Structure, Management, and Performance Characteristics of Specialized Dairy Farm

Businesses in the United States. By Sara D. Short. Resource Economics Division,

Economic Research Service, U.S. Department of Agriculture. Agricultural Handbook

Number 720.

Abstract

The U.S. dairy industry faces a changing government policy environment in the year 2000.

Milk producers are struggling, and will continue to struggle, to adjust to markets that are

more dependent on the forces of supply and demand. Data from the 1993-95 Farm Costs

and Returns Surveys and the 1996 Agricultural Resource Management Study show that

dairy farm businesses in general did a fairly good job of meeting short-term debt, generating

returns, and meeting long-term debt from 1993 to 1996. The analysis indicates that farm

management strategies will play an important role in determining the overall profitability of

a dairy farm business as Government supports decline. However, the 1996 data suggest that

changes in management techniques are adopted slowly.

Keywords: Dairy farm businesses, structure, management, performance,

characteristics.

	



	
Contents

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Approach to Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Data Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Economic Structure . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Financial Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Dairy Farm Management Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Distribution of Profits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Appendix A: Definition of Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . .27

Appendix B: Statistical Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Appendix Tables . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

ii Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA
Summary

With a changing policy environment requiring more adjustment to forces of supply and

demand, dairy managers can improve the business decisions they make by knowing the

financial strengths and weaknesses of their businesses. Measures of productivity, liquidity,

financial efficiency, solvency, and profitability are examined here for U.S. farm production

regions and various sizes of dairy farms. These measurements can help dairy farmers isolate

their businesses’ strengths and weaknesses.

In 1993, average milk production per farm in the Pacific, Southeast, and Southern Plains

regions was at least three times as great as in the other three regions. However, in terms of

total acres operated, specialized dairy farms in the Pacific region were much smaller than in

the other five regions, primarily because these operations purchased most, if not all, of the

inputs used. Management skills in the Pacific region were focused on milk production. Feed

and labor efficiency among milk producers in the Pacific, Southeast, and Southern Plains

regions improved significantly with increased size of the operation. Greater feed and labor

efficiency by larger producers may be due to herd composition, better genetics, ration composition, more intensive feed management, newer, more modern facilities, and a better climate.

All six regions posted a current ratio value greater than 1 in 1993, indicating that, on average, all dairy businesses were meeting short-term demands for cash from existing liquid

assets—an important factor when obtaining credit from lending institutions. The same held

true for 1996.

The efficiency and flexibility of dairy businesses in meeting interest payments showed no

change during the 1993-96 period. The interest to gross cash income ratio was the same in

each year. In each year, dairy businesses committed similar shares of gross cash farm

income to interest payments.

The income generated per dollar of assets used in production increased significantly

between 1993 and 1994. Commercial milk-fat use reached a record in 1994 as economic

growth continued, and retail prices of dairy products remained relatively favorable.

By 1996, the burden placed on net farm income to retire outstanding debt had increased significantly from 1993. Reflecting 1995’s reduced corn and soybean crops, higher concentrate

prices for feed squeezed returns for dairy businesses in 1996.

On average, solvency ratios for dairy farm businesses changed little during 1993-96.

However, these results mask the fact that, on a regional basis, the use of debt capital was a

crucial factor affecting the expansion of dairy businesses.

Profitability ratios for U.S. dairy businesses, in general, did not change significantly during

1993-96. Significant differences were posted in the Pacific region for the period 1993-95,

indicative of the farm size expansion that was taking place.

The common size income statement shows the trends for expenses, net cash farm income,

and net farm income for an average dairy business. The Upper Midwest was the least profitable region in 1993. The floods of 1993 were to blame for rapidly rising input costs.

However, in 1996, poor weather conditions affected all regions but the Upper Midwest.

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms iii
Dairy businesses in the Pacific, Southeast, and Southern Plains regions are larger in terms of

herd size, and they have higher variable costs, but they generate larger net farm incomes.

These businesses are more efficient and productive in terms of feed fed, milk produced,

labor employed, and capital invested than farms in the Corn Belt, Northeast, and Upper

Midwest regions.

The income statement shows a steady upward movement in net farm income generated by

an average dairy business in the United States between 1993 and 1996. The balance sheet

indicates that although total liabilities increased, a steady upward movement in total assets

owned by a dairy business led to improved business net worth.

Use of risk management strategies is correlated with the income received from farming. On

average, dairy producers who used management strategies had higher net incomes resulting

from larger volumes of production and management of the risk associated with farming.

Dairy businesses that generated high net farm income were significantly larger than businesses with low net farm income. Milk cow inventory on operations with high net farm

income was more than twice that of operations with low net farm income. More than 90

percent of high net farm income businesses were classified as being in a favorable financial

position, compared with 20 percent of low net farm income businesses. Output per cow on

high net farm income farms averaged 17,210 pounds, versus 14,984 on low net farm income

farms. Greater feed efficiency by high net farm income producers resulted from both more

output per cow and less feed fed per cow.

Regression analysis indicated that size (in terms of cow numbers) had the greatest individual effect on net farm income, accounting for 90 percent of the variation in net farm

income. Size, output per cow, and debt-to-asset ratio together accounted for 95 percent of

total variance effects on net farm income. Labor efficiency had the greatest effect on economic profit per hundredweight (cwt) of milk sold and on economic profit per cow,

accounting for 39 and 16 percent of the variance effects. Labor efficiency, specialization in

milk production, the keeping of farm and cost of production records, feed efficiency, output

per cow, and the value of land, equipment, and buildings accounted for over 95 percent of

the total variance effects on economic profit per cwt of milk sold and on economic profit

per cow. This implies that big does not necessarily mean successful.

iv Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA
Introduction

U.S. farming is changing in several important ways.

Farms have become more industrial in character, with

output becoming more concentrated on larger farms. Use

of contracts and other arrangements has become much

more prevalent, changing how farms are organized.

Farmers have become more attuned to participation in

global markets. Meanwhile, emerging technologies such

as computerized planting and input application, bio-engineered and other inputs, and management information

systems have had an impact on how farmers conduct

business activities.

Dairy farming and milk production, in particular, have

undergone dramatic structural changes in the last 50

years. Three forces that have been at work are technological innovations, changes in the production system, and

specialization. Substituting capital in the form of machinery and equipment for labor has greatly increased efficiency in milk production. Dairy farmers could redirect

their energy toward milk production when farm machinery freed them for other tasks such as crop or forage production. Mechanical milking machines, feeding systems,

and waste handling equipment have also led to efficiencies. Electrification brought refrigeration and bulk tank

storage, with associated improvements in health and sanitary conditions. On-going design changes in milking parlors and animal housing, development of computerized

monitoring tools, and further refinements in existing technologies continue to change milk production.

The second change that occurred was a widespread shift

from pasture/forage-based milk production systems to

confinement feeding systems that freed up labor and, in

some cases, capital (including human capital) for other

uses such as focusing on cow managment. Increases in

milk per cow were achieved as the change was made.

Expanding production provided a means to reduce costs

and take advantage of existing economies of size.

Finally, forces promoting specialization have been at

work. Milk production has changed from one of several

activities on a farm with milk cows to an activity on an

operation where milk production is the sole or the most

important activity. Specialized milk production has

changed the farmer to a more specialized worker.

Farmers may not be in the barn at all; they may function

as buyers of inputs (like feed), managers of inputs (labor

and cows, for example), or financial managers.

Accompanying these structural changes have been recent

changes in legislation that will affect farmers’ decisions

with regard to how they will allocate resources both within the farm unit and among farm and other competing

interests. The 1996 Federal Agriculture Improvement and

Reform Act phases out dairy price supports and provides

for reform of the Federal milk marketing order system.

Eliminating the guarantee of a floor under milk prices

changes the magnitude and character of the risk dairy

farmers face. Since 1940, policy has allowed dairy farmers in most of the country to produce whatever quantities

they wished and pass them on to their cooperatives (see

glossary) for marketing. Cooperatives could take almost

unlimited quantities and sell excess output to the U.S.

Department of Agriculture’s (USDA) Commodity Credit

Corporation (CCC). With price supports gone in the near

future, the supply-balancing function of CCC purchases

of butter, cheese, and nonfat dry milk will disappear. In

addition, as a participant in the General Agreement on

Tariffs and Trade (GATT) Uruguay Round, the United

States is committed to reducing border protection and to

increasing access of dairy imports to the U.S. market.

Consequently, milk producers will have to adjust to markets that are more dependent on the forces of supply and

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 1

Structure, Management, and Performance

Characteristics of Specialized Dairy Farm

Businesses in the United States

Sara D. Short

	


	
demand. That being the case, milk producers’ business

structure, managment, and performance have become

major issues.

This report provides a review of structural, financial, and

managerial strategies used by both successful and not so

successful specialized dairy farm businesses. The analysis

provides some insights into how dairy farm businesses

can continue to be viable in the new millennium. 

Related Studies

This report builds primarily on the work by Short and

McBride (1996) and El-Osta and Johnson (1998), both of

which used data from the USDA’s 1993 Farm Costs and

Returns Survey (FCRS). In their analysis of enterprises,

Short and McBride examined the structure and economics of U.S. milk production by comparing production

costs and selected production and farm characteristics

among U.S. milk producers. They used distributional

analysis to identify and measure sources of cost variation.

They showed that, while low-cost milk producers are distinguished from high-cost producers by size of operation,

animal performance, and production methods, differences

in feed and labor efficiency have the greatest influence on

milk production costs.

El-Osta and Johnson used multivariate analysis to determine factors associated with the financial performance of

commercial dairy farm operations. They showed that,

regardless of the location of the farm business, size of

operation contributed the most to variability in net farm

income. Factors found most important in explaining the

variation in net returns per hundredweight (cwt) of milk

sold were: (1) cow productivity, (2) per-cow forage production, and (3) purchased feed costs.

The analysis provided in this report broadens the scope of

the previous work of Short and McBride and El-Osta and

Johnson in two ways: (1) it looks beyond the milk production enterprise to focus on the structure, management,

and performance of the whole dairy farm business, and

(2) it provides a look at dairy farm businesses over a 

period of time.

The analysis of total farm businesses is the subject of

numerous studies. Financial ratio analyses are used in

this report as a basis for comparing the financial strength

of dairy farm businesses across regions and time

(USDA’s Economic Research Service (1997); Morehart,

Nielsen, and Johnson (1988); James and Stoneberg

(1986); Fraser (1988); and Plumley and Hornbaker

(1991)). Ratio analysis shows the relationships between

financial performance elements (solvency, liquidity and

coverage, efficiency, and profitability) and various farm

characteristics. Ratio analysis can give farmers/ranchers,

lenders, investors, analysts, and policymakers a more

complete perspective on the performance of a farm/ranch

or group of farms/ranches and may help identify actions

to modify their performance.

Common size financial statements (Fraser, 1988) are used

here to compare dairy businesses with different levels of

sales or total assets. These statements facilitate the evaluation of the financial condition and performance of dairy

businesses over time simply by introducing a common

denominator. Common size income statements are

income statements with each line expressed as a percentage of sales. Common size balance sheets are balance

sheets with each line expressed as a percentage of total

assets.

The comparative analysis approach, for a single farmer

and similar farms, used by Harsh, Connor, and Schwab

(1981) is the basis for comparing determinants of regional productivity. This report focuses on six milk production regions (see glossary) and the United States.

Determinants of productivity included are size indicators;

profit measures; income statement factors; and various

efficiency and productivity measures per cow, per cwt of

milk sold, and per hour of labor used.

Trend analysis is used here to compare dairy businesses’

performance indicators. This type of analysis is very useful when an operator is considering expansion because

lenders can, at a glance, get an idea of the business’

financial progress (Harsh, p.146).

Using the approach developed by Perry and Johnson

(1996) for U.S. farmers, this report evaluates the management decisionmaking process of dairy farm businesses.

Management decisions by dairy farmers dealing with the

risk associated with milk production are classified into

three categories: production, financial, and marketing.

2 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA
Approach to Analysis

The analysis of the total dairy farm business is presented

in four parts: economic structure, financial structure,

management strategies, and factors affecting the performance of the dairy business.

The economic structure of the dairy business is examined

for 1993 (the last year for which survey-based data are

available) to provide an overview of the farms included in

the analysis and of the factors that determine profitability

for the dairy farm business. Characteristics of farm operations with at least $50,000 in dairy-related sales (specialized dairy farms) are presented, along with efficiency and

productivity indicators for the dairy enterprise.

The analysis of the financial structure of the business

involves the preparation of balance sheet and income

statements. Financial ratios developed from the financial

and income statements are used to evaluate regional differences in the financial structure of the total dairy farm

business for 1993 and 1996. At the U.S. level, financial

ratios were developed for 1993, 1994, 1995, and 1996.

Management strategies used by dairy farmers in 1993 and

1996 are identified. Risks are widespread in agriculture.

Unexpected climatic, biological, economic, and political

events pose hazards to the viability of farm businesses.

