Making a big investment on a farm takes a lot of time and consideration. Often, owners meet with outside team members to help brainstorm and think through this process. The same holds true when producers look to purchase robots. According to Cassie Monger, a dairy lending specialist with Compeer Financial, the goal of purchasing robots, like any capital investment, should be their return on investment (ROI).
“Determining how the project may impact their financial situation, in terms of balance sheet, equity position, cash flow and cost of production (COP), should be top of mind. Be sure you are evaluating all your financing options, including leasing the robots. This provides an alternative solution to meet your needs, assuming you have a strong cash flow,” Monger says.
With any major expansion, enhancing cow comfort, productivity and efficiencies should be one of the main goals.
“We know labor is a challenge today, so evaluating how a transition to robotics changes the way you manage your labor is important,” Monger says.
She cautions producers to take emotions out of the discussion because it can limit the ability to look clearly at the big picture.
“There might be a blind spot they are not thinking about,” she adds.
Before Building
When looking ahead to an expansion, the price tag often requires financing. Depending on just how large the investment is, it may significantly leverage the farm contingent on the scope of the project.
“Regardless of what stage of the process they’re in, having a strong working capital position is vital,” Monger adds.
Volatility and flexibility are the name of the game, as there can be a few bumps in the road.
Another consideration is risk mitigation. Monger says if this is not something a producer is already doing, they need to strongly consider it to help maintain owner equity and working capital positions.
Before rushing into a new project, producers must think about every aspect of the operation and how it might be affected.
“Use the S.M.A.R.T method, do your homework, lean on your advisors,” Monger says. “Their success should be everyone’s priority, so take the time to talk to multiple sources to be sure there is not an area they are overlooking.”
Next Steps
Lenders, like Compeer Financial, will ask producers to do their homework before proceeding forward with expansion or building plans. Some example questions that lenders could ask are:
- What are your business short-term goals?
- What are your business long-term goals?
- What are the key financial strengths you need to make in order to switch to robots?
- What are you currently doing to mitigate risk?
- How will robots impact your operation and management?
- Are you willing to learn new technologies and processes and change your management style?
- What cow flow method do you prefer? Why?
- What key metrics (benchmarks) will you use? Why?
Monger says that taking time to define your future road map upfront helps in the long run. She also notes that frequent conversations and modifications will unfold during the entire process.
Other Key Information
Other key documents and figures a producer must know when visiting with your lender before financing an expansion include:
Historical production and financial information, such as:
- Past 3 years of dairy production information with cow numbers, milk production and other herd health information.
- Past 3 years of crop production.
- Past 3 years of financial statements, like balance sheets, income statements, and income tax returns.
Michigan dairy producer, Ashley Messing Kennedy, is one of a growing number of farmers in the U.S. that switched to robots. In 2013, her farm installed four Lely robots. She credits the relationship they have with their banker for the success they’ve had with financing.
“For us, [prepaid labor] was an easy sell [with our banker], but we knew that there were going to be other things that were going to pay back too,” she says.
Kennedy says they did their research and then went to their banker with a plan.
“We knew how much the robots would cost, we knew we wanted to have them paid for in 10 years and we knew that we prefer monthly payments,” she explains.
Producer’s Takeaway Advice
Kennedy offers these three tips to producers who are looking to invest in robots:
- The support and dealership is essential.
- Your nutritionist is one of your most important assets. Find someone willing to learn how to manage a robot herd’s feed and adapt as things change and alter.
- Be ready to change your management techniques because a big part of your philosophy could be changed.
