Specifically, local dairymen fear an attempt by a group of feed sellers to recoup loans from a bankrupt dairy will make it more difficult to borrow money.
“It has the potential to lower the value of what you can borrow based on cattle,” said Bob Naerebout, executive director of the Idaho Dairymen’s Association.
When a dealer sells an agricultural product, like feed, a lien is created on the sold product. The question is whether Idaho law (Idaho Code 45-1802) states a lien by a feed seller attaches only to the actual feed sold, or if it also attaches to the livestock that eat the feed.
The case has its roots back in 2008 and 2009, when Green River Dairy, owned by Herculano and Frances Alves, took out 10 loans with Farmers National Bank with their dairy’s cattle as collateral.
Court records state several feed sellers — including Hull Farms, Carter Hay and Livestock, Lewis Becker, Jack McCall and Tim Thornson — sold hay and wheat to the dairy to be used as cattle feed.
Later, Green River Dairy defaulted on its loans with Farmers. The bank then took possession of the cattle and sold them through an auction, raising $211,957.58.
With money still owed the feed sellers, they sought part of the proceeds, arguing their liens should not become invalid just because the feed is eaten. A lien would become of little value if it disappeared with the feed, given how quickly feed is eaten, they argued.
Twin Falls County 5th District Judge G. Richard Bevan ruled in favor of the feed sellers, denying Farmers’ claim that its lien on the dairy’s cows took priority over the feed sellers’ liens.
Farmers appealed the decision to the Idaho Supreme Court. Supreme Court Clerk Stephen Kenyon said the court received the appeal in the mail on July 3.
At the moment, Green River Dairy owes Farmers about $2,616,008.2 and owes the feed sellers a total of $185,404.71.
A victory for the feed sellers wouldn’t necessarily be viewed the same way by dairymen. Naerebout said the case sets a bad precedent for dairies.
A few years ago, farmers would borrow $1,300 against each head of cattle, Naerebout said. Now, that’s about $950 to $900.
“They could drop that again. Instead of $950 they could say less,” he said. “In certain cases the bank could say no.”
The dairy association will file an affadavit for the Supreme Court to consider during the appeal, Naerebout said. The case shouldn’t just be important to farmers and dairymen, he said.
“People understand borrowing and being able to borrow against your equity,” he said. “This is potentially don’t being able to do that.”
©2012 The Times-News (Twin Falls, Idaho)
Visit The Times-News (Twin Falls, Idaho) at magicvalley.com
Distributed by MCT Information Services