One way to categorize farm risk management is to independently consider the production, financial, and marketing strategies used.

Factors affecting the performance of dairy businesses are

examined by analyzing the distribution of farm profits in

1993. The cumulative distribution of net farm income for

the dairy business at the national level is divided into

quartiles, with the bottom quartile representing the least

profitable farms and the top quartile representing the

most profitable farms. Various structural and performance

characteristics of farms with low and high net farm

income are tested statistically. Regression analysis is used

to determine the influence of farm structural and performance characteristics on three measures of profit for

the dairy business: net farm income, economic returns per

hundredweight of milk sold, and economic returns per

cow.

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 3
Data Sources

Data used in this report are obtained from the U.S.

Department of Agriculture’s (USDA) Farm Costs and

Returns Survey (FCRS) for 1993, 1994, and 1995 and the

1996 Agricultural Resource Management Study (ARMS).

These surveys of farmers and ranchers are conducted

jointly by the Economic Research Service and the

National Agricultural Statistics Service (NASS). The surveys cover farm and ranch operations in the 48 contiguous States.

The FCRS and the ARMS are multiframe, probabilitybased surveys in which sample farms are randomly

selected from groups of farms stratified (sorted into

groups) by attributes such as economic size, type of production, and land use. Each selected farm represents a

known number of farms with similar characteristics.

Weighing the data for each surveyed farm by the number

of farms it represents is the basis for calculating estimates

for all U.S. farms.

The surveys are designed to collect data to measure the

financial condition and operating characteristics of farm

businesses, the costs of producing agricultural commodities, and the well-being of farm operator households.

Several versions of the survey questionnaire are used in a

given year, one whole-farm version and several rotating

commodity-specific versions. For example, in 1993, two

questionnaires were used, the Farm Operator Resource

(FOR or whole-farm) version, and the dairy cost-of-production (COP) version. The FOR version provided 

greater detail on some survey items and included unique

questions on farm operator household characteristics. The

COP version contained in-depth questions on production

practices for the selected commodity but has less detailed

information about the farm business.

Each version of the survey has sample weights that allow

the data to be expanded to the U.S. population in two

ways: along with all other versions of the survey or, independently, with only the data from that version. Because

of survey costs, USDA cannot undertake a detailed survey of all major field crops and livestock enterprises each

year. Hence, each surveyed commodity is covered on a

rotating basis about every 5 years. Dairy was last covered

in 1993. Dairy will be covered again in 2000.

This report concentrates on specialized dairy farms. A

specialized dairy farm is defined as an establishment

which had at least 50 percent of cash receipts coming

from dairy product sales. Farms included in this study are

legally organized as proprietorships, partnerships, or family corporations.

The survey questions are asked of one operator per

farm—the senior farm operator. A senior farm operator is

the one who makes most of the day-to-day decisions.

When management is equally shared, the oldest person is

asked the questions. This survey design provides good

financial information for the farm business but limits

information about the people who farm when more than

one family is involved.

4 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA
Economic Structure

The support price has underpinned the entire price structure for milk sold by farmers, either directly to processors

or through cooperatives, since World War II. Technological developments, in conjunction with this Federal dairy

policy that reduced milk price variability, have changed

farming techniques over the last 50 years. Dairy farming

has changed from depending heavily on human and animal labor to one where most operations are mechanized.

Farms with 100 cows were considered large in 1950.

Economies of scale and a guarantee of a minimum price

for milk have led to fewer, more efficient (in terms of

quantities and quality of input use), larger operations.

The dairy price support program was changed in 2000,

effectively eliminating the support price as a major factor

in economic decisions. Federal milk market order prices

will remain, but the system will be streamlined by merging orders. While conclusions on the effects of policy

changes would be speculative at this point, this section

provides a broad overview of production, efficiency, and

productivity characteristics that have a positive effect on

the overall performance of the dairy farm business. 

Production Characteristics

Specialized dairy farms were 94 percent of the dairy

farms surveyed in 1993 (app. table 1). The majority of

specialized dairy farms in the Northeast, Upper Midwest,

and Corn Belt milk production regions had fewer than 60

cows (app. table 2). The largest dairy operations (300 or

more milk cows) were located in the Pacific and

Southeast regions (see glossary). These two regions had

the greatest number of large producers, an indication of

the recent growth in milk production that characterized

the Pacific and parts of the South. Economies of size (the

costs in large-scale operations versus smaller-scale ones)

have played an important role in making these areas fastgrowing milk production centers (Manchester and

Blayney, 1997). Larger farms also appeared in traditional

dairy areas such as New York, Michigan, and Wisconsin.

In 1993, average milk production per farm in the Pacific,

Southeast, and Southern Plains regions was at least three

times as great as in the other three regions. However, in

terms of total acres operated, specialized dairy farms in

the Pacific region were much smaller than in the other

five regions, primarily because these operations purchased most, if not all, of the inputs used. Management

skills were focused on milk production.

On average, specialized dairy businesses used close to

5,000 hours of labor in 1993. Total labor used was greatest in the Southeast region, about twice as much as in the

Pacific and Southern Plains and four times as much as in

the Corn Belt, Northeast, and Upper Midwest regions.

Farms in the Southeast hired the most paid workers to do

some farmwork. Businesses in the Pacific and Southern

Plains also depended more heavily on paid labor. Unpaid

labor (operator and other) was prevalent in the smaller

farms in the Corn Belt, Northeast, and Upper Midwest.

Most of the feed fed on farms with under 60 cows was

homegrown. Smaller farms in the Corn Belt, Northeast,

and Upper Midwest devoted labor and management, capital, and land to feed production. Because dairy farms tend

to be highly specialized in milk production, few other

crops were grown. Farms that did produce other crops did

so, for the most part, to feed the dairy cow herd.

More modern milking facilities (primarily herringbone

parlors) were used in about 60 percent of all businesses

in the Pacific and South. Barns with pipelines were more

common in the once ‘traditional’ dairy areas, the

Northeast and Upper Midwest regions. The relatively

more modern businesses of the Pacific and South also

made more use of automatic takeoffs, udder washers, and

computerized milking and feeding systems.

Efficiency and Productivity of Dairy Enterprises

Dairy cows on farms in the Pacific region produced an

average of about 2,400 pounds more milk per year in

1993 than dairy cows on farms in the other five regions

(app. table 3). Feed and labor efficiency among milk producers in the Pacific, Southeast, and Southern Plains

regions were much higher than in the other regions.

Producers in these three regions required nearly 50

pounds less feed and half the labor for each 100 pounds

(cwt) of milk sold than did producers in the Corn Belt,

Northeast, and Upper Midwest. Corn Belt, Northeast, and

Upper Midwest dairy businesses were substantially

smaller. Short and McBride (1996) have shown that feed

and labor efficiency among milk producers improved significantly with increased size of the operation. Greater

feed and labor efficiency by larger producers may be due

to herd composition; better genetics; ration composition;

more intensive feed management; newer, more modern

facilities; and a better climate.

Producers in the Pacific region received lower milk

prices, partly as a result of Federal and/or State pricing

policies. Operations in this region had higher milk per

cow, primarily due to the greater productivity of the milking herd. In addition, capital investment per cow and per

cwt of milk sold was much lower in the Pacific region

because of the larger herds.

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 5
Financial Structure

As Federal programs to remove excess milk supplies are

eliminated, dairy farm managers must more than ever

have detailed, reliable financial information on which to

base production decisions. Ratio analyses provide a basis

for monitoring and comparing the financial strength of

farm businesses (Harsh et al., 1981).

The financial performance of the farm business is evaluated by using financial ratios (see appendix A) that show

various relationships between income and balance sheet

statements in percentage terms (Farm Financial Standards

Council, 1995). Income statements are for the responding

farm operation prior to income taxes and exclude any

nonfarm expenses and off-farm income attributable to

household members associated with the farm business.

The farm business balance sheets provide the basis for

assessing financial position at a point in time. 

Liquidity

Liquidity is measured using information from a balance

sheet and measures the ability of the farm to meet financial obligations at a given point in time. The current ratio

(see appendix A) indicates the extent to which the sale of

all current assets (including livestock and crop inventories, purchased inputs, cash invested in growing crops,

and prepaid insurance) would be sufficient to cover current liabilities (notes payable within 1 year, current portion of term debt, accrued interest, and accounts payable).

The value of this ratio will vary throughout the production cycle. Greater liquidity is indicated by higher ratio

values. 

In 1993, the current ratio for dairy farm businesses in the

Northeast region was the highest among the production

regions (table 1). Nevertheless, all six regions posted a

current ratio value greater than 1, indicating that, on average, all dairy businesses were meeting short-term

demands for cash from existing liquid assets—an important factor when obtaining credit from lending institutions—and were not facing serious financial problems.

The same held true for 1996 (table 2).

The current ratio is limited by the balance sheet date; the

actual assets that can be sold may vary considerably from

the date of preparation. Some accounts receivable and

inventories may not be very marketable. Therefore, four

other liquidity ratios are presented in table 1 as measures

of short-run solvency.

The quick ratio excludes inventories from the numerator

of the current ratio because they are considered to be the

least liquid asset and most probably a source of losses

(Fraser, p.131). The quick ratio also indicates that for the

most part, dairy businesses in 1993 and 1996 were in a

relatively good position to meet short-term debt.

The farm business debt service coverage ratio measures

the farm business’ ability to repay both interest and principal. In 1993 and 1996, dairy businesses in all six milk

production regions were able to cover the farm’s interest

and principal strictly from net cash farm income.

The debt servicing ratio measures the share of the farm

business’ gross income needed to service debt. In 1993,

dairy businesses in the Upper Midwest region needed 21

percent of gross cash farm income to service debt, while

businesses in the Southeast region needed only 12 percent. The Upper Midwest region felt the effects of the

1993 midwestern flood and the corresponding higher

input costs. In 1996, higher concentrate feed prices and

continued high prices for dairy-quality hay contributed to

dairy businesses’ in the Pacific region using 27 percent of

gross cash farm income to service debt. 

The times interest ratio measures the farm business’ ability to service debt out of net farm income earned. On

average, dairy businesses in the Upper Midwest were not

able to service their debt level in 1993. In 1996, businesses in the Corn Belt faced a similar situation.

1993-96. In general, the ability of dairy businesses to

cover current liabilities from the sale of current assets

changed little during the 1993-96 period (table 3). The

current ratio declined significantly only between 1994

and 1995, as notes payable within 1 year increased (app.

table 5). The 1995 returns over feed costs were the lowest

since 1991, as milk prices decreased more than feed

prices. Consequently, many businesses had to obtain extra

cash to meet operating expenses.

The quick ratio declined significantly between 1994 and

1995 and between 1994 and 1996. Because of lower

returns over feed costs, dairy businesses in 1995 and

1996 were in a less favorable position to meet short-term

debt than in 1994.

The ability of farm businesses to repay interest and principal from net cash farm income was mostly unchanged

during the 1993-96 period. The farm business debt service coverage ratio declined significantly between 1993

and 1995, as notes payable in 1995 increased (app. table

5). However, increases in net cash farm income were

smaller (app. table 6).

6 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA
The share of the dairy business’ gross income needed to

service debt increased significantly between 1993 and

1995 and between 1994 and 1995. Gross farm income in

1995 did not increase enough to service new debt (app.

table 7).

The dairy business’ ability to service debt out of net farm

income was similar in each year from 1993 through

1996. The times interest ratios were not significantly different from one another. Large increases in feed costs in

1994, 1995, and 1996 eroded advances in gross cash

income (app. table 6).

Efficiency

Four ratios are calculated to measure a farm business’

financial efficiency—gross ratio, interest to gross cash

income ratio, asset turnover ratio, and debt-burden ratio.

The gross ratio measures the extent to which the cash

income generated by the farm business is absorbed by the

annual costs of production. The lower the ratio, the more

effective the farm operation is in generating returns. 

Gross ratios in 1993 hovered around 77 percent for specialized dairy businesses (table 1). Dairy farms in the

Southeast region had a gross ratio over 80 percent. Costs

of production in this area were relatively high 

(http: /www.ers.usda.gov/briefing/farmincome/data.htm).

In 1996, gross ratios were still around 77 percent 

(table 2).

The interest to gross cash income ratio measures the

share of gross cash farm income committed to interest

payments. In 1993, this ratio ranged from 3 percent in the

Southeast region to 7 percent in the Upper Midwest

region. Lower values of the ratio indicate greater efficiency and flexibility in meeting interest payments. In 1996,

this ratio ranged from 4 percent in the Pacific and

Southern Plains regions to 7 percent in the Corn Belt and

Northeast regions.

The asset turnover ratio measures the income generated

per dollar of assets used in production. This ratio increases with farm size (Financial Performance of U.S.

Commercial Farms, 1991-94, USDA, ERS, June 1977,

p.16). In 1993, dairy businesses in the Pacific, Southeast,

and Southern Plains regions had ratios about twice as

large as businesses in the other three regions (table 1).

