the Kruses’ motion on Jan. 22, saying the matter would be dealt with as bankruptcy court proceedings unfold.

Johnson is also asking Judge Brooks to allow him to pump cash earned back into the business rather than giving it to creditors to maintain the dairy’s viability during the bankruptcy period.

Huge operation

The Johnson Dairy operation is huge. Rodney Johnson, Johnson Dairy’s CFO, declared to the court that the dairy milks three times a day, moving more than 70,000 gallons of milk per day. Based on current prices, milk sales have been bringing in about $2.4 million each month, Johnson said.

While that sounds like a lot, Johnson said the dairy spends about $1.7 million each month on feed and related products. Labor and other miscellaneous costs bring monthly operating costs to about $2.3 million, Johnson said, which does not include debt service on loans from New Frontier Bank and lease payments for dairy cows.

“Failure to pay for feed or the labor associated with maintaining the debtor’s livestock would result in an immediate and accelerating decline in milk production and revenue,” according to Johnson’s motion. “The health of the livestock would be jeopardized. The debtor cannot operate its business or even preserve the value of its assets without utilizing cash collateral.”

A final hearing on the use of cash collateral was set for Jan. 28, after the Business Report went to press.

Cynthia Haren, CEO of Western Dairy Association in Thornton, said she hopes John Johnson and his wife, Dotty, will survive their bankruptcy and emerge again as strong players in the Northern Colorado dairy industry.

“I know John and Dotty Johnson personally and their professionalism in the industry is esteemed,” Haren said, adding that Johnson Dairy’s state-of-the-art milking barn, constructed in 2007, is a wonder to behold. “What you see there is the highest technology and great animal care and the highest quality of farm practices.”

Haren said the dairy business in general has been hit by high milk production that has resulted in lower prices both domestically and in foreign markets. The price of milk has slipped from $20.50 per hundredweight in January 2008 to $15.90 per cwt in December, according to USDA figures.

All sizes impacted

Haren said she didn’t believe it was the size of the Johnson Dairy operation that made it particularly vulnerable to economic difficulties. “It is not business as usual for any of us,” she said. “All of our dairy farmers, no matter what their size, are experiencing tight credit and lower demand. It’s impacting every size operation.”

Greg Yando, spokesman for Dairy Farmers of America, said relatively new operations like Johnson Dairy are having a harder time than more established operations.

“I can’t talk specifically about Johnson Dairy, but I will say it’s a situation with the financial collapse and it becomes a timing issue,” Yando said. “Anyone who made a significant investment within the last few years has a lot of debt service, and with the milk price and the global market down, they just don’t have the income to pay that debt service.”

Yando said dairy operations will likely be more aggressive in culling unproductive cows and sending them to slaughter until milk prices rise again.

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