Financial performance of New England dairy farms

Abstract

This article uses a procedure developed by Melichar to classify 124 New England dairy farms according to their financial performance. Logit regression is then used to estimate a model that seeks to explain the variation in observed financial performance. It was found that 80% of the farms in the sample were in good financial position in 1984. The results of the logit regression suggest that production per cow, farm operating expense per cow, milk price, non-milk sources of farm income, farm size, farm location, and land purchases in the last five-year period are statistically significant determinants of financial performance. Surprisingly, operator education is not statistically significant.It is well known that many agricultural producers experienced financial dificulties in the mid-1980s. According to Melichar,] 17% of the nation's farmers were showing signs of financial stress in 1985; and, although this has been a national problem, producers of some commodities have been more vulnerable than others.For instance, Gabriel2 found that, except for poultry production, dairy farmers have experienced more financial difficulty than producers of other agricultural commodities. The size and importance of the nation's dairy industry underscore the seriousness of the financial stress problem in this sector. For example, in The authors gratefully acknowledge helpful comments received from R. Leonard, S. Seaver, E.

Accounting Information and the Prediction of Farm Viability

“…Similarly, changes in net worth (used by Krause and Williams, 1971) also seem to provide an unsatisfactory measure of financial success. Debt-toasset ratio (Lines and Zulauf, 1985) and positional categories of financial health (Melichar, 1985;Wadsworth and Bravo-Ureta, 1992;and Carley and Flechter, 1988) also seem arbitrary and partial measures. Seger and Lins (1986), Ofek (1993) and Phimister (1995) point out that cash flow generation, used by Grisley (1985) and Adelaja and Rose (1988), is a particularly misleading indicator in agriculture.…”

“…It is expected that the more productive farms, measured as high values in output to annual work unit or to economic size unit, will have a smaller probability of failure. Wadsworth and Bravo-Ureta (1992) and Carley and Flechter (1988) found this relation employing physical measures of productivity.…”