Similar differences in ratios were posted in 1996 (table 2).

The debt-burden ratio measures the burden placed on net

cash farm income to retire outstanding debt. As net cash

farm income increases relative to the farm business debt,

the smaller the burden and visa versa. In 1993, dairy

businesses in the Upper Midwest region found themselves in the least favorable position, in part because of

adverse weather conditions that placed considerable

stress on input costs (table 1). In 1996, dairy businesses

in the Corn Belt region were in the least favorable position (table 2).

1993-96. Dairy businesses in 1993 were significantly

more effective in generating returns than in 1994 (table

3). In 1994, increases in gross cash income were not

enough to compensate for increases in cash expenses,

especially feed costs (app. table 6).

The efficiency and flexibility of dairy businesses in meeting interest payments showed no change during the 1993-

96 period. The interest to gross cash income ratio was the

same in each year. In each year, dairy businesses committed similar shares of gross cash farm income to interest

payments.

The income generated per dollar of assets used in production increased significantly between 1993 and 1994.

Commercial milk-fat use reached a record in 1994 as

economic growth continued, and retail prices of dairy

products remained relatively favorable.

By 1996, the burden placed on net farm income to retire

outstanding debt increased significantly from 1993.

Reflecting 1995’s reduced corn and soybean crops, higher concentrate feed prices squeezed returns for dairy

businesses in 1996. 

Solvency

The debt/asset ratio is one measure of solvency. This ratio

is defined as total liabilities divided by total assets, indicating the amount of risk embedded in an operation’s

financial structure. Associated with debt is an obligation

to pay principal and interest. While debt increases a

farm’s financial risk, benefits may accrue to owners using

the debt if debt service commitments are met by earnings. 

In 1993, the Pacific region posted a debt/asset ratio of

0.31, suggesting greater use of debt capital than in the

other regions, which likely was needed for the continuing

expansion of dairy businesses in the region (table 1). In

1996, this ratio was also higher for the Pacific region

than for the other regions (table 2).

The debt to equity ratio measures the relative proportion

of funds invested by creditors and owners. As expected,

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 7
the Pacific region had the highest value for this ratio in

both 1993 and 1996 (tables 1 and 2).

1993-96. On average, solvency ratios for a dairy farm

business changed little during 1993-96 (table 3). None of

the calculated U.S. debt/asset and debt/equity ratios were

statistically different from one another. However, these

results mask the fact that, on a regional basis, the use of

debt capital has been a crucial factor affecting the expansion of dairy businesses (app. tables 7-12).

Profitability

Two measures of returns (rate of return on assets and rate

of return on equity), the profit margin ratio, and an economic profit margin ratio are used to assess profitability

of the farm business (table 1). The rate of return on assets

is defined as net farm income plus interest expenses

minus estimated charges for operator labor and management, divided by total assets. This ratio measures the perdollar return on farm assets from current income only.

The rate of return on equity equals net farm income

minus estimated charges for operator labor and management, divided by equity per farm. This ratio indicates the

relationship between net profits and equity of the farm

business. A negative return on equity is a relative measure of financial stress. The absolute size of the ratio

roughly measures the rate at which a farm business is

adding to, or consuming from, its own capital stock. 

In 1993, dairy businesses in the Pacific, Southeast, and

Southern Plains regions earned a rate of return on assets

of 5 to 6 percent (table 1). On the other hand, the smaller

businesses (in terms of dairy cow numbers) in the Corn

Belt, Northeast, and Upper Midwest earned a rate of

return of only 2 to 3 percent. In 1996, this rate of return

dropped to 2 percent in the Pacific region as weather

problems affected the availability of dairy-quality (e.g.,

top quality alfalfa hay) inputs (table 2).

In 1993, dairy businesses in the Pacific region had the

highest rate of return on equity (6 percent) (table 1). This

was not the case in 1996 (table 2), when the Southern

Plains had the highest rate of return on equity (5 percent).

The profit margin indicates the farm operator’s ability to

control the level of farm business costs relative to the volume of revenues generated. All six regions posted average profit margins of 17 percent or greater in 1993 (table

1). Only the Pacific region failed to post an average profit

margin of at least 14 percent in 1996 (table 2).

An economic profit margin ratio is calculated to provide

a more precise measure of an operator’s profitability.

Imputed values for non-operator unpaid labor and returns

to owned assets are subtracted from net farm income. The

result is then divided by the gross cash farm income. The

imputed value for non-operator unpaid labor is calculated

as the product of surveyed non-operator unpaid labor and

reported wages. A return to owned assets is calculated as

the product of surveyed net worth and long-term interest

rate for investments. Table 1 shows that, with the exception of the Corn Belt region, dairy farm businesses

throughout the United States posted positive economic

profits in 1993. As expected, significant differences existed between the relative smaller farms of the Corn Belt,

Northeast, and Upper Midwest regions and the relatively

larger farms in the Pacific, Southeast, and Southern

Plains regions. Smaller farms tend to be more dependent

on unpaid labor. In 1996, the Corn Belt region once again

failed to post an economic profit (table 2).

1993-96. Profitability ratios for U.S. dairy businesses, in

general, did not change much during 1993-96 (table 3).

Significant differences were posted in the Pacific region

for the period 1993-95 (app. table 9), indicative of the

farm size expansion that was taking place.

Common Size Financial Statements

The common size income statement (app. tables 13 and

14) reveals the level of expenses and profits relative to

sales. The common size balance sheet (app. tables 15 and

16) shows the distribution of farm assets (fixed relative to

current); the capital structure of the business (debt relative to equity); and the business’ debt structure (long-term

relative to short-term). Common size financial statements

are another form of financial ratio analysis (Fraser, p.

125). 

As expected, non-current assets across milk production

regions accounted for 75 percent or more of all farm

assets owned by dairy businesses. Investment in land and

buildings (such as milking parlors and animal housing),

farm equipment, and breeding animals was by far the

largest component of non-current assets of dairy producers. Changes in investment are attributable to changes in

such factors as milk prices, input costs, market value of

assets, interest rates, and government farm policy.

Investments have been financed primarily by long-term

debt.

The common size income statement shows the trends for

expenses, net cash farm income, and net farm income for

an average dairy business. Not surprisingly, the Upper

Midwest region was the least profitable region in 1993.

The floods of 1993 were to blame for rapidly rising input

costs. However, in 1996, poor weather conditions affect8 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 9

Table 1—Financial ratios for specialized dairy farms, by region, 1993

Corn North- South- Southern Upper

Item Belt east Pacific east Plains Midwest

(1) (2) (3) (4) (5) (6)

Liquidity ratios:

Current 2.67 4.04 2.43 3.37 1.49 2.33

(t12**) (t23**)

(t25**)

(t26**)

Quick 1.25 1.43 0.83 1.51 0.62 0.95

(t26**)

Farm business debt

service coverage 1.55 2.03 1.30 1.83 0.39 1.58

(t15**) (t23**) (t35*) (t45**) (t56**)

(t25**)

(t26**)

Debt servicing 0.18 0.14 0.20 0.12 0.26 0.21

(t14**) (t23*) (t34**) (t45**)

(t15*) (t25**) (t46**)

(t26**)

Times interest 2.33 2.58 2.89 3.96 3.33 1.47

(t26*) (t36*) (t46**)

Efficiency ratios:

Gross 0.76 0.77 0.78 0.81 0.93 0.74

(t14*) (t25**) (t35**) (t45*) (t56**)

(t15**) (t36*) (t46**)

Interest to gross 

cash income 0.05 0.05 0.04 0.03 0.04 0.07

(t14**) (t24**) (t34**) (t46**) (t56**)

(t15*) (t26**) (t35**)

(t16**) (t26**) (t36**)

Asset turnover 0.25 0.23 0.60 0.46 0.35 0.26

(t13**) (t23**) (t34**) (t46**)

(t14**) (t24**) (t35**)

(t24*) (t36**)

Debt-burden 0.42 0.38 0.45 0.51 0.05 0.36

(t15*) (t25*) (t35**) (t45**)

Solvency ratios

Debt to assets 0.14 0.14 0.29 0.17 0.52 0.19

(t13**) (t23**) (t34**) (t45**) (t56**)

(t15**) (t25**) (t35**)

(t16**) (t26**) (t36**)

Debt to equity 0.16 0.16 0.41 0.20 1.09 0.24

(t13**) (t23**) (t34**) (t45**) (t56**)

(t15**) (t25**) (t35**)

(t16**) (t26**) (t36**)

Profitability ratios:

Rate of return on assets—

Current income 0.03 0.03 0.06 0.05 0.03 0.04

(t13*) (t23*)

Rate of return on equity—

Current income 0.02 0.03 0.05 0.04 0.04 0.02

Profit margin 0.18 0.21 0.18 0.18 0.17 0.20

Economic profit margin -0.01 0.03 0.15 0.13 0.12 0.05

(t13**) (t23**) (t36**)

(t14**) (t24**)

(t16**)

Note: txy indicates t-statistic between two regions. * Significantly different at the 10-percent level. ** Significantly different at the 5-percent level.

Source: Compiled by the Economic Research Service from the 1993 Farm Costs and Returns Survey, USDA.
10 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Table 2—Financial ratios for specialized dairy farms, by region, 1996

Corn North- South- Southern Upper

Item Belt east Pacific east Plains Midwest

(1) (2) (3) (4) (5) (6)

Liquidity ratios:

Current 2.03 3.86 1.60 na 1.55 1.91

(t23**)

(t26**)

Quick 1.00 1.82 0.76 na 0.83 0.48

Farm business debt 

service coverage 1.06 1.88 0.80 na 1.25 1.42

(t12*) (t23**) (t35*)

(t15*) (t36*)

Debt servicing 0.25 0.16 0.27 na 0.21 0.23

(t12**) (t25*) (t35**) (t56**)

(t15**)

Times interest 0.83 1.19 1.47 na 4.06 1.67

(t15*) (t25*) (t35*)

Efficiency ratios:

Gross 0.81 0.77 0.83 na 0.77 0.73

(t16*) (t36**) (t56*)

Interest to gross 

cash income 0.07 0.07 0.04 na 0.04 0.06

(t13**) (t36*) (t56**)

(t15**)

Asset turnover 0.30 0.30 0.55 na 0.48 0.31

(t13**) (t23**) (t36**)

Debt-burden 0.25 0.37 0.35 na 0.57 0.40

(t15**)

Solvency ratios:

Debt to assets 0.23 0.18 0.27 na 0.20 0.20

(t23*) na

Debt to equity 0.29 0.22 0.37 na 0.25 0.25

(t23*) na

Profitability ratios:

Rate of return on assets—

Current income 0.02 0.03 0.02 na 0.05 0.04

Rate of return on equity—

Current income 0.00 0.01 0.00 na 0.05 0.02

Profit margin 0.14 0.17 0.11 na 0.18 0.18

Economic profit margin 0.00 0.05 0.08 na 0.14 0.06

Note: txy indicates t-statistic between two regions. * Significantly different at the 10-percent level. **Significantly

different at the 5-percent level. na = not available, legal disclosure edit required.

Source: Compiled by the Economic Research Service from the 1996 Agricultural Resource Management Study, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 11

Table 3—Financial ratios for specialized dairy farms, 1993-96

t-statistics

Item 1993 1994 1995 1996 93-94 93-95 93-96 94-95 94-96 95-96

Liquidity ratios:

Current 2.50 2.64 2.02 2.11 0.42 1.55 0.02 1.83* 1.62 0.30

Quick 1.02 1.24 0.76 0.79 1.07 1.55 0.02 3.15** 2.22** 0.21

Farm business debt

service coverage 1.45 1.31 1.16 1.31 0.79 2.07** 0.01 0.91 0.03 1.17

Debt servicing 0.20 0.20 0.24 0.21 0.00 2.07** 0.00 1.95* 0.79 1.53

Times interest 2.20 1.57 1.41 1.78 1.26 1.53 0.03 0.28 0.35 0.61

Efficiency ratios:

Gross 0.77 0.80 0.78 0.78 1.73* 0.62 0.00 0.85 0.61 0.05

Interest to gross

cash income 0.05 0.05 0.06 0.05 0.11 0.90 0.00 0.83 1.32 1.61

Asset turnover 0.30 0.32 0.35 0.35 1.53 1.81* 0.01 0.87 1.20 0.02

Debt-burden 0.36 0.33 0.36 0.38 0.87 0.06 0.00 0.77 1.18 0.31

Solvency ratios:

Debt to assets 0.19 0.20 0.21 0.20 0.80 1.41 0.00 0.50 0.15 0.55

Debt to equity 0.24 0.26 0.27 0.26 0.79 1.35 0.01 0.48 0.12 0.27

Profitability ratios:

Rate of return on assets—

Current income 0.04 0.03 0.03 0.03 1.05 0.50 0.00 0.23 0.12 0.09

Rate of return on equity—

Current income 0.03 0.01 0.01 0.02 1.20 0.90 0.00 0.02 0.72 0.51

Profit margin 0.19 0.16 0.16 0.16 1.61 1.30 0.01 0.01 0.16 0.14

Economic profit margin 0.06 0.06 0.07 0.07 0.20 0.26 0.02 0.38 2.08** 2.09**

* Significantly different at the 10-percent level.

