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. Pagoulatos, and anonymous referees on earlier drafts of this paper, the secretarial assistance of