A Review of Pennsylvania Dairy Farm Performance: 19952000

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A Review of Pennsylvania Dairy Farm Performance
1995-2000

• Jeffrey Hyde
• Department of Agricultural Economics and Rural
  Sociology
• Penn State University

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equal opportunity, and the diversity of its
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Last Updated 7/02/02
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Presentation Overview

• Introduction
• Data analysis
• Implications
• The Big Picture

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Introduction

• Average 18,009 pounds/cow/year (median 18,151)
• Average 88 cows per farm (median 71)
• Diverse practices and resources

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Introduction

• Regardless of size
• or production level, each is a
• unique business entity
• and should be operated as such.

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Data analysis

• Farm level production and financial data
  1995-2000
• Want to see how farm profitability is affected by
  farm size and by farm productivity
• Is there hope for the small farm?

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Data analysis

• Farm Profit Total Profit
• Total profit total farm income minus total farm
  expenses
• Note Does not include family draws!

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Data analysis

• Farm profit by herd size
• Larger herds have higher profits
• The average 175-199 cow herd has 3.3X the
  profit of the average herd of 40-59 cows

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Data analysis

• Median farm profit by herd size

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Data analysis

• Farm profit by milk production per cow
• More productive herds have higher profits!!
• The average herd with 20-22,000 pounds has 3.2X
  the profit of the average herd with less than
  14,000 pounds

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Data analysis

• Median farm profit by milk production per cow

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Data analysis

• Farm Profits Return on assets
• ROA
• (Net Income Interest Exp. Family Draw) /
  Total Farm Assets

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Data analysis

• Farm Profits Return on assets
• Net return to total farm assets (debt and equity)
  as a percentage of total assets
• Example ROA of 3 means that each 1.00 in
  assets returned 0.03.

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Data analysis

• Farm Profits Return on assets
• Increases with farm size
• Average farm with less than 40 cows has
  consistently negative ROA
• More than 200 cows, consistently positive
• Nearly all suffer when prices are low (2000)

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Data analysis

• Return on assets by farm size

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Data analysis

• Farm Profits Return on assets
• Increase with milk production per cow
• Above 18,000 pounds (state average), generally
  positive ROA
• Negative ROAs in low-price years

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Data analysis

• Return on assets by milk production per cow

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Data analysis

• Farm Prices
• Smaller farms have opportunity to increase prices
  received
• Some part of price received is market-based
• Other part may be due to lost quality and
  component premiums
• Increased quality and premiums may increase
  profitability substantially

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Data analysis

• Farm Prices by Herd Size

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Data analysis

• Farm Prices
• No pattern of farm prices when analyzed by milk
  production per cow

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Data analysis

• Farm Prices by Milk Production Per Cow

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Implications

• Smaller farms can be competitive!
• Need to analyze
• Productivity
• Prices received through quality premiums
• Time spent managing
• Be careful about use of averages!!
• Some small farms outperform larger ones
• Some lower producing farms outperform higher
  producing ones

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The Big Picture

• Farmers are business operators
• Lifestyle is great, but must be supported by the
  business
• High quality records, and their analysis, help
  keep business on track

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The Big Picture

• Theres room for farm businesses of all sizes in
  Pennsylvanias future

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Thank You!
Let me tell you the secret that has led me to my
goal. My strength lies solely in my
tenacity. - Louis Pasteur