** Significantly different at the 5-percent level.

Source: Compiled by the Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and the 1996 Agricultural Resource

Management Study, USDA.
Regional Comparative Analysis

Various factors that affect regional productivity were analyzed for 1993 (table 4). Specialized dairy businesses

across six milk production regions and the United States

were used to make the comparisons more meaningful.

Dairy businesses in the Pacific, Southeast, and Southern

Plains regions are larger in terms of herd size, and they

have higher variable costs, but they generate larger net

farm incomes. These businesses are more efficient and

productive in terms of feed fed, milk produced, labor

employed, and capital invested than farms in the Corn

Belt, Northeast, and Upper Midwest regions. Short and

McBride (1993, p.21) have shown that milk producers

have some control over several variables that affect the

dairy business’ productivity and efficiency. This suggests

that measures to improve smaller farm operators’ management skills in the Corn Belt, Northeast, and Upper

Midwest regions should be explored.

Another factor of importance in a comparative analysis is

the relative balance between operating expenses and fixed

expenses (Harsh et al., p.145). The Pacific, Southeast,

and Southern Plains regions once again appear to be in a

better position than the other three regions. While their

operating ratios were somewhat higher than dairy farms

in other regions, their fixed ratios were lower. This

implies that dairy business operators in the Pacific,

Southeast, and Southern Plains regions are able to expand

their operations more quickly.

Trend Analysis

The income statement shows a steady upward movement

in gross farm income generated by an average dairy business in the United States between 1993 and 1996 (table

5). Operating and fixed expenses also increased.

However, the overall trend in net farm income was in a

positive direction, and the fixed ratio did not trend

upward (app. tables 7 and 8). Farm businesses with relatively small fixed ratios and large operating ratios are

generally less vulnerable to cash-flow problems since

fixed expenses must be paid regardless of the gross farm

income generated.

The balance sheet indicates that, on average, over the

period 1991-96, total assets owned by a dairy business

posted a steady upward movement. Even though total liabilities also increased, the net effect is improved business

net worth. The rate of growth in assets was greater than

that of debt. The movement in the current ratio and the

capital ratio (which show the relative balance among current and non-current assets in relation to current and noncurrent liabilities) supports this conclusion (app. tables 9

and 10).

12 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 13

Table 4—Determinants of regional profitability of specialized dairy farms, 1993

Corn North- South- Southern Upper

Item Unit Belt east Pacific east Plains Midwest U.S.

Number of farms 17,259 26,702 5,536 856 2,018 45,351 97,721

Size indicators

Total acres operated 275 335 153 684 378 356 328

Cow numbers 52 61 348 411 183 58 80

Total labor used hours 4,437 4,847 8,138 16,677 8,249 4,402 4,928

Profit measure

Net farm income dollars 21,078 30,538 141,442 185,119 61,725 19,715 32,126

Income statement factors

Operating ratio 0.61 0.60 0.68 0.70 0.70 0.60 0.63

Fixed ratio 0.11 0.11 0.08 0.06 0.06 0.16 0.12

Efficiency and productivity

Per cow

Milk production cwt 14,876 16,085 17,462 14,531 14,452 15,570 15,964

Milk sales value dollars 1,824 2,056 2,020 2,134 1,905 1,960 1,984

Feed fed pounds 26,877 32,065 27,247 24,561 19,730 33,204 29,740

Labor hours 85 80 23 41 45 76 62

Average machinery

investment dollars 1,673 1,400 266 538 702 1,880 1,242

Average total

investment dollars 8,250 9,307 2,944 4,437 3,609 8,590 6,882

Per cwt of milk sold

Value dollars 12.87 13.33 11.74 14.98 13.30 12.89 12.77

Feed fed pounds 189.65 207.90 158.29 172.45 137.74 218.47 191.38

Labor hours 0.60 0.52 0.14 0.29 0.31 0.50 0.40

Average machinery

investment dollars 11.80 9.08 1.55 3.78 4.90 12.37 7.99

Average total

investment dollars 58.22 60.34 17.11 31.15 25.19 56.52 44.29

Per labor hour

Average machinery

investment dollars 19.60 17.49 11.36 13.25 15.59 24.82 20.10

Average total

investment dollars 96.64 116.28 125.78 109.22 80.16 113.40 111.40

Milk sold dollars per cwt 1.66 1.93 7.35 3.51 3.18 2.01 2.52

Source: Compiled by the Economic Research Service from the 1993 Farm Costs and Returns Survey, USDA.
14 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Table 5—Trend analysis for specialized dairy farms, 1993-96

Item 1993 1994 1995 1996

Dollars per farm

Balance sheet

Current assets 79,689 92,952 96,900 97,814

Non-current assets 528,342 528,392 549,318 620,515

Total assets 608,031 621,344 646,218 718,329

Current liabilities 31,924 35,236 47,939 46,310 

Non-current liabilities 83,954 91,214 89,410 99,871

Total liabilities 115,878 126,449 137,349 146,181

Net worth 492,153 494,895 508,870 572,148

Current ratio 2.50 2.64 2.02 2.11

Net capital ratio 5.25 4.91 4.70 4.91

Income statement

Gross farm income 181,464 201,310 226,630 249,376

Operating expenses 117,918 136,310 150,014 166,271

Fixed expenses 21,556 23,833 26,492 27,233

Net farm income 34,047 31,304 35,200 40,698

Gross ratio 0.65 0.68 0.66 0.67

Fixed ratio 0.12 0.12 0.12 0.11

Source: Compiled by the Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and the 1996

Agricultural Resource Management Study, USDA.
Dairy Farm Management Decisions

A principal effect of the milk price support program was

to reduce one elementof risk for dairy farmers, extremely

low milk prices. It did not remove other risks, such as

high feed prices, loss of market for the individual producer, drought, floods, or disease. And it did not guarangee

profits on milk production, as shown by the out-of-pocket

losses of many dairy farmers during 1973-75 (Blayney,

Miller, and Stillman 1995). Data from farm surveys allow

for the description of farm management decisions that

dairy farmers made to manage risk in agricultural production. Farmers can and do adjust their management decisions to changes in their working environment (e.g., a

change in Federal policy). Previous decisions impact the

farm’s current physical, financial, and human capital

stocks, and influence or even restrict the set of future

decisions.

In 1993, operators were given lists of production, financial, and marketing strategies (fig. 1) and were asked to

identify up to three strategies used in managing their

farm. Strategies were not ranked by the respondent, and

the list was not intended to be exhaustive. For some farmers the use of a strategy was not deemed important

enough to list as one of the three choices, but elsewhere

in the survey they may have indicated use of that strategy.

As an example, a farmer may have participated in

Government commodity programs, but did not identify

Government programs as a production strategy.

Provisions wer made to include these operators in the

summarized data.

In 1996, dairy operators were asked which of nine strategies they would likely use, consider, or not use to

improve the financial condition of their business if faced

with financial difficulties (table 6). Forty-four percent of

operators said they would restructure debt by lengthening

the term or reducing the interest rate. Almost 57 percent

indicated they would adjust the farm business’ operating

costs. Thirty-six percent would improve their marketing

skills.

In 1996, operators also indicated that their management

style had changed little from 1995. In addition, more

than 50 percent of operators said that what changes they

did incorporate in 1996 were not due to changes in farm

programs.

Farmers can control exposure to risk by altering their

business plans. In 1993, almost 62 percent of dairy farm

operators said that they used a strategy to manage risk of

production. About 56 percent indicated that they

employed at least one financial strategy, and about 52

percent also used some marketing strategy.

Farmers use a variety of strategies to reduce the variability of risk in production of agricultural products, financial

needs of the business, and marketing of the crops or livestock. Use of risk management strategies is correlated

with the incomes received from farming. On average,

farmers who used any of the strategies listed in the surveys had higher net incomes resulting from larger volumes of production and management of the risk assoicated with farming (Perry et al.).

Production Decisions, 1993

Production decisions center on product production given a

limited resource base, on the production or cultural practices used, and on which (if any) crops or livestock to produce (fig. 2). Long-term decisions may include the production practices used, the production technologies adopted, or changes in the mix of crops produced (Perry et al.).

Dairy farm operators used a variety of production strategies in 1993 (fig. 3). Seventy percent of farm opeators

used at least one production strategy. About 28 percent of

dairy farmers using at least one production strategy said

that they participated in Government commodity programs (app. tables 17-23). For example the relatively

smaller farms in the Corn Belt, Northeast, and Upper

Midwest regions that tend to grow their own feed likely

depended on Federal feed grain programs to reduce the

risks involved in feed grain production. Operators in

regions like the Pacific purchased most, if not all, of their 

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 15

Figure 1—Management decisions

Production decisions:

Diversification

Commodities with stable or low variability of income

Leasing/contracting inputs

Non-farm uses of land

Financial decisions:

Maintain borrowing capacity

Match maturity of loans to the time income is expected

Renegotiate or pre-pay loans

Insurance

Participate in Government programs

Marketing decisions:

Hedge or use futures markets

Contract the sale of commodities

Spread sales over year
production inputs and thus did not depend as heavily on

Federal programs to lower production risks.

The next most often cited strategy was leasing land, followed by choosing to produce a commodity that results

in a relatively stable income. Dairy businesses often

derive income from producing and selling commodities

other than milk (e.g., corn, soybeans, oats, etc.).

Production strategies were most popular with operators of

farms with sales of $250,000 to $499,999, with more

than three-quarters of operators in this group indicating

use of at least one production strategy. 

Financial Decisions, 1993

Financing the farm involves decisions about the sources

of and terms under which resources are acquired for production, including debt capital used to purchase operating

and capital inputs. Financial decisions determine the

commitments made by the farm to service outstanding

debt or to pay the fixed costs of leases. Financial commitments, whether for the purchase of operating inputs or of

Table 6—Use of management strategies by specialized dairy farms, 1996

Item Would Would Would

do consider not do

Percent of farms

If faced with financial difficulties 

which would operator do:

Restructure debt 44 35 13

Sell assets 20 44 27

Increase use of custom

or leasing services 14 42 36

Scale back farm business 14 38 39

Diversify 17 39 37

Spend more time on management 47 33 12

Use advisory services 38 38 16

Adjust operating costs 57 29 7

Improve marketing skills 36 41 15

Change due to 

farm program

Used First Used Used Never, but Never, not changes 

more time same less considering considering yes no

Percent of farms

Change in use last year:

Contract sales 6 2 15 3 16 50 7 52

Spread sales 6 1 34 2 9 40 5 54

Diversification 5 3 21 3 18 42 8 56

Contract inputs 7 2 19 3 16 45 7 54

Keep credit lines open 11 4 55 5 4 7 12 60

Maintain cash on hand

or assets that can be

converted into cash 10 2 60 5 6 10 12 60

Hire work to be custom done 10 3 44 6 10 20 10 62

Hedge or use futures/options 2 2 7 3 19 60 6 50

Source: Compiled by the Economic Research Service from the 1996 Agricultural Resource Management Study, USDA.

16 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Production Financial Marketing

0

20

40

60

80

Used strategy

Did not use strategy

Percent

Strategies

Figure 2

Production strategies used most often

Source: Compiled by the Economic Research Service from the 1993 Farm 

Costs and Returns Survey, USDA.
longer term assets such as machinery and equipment, are

somewhat difficult to adjust in the short term.

Financial strategies were employed by 56 percent of

dairy farmers. Keeping an open line of credit was the

most frequently cited financial strategy, followed by

maintaining equity in cash. Over 80 percent of farmers

with gross sales of $250,000 to $499,999 indicated that

they used financial strategies (app. tables 17-23) (fig. 4).

Farms with sales of $250,000 and over were more likely

to have renegotiated a loan. Survey data for 1993 indicate

that financial strategies were most often employed by

farm operators who specialized in cash grains (64 percent), followed by dairy farmers (Perry et al).

Marketing Decisions, 1993

Marketing decisions focus on buying the farm’s inputs

and selling its products. These functions establish the

farm’s terms of trade, that is, the prices it pays for production inputs relative to the prices it receives for the sale

of its products. As a result of changes in these prices,

farmers may try different approaches to marketing or

identifying new markets. Marketing decisions affect profitability and risk.

Marketing strategies (hedging, contracting the sales of

crops or livestock, spreading sales over the year, contracting or agreeing on prices for inputs to be delivered in the

future, etc.) are commonly used by specialized dairy

businesses (app. tables 17-23) (fig. 5). Farmers with sales

in the two larger sales classes used marketing strategies

more often than others. Spreading sales of farm products

over the year was the most frequently cited marketing

strategy. Hedging was the least used strategy, probably

because of its speculative nature, and the size and type of

contracts. Fifty percent of the farm operators in the

largest sales class indicated that they contracted the sale

of their products as a marketing strategy. As expected,

these patterns were fairly consistent across the six milk

production regions. 

