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Dairy farm financial performance: firm, year, and size effects

Author

Listed:
  • Christopher A. Wolf
  • Mark W. Stephenson
  • Wayne A. Knoblauch
  • Andrew M. Novakovic

Abstract

Purpose - The purpose of this paper is to evaluate dairy farm financial performance over time utilizing farm financial ratios from three university business analysis programs. The evaluation includes measures of profitability, solvency, and liquidity by herd size. Design/methodology/approach - Financial ratios to reflect profitability (rate of return on assets), solvency (debt to asset ratio), and liquidity (current ratio) were collected from Cornell University, Michigan State University, and the University of Wisconsin for dairy farms from 2000 to 2012. The distribution of farm financial performance using these ratios was examined over time and by herd size. Variance component methods are used to examine the percent of variation due to individual firm and industry aspects. A simple credit risk score is calculated to examine relative farm risk. Findings - Dairy farm profitability performance is similar across herd sizes in poor years but larger herds realized significantly more profitability in good years. Findings were similar with respect to liquidity. Large herds consistently carried relatively more debt. Large herds’ financial performance was more uniform than across smaller herds. Larger herds had more financial risk as measured by credit risk scoring but recovered quickly to industry averages in profitable years. Originality/value - The variation of dairy farm financial performance in an era of volatile milk and feed price is assessed. The results have important implications for farm financial management and benchmarking farm financial performance. In addition to helping to evaluate the efficacy of various price and income risk management tools, these results have important implications for understanding the benefits of the new federal Margin Protection Program for Dairy that is available to all US dairy farmers.

Suggested Citation

  • Christopher A. Wolf & Mark W. Stephenson & Wayne A. Knoblauch & Andrew M. Novakovic, 2016. "Dairy farm financial performance: firm, year, and size effects," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 76(4), pages 532-543, November.
    • Handle: RePEc:eme:afrpps:afr-02-2016-0009
    DOI: 10.1108/AFR-02-2016-0009
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    Citations

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    Cited by:

    1. Elodie Letort & Aude Ridier, 2022. "The economic performance of transitional and non-transitional organic dairy farms: A panel data econometric approach in Brittany [Les performances économiques des exploitations laitières en agricul," Working Papers hal-03635268, HAL.
    2. Elodie Letort & Aude Ridier, 2022. "The economic performance of transitional and non-transitional organic dairy farms: A panel data econometric approach in Brittany," Working Papers SMART 22-03, INRAE UMR SMART.
    3. Letort, Elodie & Ridier, Aude, 2022. "The economic performance of transitional and non-transitional organic dairy farms: A panel data econometric approach in Brittany," Working Papers 320345, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    4. Teo, Sze Wee, 2017. "Telekom Malaysia Berhad (TM): Study of Relationship Between Performance (ROA) and Internal, External Factor," MPRA Paper 78461, University Library of Munich, Germany, revised 17 Apr 2017.
    5. Łukasz Kryszak & Marta Guth & Bazyli Czyżewski, 2021. "Determinants of farm profitability in the EU regions. Does farm size matter?," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(3), pages 90-100.
    6. Tomas Baležentis & Aistė Galnaitytė & Irena Kriščiukaitienė & Virginia Namiotko & Lina Novickytė & Dalia Streimikiene & Rasa Melnikiene, 2019. "Decomposing Dynamics in the Farm Profitability: An Application of Index Decomposition Analysis to Lithuanian FADN Sample," Sustainability, MDPI, vol. 11(10), pages 1-15, May.

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