When it comes to decision making on a dairy farm, today’s farmer is often making decisions based on financial considerations and long-term viability of the farm vs. lifestyle choices. Neither is good nor bad; it’s a matter of figuring out where you’re 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 vs. 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 that 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 “get better” before you work on “getting bigger?” Farmers who struggle to get sufficient production per cow, for example, shouldn’t think about getting 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 opportunity to improve your operation, that’s probably where you should focus first.
  • What’s the “why”/ motivation behind the expansion? Operators have all kinds of reasons for growing/ 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 they want to add people for
    the day-to-day work, that’s a lifestyle decision. There are also nextgeneration issues such as bringing family members into the operation. It all comes down to finding out your own “why” before developing a plan to get there.
  • 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, to be able to have enough 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 some 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 your 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 a very profitable 100-cow operation. What all size operators need to be mindful of is finding ways to stay sustainable and viable – which may or may not include future expansion.

Written by Dave Coggins

Dave is Executive Vice President - Chief Banking Officer of Investors Community Bank. He has been with the bank since 2009 and has over 40 years of lending and leadership experience, including 10 years as president of Business Lending Group and 24 years in various lending and leadership roles in the Farm Credit System. Dave holds a Bachelor’s Degree from the University of Wisconsin-River Falls. He is actively involved in many community/professional organizations, including serving as treasurer and finance committee chair for Progress Lakeshore and a member of the Wisconsin Bankers Association Government Relations Committee. He is also a past chair of the WBA Ag Bankers Section and is currently vice chair of the ABA Ag and Rural Bankers Committee.

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