A relatively large share of the milk produced in the

United States is moved through marketing channels by

cooperatives (Manchester and Blayney). There are two

basic types of dairy cooperatives today—bargaining-only

and manufacturing/processing. The bargaining-only

cooperatives negotiate prices and terms of trade for their

members’ milk. These cooperatives rarely take title to

members’ milk and do not own manufacturing or processing plants. Manufacturing/processing cooperatives market

some or all of their members’ milk through their own

processing and manufacturing facilities, and/or bargain

for prices.

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 17

0

20

40

60

80

Less than $50,000

$50,000-$99,999

$100,000-$249,999

$250,000-$499,999

$500,000 & over

Stable

income

Custom/ Insurance

contract

 inputs

Government

programs

Leased

livestock

Diversification Leased

 land

Share rent

land

Leased

equipment

Nonfarm 

uses 

of land

Other

production

strategy

Percent

Figure 3

Production strategies used, by size of dairy farm, 1993

Strategies

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
18 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Open credit line Renegotiated loans Other

0

20

40

60

80

Less than $50,000

$50,000-$99,999

$100,000-$249,999

$250,000-$499,999

$500,000 & over

Match loan maturity

with sales

Maintain equity

in cash

Percent

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.

Figure 4

Financial strategies used, by size of dairy farm, 1993

Hedging Contract sale of product Spread sales Contract inputs Other

0

20

40

60

Less than $50,000

$50,000-$99,999

$100,000-$249,000

$250,000-$499,999

$500,000 & over

Percent

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.

Figure 5

Marketing strategies used, by size of dairy farm, 1993

Strategies
Distribution of Profits

Two procedures are used to examine the distribution of

1993 profits and gain an insight into which businesses

may fare better as the dairy industry adjusts to the different economic climate of 2000 and beyond. First, estimated net farm income (NFI) (see glossary) per farm is

ranked from lowest to highest to form a weighted cumulative distribution at the national level. The cumulative

distribution is divided into quartiles, with the bottom

quartile representing the least profitable businesses and

the top quartile representing the most profitable. Sources

of income differences among businesses are identified by

comparing the business structural and performance characteristics of low- and high-income operations. The statistical difference in mean estimates for low- and highincome producers is tested using a t-statistic (see appendix B). Discussions emphasize comparisons among

groups only when means are significantly different at the

90-percent level.

The relationship between NFI and farm structural and

performance characteristics is further examined using

regression analysis. Multivariate regression analysis is

used to examine the combined effect of key variables on

NFI. To measure the extent to which each characteristic

influenced production costs, the sample variation of net

farm income is decomposed into the portion attributable

to each characteristic (see appendix B). Because herd size

is known to explain most of the variation in NFI, the

same procedure is applied to estimated economic profit

(see glossary) per cwt of milk sold (EPM) and to economic profit per cow (EPC) to look for other variables

critical to financial performance. NFI is an accounting

measure that does not address an opportunity cost for

owned assets and a return to non-operator unpaid labor.

Using EPM and EPC, the analysis can concentrate on

factors that are affected by management decisions (Haden

and Johnson).

Low- and High-NFI Businesses

Twenty-five percent of dairy businesses surveyed had

NFI of $5,746 or less in 1993 (table 7). These relatively

low-NFI businesses accounted for over 20 percent of total

milk production. Businesses that generated high NFI,

$42,733 or more, accounted for more than 50 percent of

total milk production.

Businesses that generated high NFI were significantly

larger operations than low-NFI businesses (app. table 24).

Milk cow inventory on high-NFI operations was more

than twice that of low-NFI operations. Farm acres operated were lower for low-NFI operations, and the average

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 19

Table 7—Characteristics of specialized dairy businesses with low and high NFI, 1993

Low-NFI High-NFI

Item Unit businesses businesses t-statistic

NFI dollars per farm <=5,746 >=42,733 na

Share of FCRS dairy:

Farms percent 25 25 na

Milk sales percent 21 51 na

Output per cow pounds 14,984 17,210 3.03**

Average milk cow inventory head 69 152 3.14**

Feed efficiency pounds per cwt of milk sold 217 167 3.27**

Labor efficiency hours per cwt of milk sold 0.45 0.27 3.46**

Financial position:

Favorable percent of farms 20 91 12.45**

Marginal income percent of farms 64 0 na

Marginal solvency percent of farms 1 9 2.29**

Vulnerable percent of farms 15 0 na

Housing facilities:

Stanchion/tie stall barns percent of capacity 30 14 4.07**

Drylot corrals percent of capacity 13 37 2.58**

Milking facilities:

Herringbone parlors percent of capacity 27 41 1.70*

Barns with pipeline percent of capacity 46 41 0.48

Total feed cost dollars per cwt of milk sold 7.62 6.52 1.41

Total economic costs dollars per cwt of milk sold 18.50 13.95 2.16**

** Significantly different at the 5-percent level. * Significantly different at the 10-percent level. na=Not applicable.

Source: Compiled by the Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
farm value of production was about one-third that of

high-NFI operations. Both low- and high-NFI producers

were highly specialized in milk production, with almost

90 percent of the value of farm products derived from

milk production. More than 40 percent of producers

located in the Southeast, Southern Plains, and Pacific

regions were in the high-NFI group. These are regions

with larger enterprises.

The overall financial condition of high-NFI dairy businesses was better than that of low-NFI businesses. More

than 90 percent of high-NFI businesses were classified as

being in a favorable financial position (see glossary),

compared with 20 percent of low-NFI businesses. Many

low-NFI dairy businesses are in the marginal income category, indicating that while their debt/asset ratio is less

than 0.40, net farm income during 1993 was negative (see

glossary).

Most operator characteristics were similar between lowand high-NFI dairy businesses. Operators of farms in

both groups were experienced producers with (in 1993) at

least 22 years spent as the operator of the dairy business.

The operators’ age and education and the type of farm

organization were also similar between these groups.

Nearly all producers in both groups considered farming

their major occupation.

Differences in animal performance were critical in determining whether businesses generated low- or high-NFI

(app. table 25). Output per cow on high-NFI farms averaged 17,210 pounds, versus 14,984 on low-NFI farms. As

a result, high-NFI producers averaged some $300 more in

annual cash receipts from the sale of milk for each cow

in the milking herd. High-NFI producers fed 167 pounds

of feed per hundredweight of milk sold, compared with

217 pounds by low-NFI producers. Greater feed efficiency on the part of high-NFI producers resulted from both

more output per cow and less feed fed per cow. Low-NFI

producers fed 31,189 pounds of feed per cow, compared

with 28,262 pounds for high-NFI producers. The general

ration formulation fed by low- and high-NFI producers

was much the same. Thus, differences in feed efficiency

can likely be attributed to better management of feeding

systems and higher performance genetics. High-NFI producers were also more labor-efficient than low-NFI producers, using 0.27 total labor hour per hundredweight of

milk sold and 45 hours per cow, compared with 0.45 total

hour per hundredweight of milk sold and 64 hours per

cow on low-NFI operations. Low-NFI operations used

more hired labor.

High-NFI producers more often used drylot corrals for

housing milk cows. Thirty-seven percent of the housing

capacity on high-NFI operations was in drylot corrals

compared with only 13 percent on low-NFI farms. More

of the housing capacity on low-NFI operations was in

various types of barns. Although drylot corrals are generally less expensive to build, dairy operations in the Upper

Midwest and Northeast must invest in facilities that protect the herds from winter temperatures. Drylot corrals

are more prominent in States where temperatures remain

relatively warm all year.

Forty-one percent of the milking capacity on high-NFI

operations was in herringbone parlors, compared with

only 27 percent on low-NFI farms. More of the milking

capacity on low-NFI operations was in barns with

pipelines. High-NFI producers operated their milking

facilities significantly longer than low-NFI producers.

High-NFI producers also made more use of newer technology, including automatic takeoffs and udder washers.

The per hundredweight value of milk sold was significantly higher on low-NFI operations. However, because

high-NFI operations were significantly more efficient,

their net cash income was significantly higher.

Variable cash expenses averaged about $10 per hundredweight of milk sold for high-NFI producers, $2 less than

for low-NFI producers. The majority of cost savings was

attributed to lower feed costs. In addition to lower variable costs, significantly lower machinery and equipment

costs for capital replacement accounted for most of the

economic cost savings on high-NFI operations. Total economic costs were almost $5 less per hundredweight of

milk sold for high-NFI producers. Furthermore, high-NFI

operations were the only ones to achieve positive residual

returns to management and risk ($0.08 per hundredweight of milk sold).

Influence of Farm Structural and 

Performance Characteristics

The influence of selected variables on the NFI, EPM, and

EPC of U.S. milk producers was analyzed using regression analysis. Decomposing the sample variation of NFI,

EPM, and EPC into the portion attributable to each

explanatory variable provides a measure of each variable’s influence.

One expects the size of a dairy business, as measured by

the number of dairy cows, to be directly related to farm

profits. Larger operations typically are more efficient.

Milk production per cow is used as a measure of animal

performance. Operations that have higher levels of output

per cow are expected to have higher profits as well.

20 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA
Farm profits are expected to increase as feed and labor

use decrease. Feed cost accounts for the largest share of

milk production costs, and operations with high profits

are expected to have a relatively high feed efficiency.

The effect of the farm’s financial condition on farm profits was examined by including the farm debt-to-asset

ratio. Farms with more debt relative to assets may have

lower profits than others due to greater interest payments.

However, dairy farms with more debt relative to assets

are often larger operations and may have higher profits

than others because of the size advantages. 

Farm operator characteristics considered include major

occupation, education, and experience. Major occupation

is defined as that job, farming or otherwise, on which the

farm operator spent the majority of time during 1993.

Farm operators whose major occupation is farming are

expected to have higher farm profits than others. Higher

education levels are likewise expected to be associated

with higher profits. Education is measured using binary

variables for each of three groups: (1) operators who did

not graduate from high school; (2) operators who completed high school, but not college; and (3) operators who

completed college. Experience is measured as the number

of years the operator has operated the dairy farm. Farm

profits are expected to increase with experience as producers learn and develop managerial skills. Likewise,

profits are expected to be higher for producers who keep

detailed records for both the milk enterprise and whole

farm than for other producers.

Results of the regression analysis. Regression coefficients and t-statistics for variables included in the analysis of milk producers are presented in table 8. The estimated coefficients describe the change in NFI, EPM, and

EPC from a unit change in each of the structural and performance variables. The t-statistics indicate which of the

estimated coefficients are significantly different from

zero at the selected level of significance. Alternative

functional forms of the profit-size relationship were estimated using the dairy data, and the linear form was found

to best describe the relationship (see appendix B).

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 21

Table 8—Regression estimates of profit for dairy businesses, 1993

Coefficient estimate

Variable Unit NFI EPM EPC

Intercept na 244,123.38 37.47 3,140.30

(2.27**) (2.84**) (1.64)

Size average number milk cows 460.69 -0.001 na

(3.77**) (-1.39)

Feed efficiency pounds fed -73.67 -0.01 -0.01

(-3.34**) (-2.59**) (-2.46**)

Labor efficiency hours 5,907.84 -4.19 -3.69

(1.16) (-3.12**) (-2.39**)

Output per cow pounds 3.07 0.0002 0.10

(2.82**) (0.92) (2.19**)

Specialization in percent of total value of production -3,071.42 -0.02 -44.39

milk production (-2.68**) (-2.14**) (-2.30**)

Major occupation 1=farming; 0=otherwise 3,680.71 1.97 272.67

(0.36) (0.99) (1.03)

Education 1=less than high school; 0=otherwise 13,985.92 -0.21 169.57

(0.76) (-0.13) (0.66)

1=high school graduate; 0=otherwise 8,469.63 -0.88 -8.75

(0.49) (-0.83) (-0.09)

Experience years operator of dairy operation -245.03 0.02 4.18

(-0.65) (0.50) (1.10)

Cost of production records 1=kept; 0=not kept -11,117.11 3.42 308.78

(-1.11) (1.20) (1.28)

Farm records 1=kept; 0=not kept 6,663.10 -4.63 -348.24

(0.47) (-1.42) (-1.25)

Farm debt-to-assets ratio -69,878.41 -2.43 -431.11

(-1.92**) (-1.19) (-1.32)

Value of land, equipment, dollars 12.72 -0.02 -0.02

and buildings (0.35) (-2.14**) (-2.07**)

F na 3.81** 5.06** 4.09**

R2 na 0.41 0.32 0.21

** =Significant at 5% level. na=not applicable. Source: Economic Research Service, USDA.
Feed efficiency is significant and has the expected sign

across the three profit measures. The negative sign on the

feed efficiency variable indicates that profits decline as

more units of feed are required. Each additional 100

pounds of feed subtracts about $72 from NFI and $0.01

for both EPM and EPC.

