Financial Considerations When Expanding Your Dairy Farming Operation

E.B. 94-17There is clearly a trend towards fewer but larger dairy farms throughout the United States and in New York State. In New York State, average herd size increased from 53 cows in 1984 to 66 cows in 1993. Changes in herd size were even more pronounced in the New York State Dairy Farm Business Summary (DFBS), a record keeping project at Cornell University. In that project, the average herd size increased from 104 cows in 1989 to 123 cows in 1992. This trend in larger herd size is primarily the result of the higher profitability and efficiency that is associated with larger herd sizes. For example, note the labor and management income in the DFBS for 1992. Herds with less than 40 cows averaged labor and management income of -$8,245, while herds in the 200 to 300 cow range averaged $13,844, and farms with herd size over 300 cows averaged $167,301 of labor and management income per farm. In order to capitalize on the efficiency and profitability that larger herd sizes tend to offer, many dairymen are considering expansion. Hence, providing the results of recent experiences of expanding farmers should be of interest and of use to farmers considering future expansion. This study provides information on the implications of an expansion from both a farmer and a lender perspective. The specific objectives of this study are as follows: 1) To learn which lenders were utilized by farmers to obtain expansion credit2) To describe the lending process followed in expansion situations and the criteria used by lenders3) To learn what types of financial problems farmers encountered when expandingand 4) To suggest means by which expanding farmers might minimize financial problems