Considering Expansion?

We began our conversation with Northwest Farm Credit Services Relationship Manager Andy VanderPlaat yesterday. With ranchers making for the most part strong profits this year, many may be considering expansion. I asked what factors should be examined if a rancher is thinking about expanding their cattle operation.

VanderPlaat says that knowing your cost of production is critical when making decisions about expansion. He adds

VanderPlaat: “Expand based on profitability -- that is use profits to expand. Don’t use a lot of debt to expand your operation just because it is going to take four or five years to pay for that heifer that you held back. The other thing you need to do is sit down and make sure that holding those additional animals back into the herd -- that it is going to be profitable. What are your costs? What are your break even costs? If prices were to decline some, would you be able to cover those costs using some kind of a worse case scenario - if prices decline by 20 percent will it add to the bottom line or will it cost you.”

He says that as important as it is to know your cost of production it is just as critical to continue to monitor expenses and know your break-even point as well.