As cow numbers increase, so does NFI. Each cow added

to the milking herd has the potential of increasing net

farm income by some $460 a year. However, cow numbers do not significantly affect EPM. Success is influenced by more than size. Managerial decisions, particularly feed and labor use, play a significant role in a dairy

business’ profitability.

The sign for output per cow was positive in each of the

three profit measures. This result can very well be due to

the use of herd management decisions which are costeffective (Haden and Johnson, 1989). Increasing the productivity of cows significantly increases NFI and EPC.

Profits increase by about $3 and $0.10, respectively, for

each additional 100 pounds of milk produced per cow. 

The negative sign on the debt-to-asset ratio variable

shows that NFI, EPM, and EPC decline as debt rises relative to assets and interest expenses increase. However, the

coefficient on the debt-to-asset ratio was significantly different from zero only in the NFI measure. This result

highlights the importance of production and input-specific decisions made by the operator.

Results of the decomposition-of-profit measures. NFI,

EPM, and EPC variations can be decomposed into the

variance effects of each explanatory variable (table 9).

Variance effects indicate the amount of variation in each

profit measure that can be attributed to each explanatory

variable. The percent of total variance effects for each

explanatory variable indicates the extent to which each

variable alone contributes to variation in profits, relative

to other variables.

Among all variables, size had the greatest individual

effect on NFI, accounting for 90 percent of the variance

effects. Size, output per cow, and debt-to-asset ratio

together accounted for 95 percent of total variance

effects. Besides specialization in milk production, the

other variables contributed little to total variance effects.

Labor efficiency had the greatest effect on EPM and

EPC, accounting for 39 and 16 percent of the variance

effects. Labor efficiency; specialization in milk production; keeping farm and cost of production records; the

value of land, equipment, and buildings; feed efficiency;

and output per cow accounted for over 95 percent of the

total variance effects. This again implies that big does not

necessarily mean successful. 

22 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Table 9—Contribution of factors to profit variation for dairy businesses, 1993

Variance effect

Variable Unit NFI EPM EPC

Percent

Size average number of milk cows 90.47 0.20 na

Feed efficiency pounds fed 0.87 6.18 9.17

Labor efficiency hours 0.20 38.82 16.41

Output per cow pounds 2.02 2.73 42.40

Specialization in

milk production percent of total farm value of production 3.16 19.26 14.37

Major occupation 1=farming; 0=otherwise 0.01 0.87 0.93

Education 1=less than high school; 0=otherwise 0.47 0.04 1.49

1=high school graduate; 0=otherwise 0.19 0.82 0.00

Experience years as operator of dairy operation 0.11 0.19 0.72

Cost-of-production records 1=kept; 0=not kept 0.21 7.80 3.54

Farm records 1=kept; 0=not kept 0.05 10.04 3.18

Farm debt to assets ratio 2.23 1.05 1.85

Value of land, equipment,

and buildings dollars 0.01 12.00 5.93

Source: Economic Research Service, USDA.
Conclusions

With a changing policy environment requiring more

adjustment to forces of supply and demand, dairy managers can improve their business decisions by knowing

the financial strengths and weaknesses of their businesses. Analysis of data contained in income and financial

statements facilitates the identification of the business’

strengths and weaknesses. Calculated measures of liquidity, financial efficiency, solvency, and profitability help to

isolate a business’ strong features and problem areas. “As

a general rule, managers who carefully analyze their business also make better management decisions.” (Harsh, p.

149.)

From 1993 to 1996, dairy farm businesses in general did

a fairly good job of meeting short-term debt, generating

returns, and meeting long-term debt. However, smaller

dairy farm businesses, like those in the Corn Belt,

Northeast, and Upper Midwest regions, earned a lower

rate of return on assets. Expansion in milk production has

taken place primarily in the western and southern regions

of the United States. 

Farm management strategies will play an important role

in determining the overall profitability of a dairy farm

business as the role of Government supports declines.

This is particularly the case for dairy businesses that up

to this point have depended heavily on the Federal dairy

price support program.

The 1993 data show that as dairy farms become larger,

farmers use more strategies to manage the riskiness of

farming. More than 70 percent of farms with sales of

$250,000 and above indicated using at least one management strategy. Large farm operators may feel a stronger

need to manage the risk associated with their larger

investments. Yet, at least 50 percent of farms in each

sales class category used at least one management strategy. However, the 1996 data suggest that changes in management techniques are adopted slowly.

The explanatory variables included in the regression

models that are used to examine profit variation among a

cross-section of U.S. milk producers explain 41 percent

of the variation in net farm income per farm, 32 percent

of the variation in economic profit per cwt of milk sold,

and 21 percent of the variation in economic profit per

cow. Those results suggest that profits in dairy operations

are influenced by several variables that can be controlled

by operators. Improving operators’ management skills

can have a strong, positive influence on their dairy businesses, particularly improvements in the areas of efficient

input use, the financial needs of the business, and the

marketing of products. 

Size is the most significant factor influencing net farm

income among dairy businesses. Improving animal productivity also increases net farm income. Continued

genetic improvement can be used to increase productivity. However, because herd size does not significantly

influence estimated economic profit per cwt of milk sold

and economic profit per cow, the efficient management of

all resources is key to success. 

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 23
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Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 26

Glossary

Cooperative is a firm owned by its farmer-members,

operated for their benefit, that distributes earnings on the

basis of patronage (volume of milk).

Economic profit measures the return to operator labor

and management.

Federal milk marketing order is a regulation issued by

the Secretary of Agriculture specifying minimum prices

and conditions under which regulated milk handlers must

operate within a specified geographic area. Handlers generally refer to fluid milk processors but can include manufacturing plants that also supply fluid markets.

Financial position describes the financial health of a

farm business from a combination of income (net farm

income) and solvency (debt/asset ratio) measures. Farms

are categorized into one of four classes:

Favorable-positive income and debt/asset ratio less than

0.40. These farms are generally considered financially

stable.

Marginal income-negative income and a debt/asset ratio

less than 0.40. Periods of negative income may not pose

financial difficulties if these farms are carrying a low debt

load and can either borrow against equity or obtain

income from off-farm sources.

Marginal solvency-positive income and a debt/asset ratio

above 0.40. A high debt/asset ratio may be acceptable if

these farms can generate enough income to service their

debt and meet other financial obligations.

Vulnerable-negative income and a debt/asset ratio above

0.40. These farms are generally considered financially

unstable.

High-NFI businesses are the 25 percent of dairy businesses with the highest net farm income. Included are

businesses with net farm income of $42,733 or more.

Low-NFI businesses are the 25 percent of dairy businesses with the lowest net farm income. Included are

businesses with net farm income of $5,746 or less.

Major occupation is that occupation in which the operator reported the majority of his/her time spent.

Milk production regions:

Northeast includes New York, Pennsylvania, and

Vermont.

Corn Belt includes Iowa, Missouri, and Ohio.

Upper Midwest includes Wisconsin, Minnesota, and

Michigan.

Southeast includes Florida and Georgia.

Southern Plains includes Texas.

Pacific includes Arizona, California, and Washington.

Net farm income measures the accounting profit from

the current-year production of commodities.

Price support program is a Federal program aimed at

supporting the price dairy farmers receive for their milk

by offering to purchase any butter, nonfat dry milk, and

Cheddar cheese at announced prices.

Production specialty is the farm production classification that represents the largest portion of gross commodity receipts from the farm operation.

Specialized dairy farm businesses represent operations

with at least 50 percent of receipts coming from dairy

product sales.

Value of production is an estimate of the total value of

all farm products produced on a farm, excluding the

value of intermediate products such as corn fed to livestock. 
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 27

Appendix A: Definition of Financial Ratios

Ratio Computation method Significance

Liquidity:

Current Current assets/Current liabilities Measures the farm business’ ability to 

pay its debts as they come due.

Quick Current assets-Inventory/Current liabilities Eliminates source of likely loss from 

current ratio.

Net capital Total assets/Total liabilities Measures the farm business’ ability to 

cover all debt.

Farm business debt Net farm income+interest/ Measures the farm business’ ability

service coverage Interest+principal payment to repay both interest and principal.

Debt servicing Interest+principal payments/ Measures the share of the farm

Gross cash farm income business’ gross income needed to service debt.

Times interest Net farm income before interest and Measures the farm business’ ability to

taxes/Interest payments to service debt out of net income 

earned.

Efficiency:

Gross Cash operating expenses/ Measures the proportion of gross 

Gross cash farm income cash farm income absorbed by cash 

operating expenses.

Fixed Total fixed expenses/ Measures the proportion of gross

Gross cash farm income cash farm income absorbed by fixed 

expenses.

Interest to gross Interest/Gross cash farm income Measures the share of gross cash farm

cash income income committed to interest payments.

Asset turnover Gross cash farm income/ Measures the gross farm income generFarm business assets ated per dollar of farm business assets.

Debt-burden Net cash farm income/ Measures the burden placed on net 

Farm business debt cash farm income to retire outstanding 

debt.

Leverage Total liabilities/Net worth Measures the proportion to which debt

is used, as related to equity capital, to 

finance the total farm business. 

Solvency:

Debt to assets Farm business debt/ Measures debt pledged against farm

Farm business assets business assets, indicating overall 

financial risk.

Debt to equity Farm business debt/ Measures the relative proportion of

Farm business equity funds invested by creditors and owners.
28 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Profitability:

Rate of return on assets Returns to farm assets Measures how efficiently the farm

Current income from current income/ business uses its assets; the per-dollar 

Farm business assets return on farm assets.

Rate of return on equity Returns to farm assets from Measures the returns to equity

Current income current income-interest/ capital employed in the farm business 

Farm business equity from current income.

Profit margin Net farm income/ Measures profits earned per dollar of

Gross cash farm income the value of farm production.

Economic profit Net farm income minus an imputed value Measures ‘net’ profits earned per

margin for non-operator unpaid labor and a dollar of the value of farm production.

return to owned assets/

Gross cash farm income
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 29

Appendix B: Statistical Procedures Testing for Statistical Differences

The statistical difference between mean estimates is tested using a t-statistic. The null and alternative hypotheses to be

tested are:

where μ1 is the population mean of group 1 and μ2 is the population mean of group 2. Evidence allowing rejection of the

null hypothesis indicates a significant difference between population means of farms in the two groups. The t-statistic

used for hypothesis testing is (see Kmenta, 1986, p. 137 and 145):

where X1 and X2 are sample means, and VAR(X1) and VAR(X2) are variance estimates of the sample means. If the estimated t-statistic exceeds the critical-t value for the chosen level of significance then the null hypothesis can be rejected

and the group means are deemed significantly different. At a 5-percent level of significance, this means that from infinite

samples of both populations, only 5 percent of the time would the estimates lead to an incorrect rejection of the null

hypothesis.

Decomposing Profit Variation

The statistical association between farm profits and several farm structural and performance characteristics is tested

using a regression equation. The empirical model for farm profits is:

where yi is the farm profit of the ith individual, and xi is a vector of farm structural and performance characteristics

assumed to influence farm profits. The error term, ei

, is assumed to have the usual desirable properties. Parameters of the

model, aÿand b¢, are estimated using weighted least squares.

The measure of profit variation is the variance of profits, yi

. The variance of farm profits can be expressed as the sum of

the variation explained by the model and the variation in the error term:

where b¢ is a vector of parameter estimates, S is the variance-covariance matrix of explanatory variables, and s2

e is the

residual variation. To measure the extent to which each explanatory variable influences the variation of profits, the sample variation can be decomposed into its various components (Kmenta, 1986, p.410). Consider a partition of xi = [x1i

x2i], with the corresponding partition b = [b1 b2]. The variance of profits can be written as:

where S11 and S22 are matrices of variances for x1i and x2i, and S12 is the matrix of covariances between x1i and x2i. The

first term on the right-hand side represents the amount of variation in profits that can be attributed solely to x1i; the secH

H

o

A

:

:

m m

m m

1 2

1 2

=

1

t X X

VAR X VAR X ~ () ( )

1 2

1 2

-

+

y X i ii = + a be ¢ +

sb s y e

2 2 = ¢Sb +

s b bb b b bs  e



    

 = ¢SS S + ¢ +  ¢ +
ond term is the variation in profits explained solely by x2i (variance effects). The third term arises from the covariance of

x1i and x2i and cannot be separated into parts due only to x1i or only to x2i, but is attributed to the influence of the two

groups of variables together (covariance effects).

Alternative Specifications of the Regression Equations

Three alternative specifications of regression equations are used to examine the various relationships presented in this

report—linear, reciprocal, and quadratic.

The most commonly used and easiest to interpret is the linear form:

Estimated parameters of this equation, a and b, indicate the intercept and slope, respectively, of the estimated equation.

The estimate of b describes the unit change in Y with a unit change in X.

