Not everyone needs a 1,000-cow operation; there are farmers with very profitable 100-cow operations.
Since the 1990s, Wisconsin’s dairy industry has experienced some of the most significant changes in its history. Perhaps one of the most pivotal outgrowths is that the industry is driven heavily by business principles.
Today’s dairy farmer is making decisions based on financial considerations and long-term viability of the farm versus lifestyle choices. Neither is good nor bad; it’s a matter of figuring out where a producer is headed and why. To that end, here is a checklist of items to consider when deciding if expansion is right for you.
What are the risks to growing versus staying the same? Anytime you change your operation, you assume a certain amount of risk, such as more debt. People who are risk-averse might want to continue as they are, but keep in mind the industry is rapidly changing and growing. What risk are you willing to take?
Do you have opportunities for better before bigger? Have you taken advantage of all the opportunities to become better before you work on growing bigger?
Farmers who struggle to reach sufficient production per cow, for example, shouldn’t think about growing bigger until they’ve addressed their production problems. Maximizing milk per cow on your existing operation may yield much greater financial benefits in the short run versus adding more cows. If you’re below industry averages and have the opportunity to improve your operation, that’s where you should focus first.
What’s the motivation behind the expansion? Operators have all kinds of reasons for expanding, and while many can co-exist, it’s important for a lot of it to be driven off financial metrics.
However, if a farmer with an 80-cow stall barn is considering growth because he or she wants to add people for the day-to-day work, that’s a lifestyle decision. There are also next-generation issues such as bringing family members into the operation. It all comes down to finding out your own “why” before developing a plan to reach that goal.
What’s your management capacity for change/management talent? Some people’s management talent for dealing with more people and more systems can be limited; they may be more task-oriented versus people-oriented.
A larger organization takes more of the latter, so you need to ask the hard question of whether you have the talent for taking on a bigger and much different job and a more strategic role in the organization.
Do you have the infrastructure to accommodate growth? Do you have access to more land, either owned or rented? Do you have enough land for feed and room to spread the manure, as well as raise your own heifers?
Land availability might be the single most important governor on growth. If not, you may face insurmountable challenges. Manure systems, feed storage and parlor capacity can also have bottleneck potential when expanding.
Do you have a succession plan? Are you grooming someone for the next generation of farm operations? If you’re just growing and don’t have a successor, or aren’t facing the inevitability of selling, you may not be taking in the full scope of your operation’s future.
Are you prepared for the banker? Your banker is going to look at a whole host of factors in considering your request for expansion, from working capital to long-term cash-flow assumptions, transition and construction-phase issues, contingencies and having a well-documented plan. Any one of these items alone might not be a disqualifier, but the blend of all these analyses will help the banker determine what is approvable and bankable.
Remember, not everyone needs a 1,000-cow operation; there are farmers who have very profitable 100-cow operations.
What all-sized operators need to be mindful of is finding ways to stay sustainable and viable, which may or may not include future expansion.
Source: Agriview