The reciprocal form is expressed as:

The intercept estimate of the reciprocal form, a, represents the value of Y that is approached as X grows infinitely large.

The estimate of b describes the unit change in Y with a unit change in 1/X. If b is negative, a represents a maximum

value that is approached from below but never reached. Conversely, a positive value of b implies that a is a minimum

that is approached from above but never reached.

The quadratic form includes the linear term plus a squared term:

The estimated value of a represents the intercept. The estimate of b describes the unit change in Y with a unit change in

X and d describes the unit change in Y with a unit change in X2. If both b and d are positive (negative), Y increases

(decreases) at an increasing rate with X. If b is positive and d is negative, Y increases at a decreasing rate and eventually

reaches a maximum. Likewise, if b is negative and d is positive, Y decreases at a decreasing rate and eventually reaches

a minimum. The level at which a maximum or minimum occurs can be identified by setting the first derivative of the

estimated equation to zero and solving for the value of X.

Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 30

Y X = + a b

Y = + a b 1

X

Y =+ + ab d X X2
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 31

Appendix table 1—Production characteristics of specialized dairy farms, by region, 1993

Corn Southern Upper

Item Unit Belt Northeast Pacific Southeast Plains Midwest U. S.

Number of farms 17,259 26,702 5,536 856 2,018 45,351 97,721

Total acres operated per farm 275 335 153 684 378 356 328

Total pasture acres used per farm 54 51 50 236 266 32 49

Cow numbers per farm 52 61 348 411 183 58 80

Milk produced cwt per farm 7,732 9,741 60,701 59,653 26,481 9,048 12,735

Total labor used hours per farm 4,437 4,847 8,138 16,677 8,249 4,402 4,928

Hired hours per farm 954 1,185 4,358 13,517 3,739 1,029 1,412

Unpaid hours per farm 3,484 3,662 3,780 3,160 4,511 3,373 3,516

Operator hours per farm 2,310 2,142 2,653 2,328 3,352 2,274 2,289

Other hours per farm 1,173 1,520 1,127 832 1,158 1,099 1,227

Total feed fed 1,000 lbs per farm 1,397 1,942 9,471 10,083 3,615 1,930 2,372

Homegrown 1,000 lbs per farm 1,077 1,578 2,154 2,739 667 1,621 1,533

Purchased 1,000 lbs per farm 320 364 7,318 7,344 2,949 309 839

Technology used

Milking facilities

Herringbone parlors percent of capacity 40.33 26.61 61.23 74.31 59.02 13.10 29.64

Parallel parlors percent of capacity 3.97 2.21 15.25 9.03 10.41 2.13 4.51

Polygon parlors percent of capacity 0.00 0.00 1.28 0.00 0.00 0.24 0.26

Carousel parlors percent of capacity 1.33 0.00 0.00 0.00 0.00 0.00 0.22

Other parlors percent of capacity 12.62 5.16 20.10 2.08 16.97 2.60 7.45

Barns with pipeline percent of capacity 27.38 48.88 2.13 14.58 13.59 73.76 48.14

Pail/buckets percent of capacity 14.36 17.13 0.00 0.00 0.00 8.18 9.78

Automatic takeoffs percent of farms 10.97 10.36 46.63 49.17 34.65 8.59 12.54

Udder washer percent of farms 0.19 0.05 44.72 56.18 9.06 0.00 3.26

Computerized milking

systems percent of farms 3.37 0.20 4.30 10.16 0.00 1.33 1.60

Computerized feeding

systems percent of farms 14.38 4.50 5.50 14.57 0.00 4.50 6.30

Diversification

Corn acres harvested per farm 56 61 25 71 9 88 70

Barley acres harvested per farm 0 1 1 0 0 3 2

Hay acres harvested per farm 67 89 48 77 72 73 75

Oats acres harvested per farm 6 4 0 3 0 14 9

Sorghum/milo acres harvested per farm 0 0 0 30 8 1 1

Soybeans acres harvested per farm 16 2 0 5 0 11 8

Wheat acres harvested per farm 3 2 3 0 2 3 3

Other crops acres harvested per farm 16 37 39 36 4 55 41

Replacement heifers

sold number per farm 1 2 5 5 3 3 3

Replacement heifers

purchased number per farm 1 1 25 18 22 1 3

Calves sold number per farm 11 23 97 142 78 14 23

Milk cows sold number per farm 1 1 15 0 2 1 2

Bulls sold number per farm 0 1 11 1 1 0 1

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey.
32 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 2—Production characteristics of specialized dairy farms, by herd size, 1993

Fewer

than 60 60-119 120-299 300 cows All

Item Unit cows cows cows or more farms

Number of farms 59,499 26,305 9,346 2,571 97,721

Total acres operated per farm 219 448 623 555 328

Total pasture acres used per farm 33 64 82 129 49

Cow numbers per farm 35 78 165 821 80

Milk produced cwt per farm 5,222 11,748 27,865 141,705 12,735

Total labor used hours per farm 3,789 5,043 8,189 18,272 4,928

Hired hours per farm 385 1,633 3,667 14,736 1,412

Unpaid hours per farm 3,404 3,410 4,522 3,535 3,516

Total feed fed 1,000 lbs per farm 1,058 2,437 5,013 22,538 2,372

Homegrown 1,000 lbs per farm 873 1,957 3,298 6,056 1,533

Purchased 1,000 lbs per farm 184 481 1,715 16,481 839

Technology used

Milking facilities

Herringbone parlors percent of capacity 5.29 36.63 51.49 73.46 29.64

Parallel parlors percent of capacity 4.59 3.59 4.57 6.62 4.51

Polygon parlors percent of capacity 0.00 0.00 0.59 1.46 0.26

Carousel parlors percent of capacity 0.51 0.00 0.00 0.00 0.22

Other parlors percent of capacity 5.93 4.89 11.66 14.00 7.45

Barns with pipeline percent of capacity 61.78 53.54 31.69 4.45 48.14

Pail/buckets percent of capacity 21.90 1.35 0.00 0.00 9.78

Automatic takeoffs percent of farms 2.01 15.39 52.63 81.24 12.54

Udder washer percent of farms 0.03 1.26 10.87 70.69 3.26

Computerized milking 

systems percent of farms 0.24 2.83 3.38 13.84 1.60

Computerized feeding 

systems percent of farms 2.08 14.91 10.31 1.26 6.30

Diversification

Corn acres harvested per farm 44 88 165 140 70

Barley acres harvested per farm 2 2 2 3 2

Hay acres harvested per farm 54 104 116 103 75

Oats acres harvested per farm 8 11 13 2 9

Sorghum/milo acres harvested per farm 0 2 1 15 1

Soybeans acres harvested per farm 8 6 19 15 8

Wheat acres harvested per farm 2 3 6 10 3

Other crops acres harvested per farm 24 52 110 67 41

Replacement heifers sold number per farm 1 2 11 11 3

Replacement heifers 

purchased number per farm 0 1 5 64 3

Calves sold number per farm 10 22 45 257 23

Milk cows sold number per farm 0 1 4 27 2

Bulls sold number per farm 0 1 1 21 1

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 33

Appendix table 3—Efficiency and productivity of specialized dairy farms, by region, 1993

Corn Southern Upper

Item Unit Belt Northeast Pacific Southeast Plains Midwest U. S.

Per cow

Milk production pounds 14,876 16,085 17,462 14,531 14,452 15,570 15,964

Value of milk sold dollars 182,427 205,649 202,029 213,400 190,507 195,955 198,437

Total labor used hours 85 80 23 41 45 76 62

Hired hours 18 20 13 33 20 18 18

Unpaid hours 67 60 11 8 25 58 44

Operator hours 44 35 8 6 18 39 29

Other hours 23 25 3 2 6 19 15

Total feed fed pounds 26,877 32,065 27,247 24,561 19,730 33,204 29,740

Homegrown pounds 20,716 26,054 6,196 6,671 3,638 27,890 19,221

Purchased pounds 6,160 6,011 21,050 17,890 16,091 5,314 10,519

Machinery investment dollars 1,673 1,400 266 538 702 1,880 1,242

Total investment dollars 8,250 9,307 2,944 4,437 3,609 8,590 6,882

Per cwt of milk sold

Value milk sold dollars 12.87 13.33 11.74 14.98 13.30 12.89 12.77

Total labor used hours 0.60 0.52 0.14 0.29 0.31 0.50 0.40

Hired hours 0.13 0.13 0.07 0.23 0.14 0.12 0.11

Unpaid hours 0.47 0.39 0.06 0.05 0.17 0.38 0.28

Operator hours 0.31 0.23 0.04 0.04 0.13 0.26 0.18

Other hours 0.16 0.16 0.02 0.01 0.04 0.12 0.10

Total feed fed pounds 189.65 207.90 158.29 172.45 137.74 218.47 191.38

Homegrown pounds 146.18 168.92 36.00 46.84 25.40 183.51 123.69

Purchased pounds 43.47 38.97 122.29 125.61 112.34 34.97 67.69

Machinery investment dollars 11.80 9.08 1.55 3.78 4.90 12.37 7.99

Total investment dollars 58.22 60.34 17.11 31.15 25.19 56.52 44.29

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.

Appendix table 4—Efficiency and productivity of specialized dairy farms, by herd size, 1993

Fewer

than 60 60-119 120-299 300 cows

Item Unit cows cows cows or more U.S.

Per cow

Milk production pounds 14,885 15,065 16,842 17,263 15,964

Value of milk sold dollars 188,712 188,532 210,489 208,855 198,437

Total labor used hours 108 65 49 22 62

Hired hours 11 21 22 18 18

Unpaid hours 97 44 27 4 44

Operator hours 62 31 15 3 29

Other hours 35 13 12 1 15

Total feed fed pounds 30,146 31,253 30,302 27,456 29,740

Homegrown pounds 24,896 25,088 19,936 7,378 19,221

Purchased pounds 5,250 6,165 10,366 20,078 10,519

Machinery investment dollars 1,846 1,626 1,186 311 1,242

Total investment dollars 10,279 7,526 6,788 2,966 6,882

Per cwt of milk sold

Value of milk sold dollars 13.04 13.01 12.91 12.25 12.77

Total labor used hours 0.75 0.45 0.30 0.13 0.40

Hired hours 0.08 0.14 0.14 0.11 0.11

Unpaid hours 0.67 0.30 0.17 0.03 0.28

Operator hours 0.43 0.21 0.09 0.02 0.18

Other hours 0.24 0.09 0.07 0.01 0.10

Total feed fed pounds 208.30 215.60 185.90 161.00 191.38

Homegrown pounds 172.02 173.07 122.31 43.26 123.69

Purchased pounds 36.28 42.53 63.59 117.74 67.69

Machinery investment dollars 12.76 11.22 7.28 1.82 7.99

Total investment dollars 71.02 51.92 41.65 17.39 44.29

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
34 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 5—Balance sheet for specialized dairy farms, 1993-96

Item 1993 1994 1995 1996

Number of farms 125,408 115,271 107,458 96,823

Dollars per farm

Farm assets 608,031 621,344 646,219 718,328

Current assets 79,689 92,952 96,900 97,814

Livestock inventory 26,764 25,501 28,996 33,165

Crop inventory 20,307 23,621 31,706 28,294

Purchased inputs 7,583 9,717 3,519 6,833

Cash invested in growing crops 480 630 704 808

Prepaid insurance 740 840 821 919

Other assets 23,815 32,642 31,155 27,796

Non-current assets 528,342 528,392 549,318 620,515

Investment in cooperatives 2,324 3,154 2,107 5,773

Land and buildings 350,366 321,278 356,180 406,160

Operators dwelling 45,459 44,703 48,199 54,646

Farm equipment 88,618 99,427 94,246 109,426

Breeding animals 87,034 104,532 96,785 99,156

Farm liabilities 115,878 126,449 137,349 146,181

Current liabilities 31,924 35,236 47,939 46,310

Notes payable within one year 13,349 13,223 27,992 25,274

Current portion of term debt 12,634 15,525 13,245 14,144

Accrued interest 3,298 3,599 3,919 4,179

Accounts payable 2,642 2,888 2,782 2,713

Noncurrent liabilities 83,954 91,214 89,410 99,871

Nonreal estate 23,563 32,999 24,228 24,386

Real estate 60,391 58,215 65,182 75,485

Farm equity 492,152 494,894 508,870 572,147

Debt/asset ratio 0.19 0.20 0.21 0.20

Source: Compiled by Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA and 1996 Agricultural Resource Management Study, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 35

Appendix table 6—Income statement for specialized dairy farms, 1993-96

Item 1993 1994 1995 1996

Number of farms 125,408 115,271 107,458 96,823

Dollars per farm

Farm assets 608,031 621,344 646,219 718,328

Gross cash income 181,464 201,310 226,630 249,376

Livestock sales 166,733 185,207 210,331 233,266

Crop sales (incl. net CCC loans) 5,579 5,718 7,512 7,100

Government payments 4,035 2,784 2,407 2,477

Other farm-related income 5,118 7,601 6,380 6,533

Less: Cash expenses 139,474 160,144 176,506 193,503

Variable 117,918 136,310 150,014 166,271

Livestock purchases 509 843 559 742

Feed 52,598 61,716 70,809 80,773

Other livestock-related 9,127 7,792 9,467 9,017

Seed and plants 2,862 2,983 2,831 3,584

Fertilizer and chemicals 7,112 8,340 8,625 9,787

Labor 14,178 17,410 18,396 20,195

Fuels and oils 4,110 4,801 4,795 5,304

Repairs and maintenance 9,519 11,160 11,420 13,318

Machine-hire and custom work 7,695 7,788 8,277 8,346

Utilities 5,219 5,433 6,027 6,304

Other variable expenses 4,989 8,043 8,808 8,901

Fixed 21,556 23,833 26,492 27,233

Real estate and property taxes 3,391 3,707 3,698 3,982

Interest 9,594 10,718 13,078 13,214

Insurance premiums 2,958 3,358 3,284 3,675

Rent and lease payments 5,613 6,050 6,432 6,362

Equals: Net cash farm income 41,990 41,166 50,124 55,873

Less:

Depreciation 16,397 20,214 20,716 23,399

Labor, non-cash benefits 726 896 1,216 906

Plus:

Value of inventory change 4,145 6,113 1,859 3,087

Nonmoney income 5,034 5,134 5,149 6,043

Equals: Net farm income 34,047 31,304 35,200 40,698

Source: Compiled by Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and 1996 Agricultural Resource Management Study, USDA.
36 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 8—Financial ratios for specialized dairy farms, Northeast, 1993-96

t-statistics

Item 1993 1994 1995 1996 93-94 93-95 93-96 94-95 94-96 95-96

Liquidity ratios

Current 4.04 4.58 na 3.86 0.70 na 0.01 na 0.75 na

Quick 1.43 2.55 na 1.82 2.63** na 0.03 na 0.71 na

Farm business debt

service coverage 2.03 1.84 na 1.88 0.80 na 0.01 na 0.11 na

Debt servicing 0.14 0.14 na 0.16 0.07 na 0.01 na 0.82 na

Times interest 2.58 1.47 na 1.19 1.75* na 0.09 na 0.33 na

Efficiency ratios

Gross 0.77 0.79 na 0.77 1.19 na 0.00 na 0.59 na

Interest to gross

cash income 0.05 0.05 na 0.07 0.19 na 0.01 na 0.73 na

Asset turnover 0.23 0.27 na 0.30 1.58 na 0.01 na 0.63 na

Debt-burden 0.38 0.39 na 0.37 0.06 na 0.00 na 0.19 na

Solvency ratios

Debt to assets 0.14 0.15 na 0.18 0.23 na 0.01 na 0.78 na

Debt to equity 0.16 0.17 na 0.22 0.23 na 0.01 na 0.79 na

Profitability ratios

Rate of return on assets

Current income 0.03 0.02 na 0.03 1.22 na 0.00 na 0.29 na

Rate of return on equity

Current income 0.03 0.01 na 0.01 1.48 na 0.01 na 0.02 na

Profit margin 0.21 0.15 na 0.17 2.24** na 0.01 na 0.32 na

Economic profit margin 0.03 0.02 na 0.05 0.31 na 0.01 na 0.93 na

na = not available, legal disclosure edit required.

*significantly different at the 10-percent level.

**significantly different at the 5-percent level.

Source: Compiled by Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and 1996 Agricultural Resource Management Study, USDA.

Appendix table 7—Financial ratios for specialized dairy farms, Corn Belt, 1993-96

t-statistics

Item 1993 1994 1995 1996 93-94 93-95 93-96 94-95 94-96 95-96

Liquidity ratios

Current 2.67 3.41 2.33 2.03 0.64 0.49 0.04 0.90 0.39 0.22

Quick 1.25 1.73 0.74 1.00 0.59 1.30 0.02 1.27 0.69 0.32

Farm business debt

service coverage 1.55 1.68 1.30 1.06 0.23 0.53 0.04 0.62 1.13 0.52

Debt servicing 0.18 0.17 0.20 0.25 0.26 0.32 0.02 0.53 1.53 1.03

Times interest 2.33 2.11 1.74 0.83 0.12 0.46 0.10 0.18 0.72 0.73

Efficiency ratios

Gross 0.76 0.76 0.80 0.81 0.04 0.78 0.01 0.68 1.09 0.24

Interest to gross

cash income 0.05 0.05 0.05 0.07 0.50 0.65 0.01 0.12 1.33 1.23

Asset turnover 0.25 0.23 0.29 0.30 0.45 1.18 0.01 1.75* 1.18 0.08

Debt-burden 0.42 0.39 0.31 0.25 0.18 0.81 0.03 0.45 0.92 0.49

Solvency ratios

Debt to assets 0.14 0.14 0.19 0.23 0.01 1.41 0.02 1.21 1.68* 0.68

Debt to equity 0.16 0.16 0.24 0.29 0.01 1.37 0.03 1.23 1.51 0.59

Profitability ratios

Rate of return on assets

Current income 0.03 0.03 0.03 0.02 0.14 0.02 0.00 0.09 0.42 0.48

Rate of return on equity

Current income 0.02 0.02 0.01 0.00 0.16 0.24 0.01 0.09 0.70 0.57

Profit margin 0.18 0.18 0.16 0.14 0.08 0.28 0.01 0.27 0.66 0.40

Economic profit margin -0.01 0.03 0.02 0.00 0.67 0.77 0.00 0.01 0.35 0.37

* significantly different at the 10-percent level.

Source: Compiled by Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and 1996 Agricultural Resource Management Study, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 37

Appendix table 9—Financial ratios for specialized dairy farms, Pacific, 1993-96

t-statistics

Item 1993 1994 1995 1996 93-94 93-95 93-96 94-95 94-96 95-96

Liquidity ratios

Current 2.43 1.08 1.78 1.60 3.19** 1.32 0.05 1.80* 2.13** 0.51

Quick 0.83 0.73 0.62 0.76 0.41 1.06 0.01 0.56 0.14 1.10

Farm business debt

service coverage 1.30 0.61 0.78 0.80 2.72** 1.95* 0.04 1.03 0.78 0.08

Debt servicing 0.20 0.29 0.28 0.27 1.79* 1.73* 0.02 0.09 0.26 0.19

Times interest 2.89 1.29 0.17 1.47 1.69* 3.23** 0.08 1.61 0.13 0.94

Efficiency ratios

Gross 0.78 0.88 0.85 0.83 3.03** 2.20** 0.01 0.93 1.32 0.58

Interest to gross

cash income 0.04 0.05 0.07 0.04 0.98 1.00 0.00 0.71 1.90* 1.18

Asset turnover 0.60 0.54 0.57 0.55 0.87 0.51 0.01 0.44 0.13 0.41

Debt-burden 0.45 0.17 0.31 0.35 3.32** 1.45 0.01 1.99** 2.47** 0.45

Solvency ratios

Debt to assets 0.29 0.38 0.27 0.27 1.51 0.33 0.00 1.91* 1.90* 0.09

Debt to equity 0.41 0.62 0.38 0.37 1.54 0.32 0.01 1.93* 1.95* 0.09

Profitability ratios

Rate of return on assets

Current income 0.06 0.03 0.01 0.02 1.73* 2.57** 0.02 0.87 0.15 0.30

Rate of return on equity

Current income 0.05 0.00 -0.04 0.00 1.80* 2.69** 0.02 1.20 0.08 0.86

Profit margin 0.18 0.12 0.09 0.11 1.49 2.57** 0.02 1.06 0.23 0.36

Economic profit margin 0.15 0.09 0.06 0.08 1.33 2.56** 0.02 1.07 0.25 0.44

* significantly different at the 10-percent level.

** significantly different at the 5-percent level.

Source: Compiled by Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and 1996 Agricultural Resource Management Study, USDA.

Appendix table 10—Financial ratios for specialized dairy farms, Southeast, 1993-96

t-statistics

Item 1993 1994 1995 1996 93-94 93-95 93-96 94-95 94-96 95-96

Liquidity ratios

Current 3.37 na 2.44 na na 1.02 na na na na

Quick 1.51 na 0.73 na na 1.84* na na na na

Farm business debt

service coverage 1.83 na 1.13 na na 1.36 na na na na

Debt servicing 0.12 na 0.16 na na 1.11 na na na na

Times interest 3.96 na 2.36 na na 0.87 na na na na

Efficiency ratios

Gross 0.81 na 0.84 na na 0.80 na na na na

Interest to gross

cash income 0.03 na 0.03 na na 0.89 na na na na

Asset turnover 0.46 na 0.43 na na 0.33 na na na na

Debt-burden 0.51 na 0.32 na na 1.32 na na na na

Solvency ratios

Debt to assets 0.17 na 0.20 na na 0.80 na na na na

Debt to equity 0.20 na 0.26 na na 0.80 na na na na

Profitability ratios

Rate of return on assets

Current income 0.05 na 0.01 na na 1.33 na na na na

Rate of return on equity

Current income 0.04 na 0.00 na na 1.24 na na na na

Profit margin 0.18 na 0.11 na na 1.42 na na na na

Economic profit margin 0.13 na 0.05 na na 1.43 na na na na

na = not available, legal disclosure edit required.

* significantly different at the 10-percent level.

Source: Compiled by Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and 1996 Agricultural Resource Management Study, USDA.
38 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 11—Financial ratios for specialized dairy farms, Southern Plains, 1993-96

t-statistics

Item 1993 1994 1995 1996 93-94 93-95 93-96 94-95 94-96 95-96

Liquidity ratios

Current 1.49 na 1.44 1.55 na 0.05 0.01 na na 0.15

Quick 0.62 na 0.43 0.83 na 0.49 0.03 na na 1.28

Farm business debt

service coverage 0.39 na 0.93 1.25 na 1.08 0.14 na na 0.46

Debt servicing 0.26 na 0.25 0.21 na 0.34 0.01 na na 0.33

Times interest 3.33 na 0.74 4.06 na 0.57 0.04 na na 1.22

Efficiency ratios

Gross 0.93 na 0.82 0.77 na 1.75* 0.02 na na 0.94

Interest to gross

cash income 0.04 na 0.04 0.04 na 1.27 0.00 na na 0.16

Asset turnover 0.35 na 0.60 0.48 na 1.95* 0.02 na na 0.89

Debt-burden 0.05 na 0.44 0.57 na 1.80* 0.25 na na 0.47

Solvency ratios

Debt to assets 0.52 na 0.25 0.20 na 2.34** 0.04 na na 0.61

Debt to equity 1.09 na 0.33 0.25 na 3.05** 0.08 na na 0.61

Profitability ratios

Rate of return on assets

Current income 0.03 na 0.01 0.05 na 0.36 0.01 na na 1.05

Rate of return on equity

Current income 0.04 na -0.03 0.05 na 0.69 0.00 na na 1.35

Profit margin 0.17 na 0.08 0.18 na 0.53 0.13 na na 0.60

Economic profit margin 0.12 na 0.04 0.14 na 0.49 0.30 na na 1.02

na = not available, legal disclosure edit required.

*significantly different at the 10-percent level.

**significantly different at the 5-percent level.

Source: Compiled by Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and 1996 Agricultural Resource Management Study, USDA.

Appendix table 12—Financial ratios for specialized dairy farms, Upper Midwest, 1993-96

t-statistics

Item 1993 1994 1995 1996 93-94 93-95 93-96 94-95 94-96 95-96

	



		          

          


	 !!

	""	
#          

$!	"#          

%	          

&''	


(	          

)	#	


*           

+	"	          

$!,!	          

-."	


$!
          

$!          

/	'
!.	


0
'		



		           

0
'		


		           

/	' 
	#          

&  
	#1	'          

* significantly different at the 10-percent level.

** significantly different at the 5-percent level.

Source: Compiled by Economic Research Service from 1993-95 Farm Costs and Returns Surveys, USDA, and 1996 Agricultural Resource Management Study, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 39

Appendix table 13—Common size income statement for specialized dairy farms, by region, 1993

Corn Southern Upper

Item Belt Northeast Pacific Southeast Plains Midwest U. S.

Percent

Sales 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Livestock 95.91 98.08 99.72 99.32 98.62 97.04 97.99

Crop (incl. net CCC loans) 4.09 1.92 0.28 0.68 1.38 2.96 2.01

Cash expenses 80.28 78.08 79.71 86.65 78.38 83.65 81.04

Variable 68.11 66.28 70.95 79.61 72.10 66.02 68.45

Livestock purchases 0.85 0.45 0.00 0.48 0.18 0.19 0.28

Feed 26.66 24.47 46.06 44.17 45.79 22.12 31.26

Other livestock-related 6.30 7.53 5.09 6.43 4.25 7.31 6.50

Seed and plants 2.22 1.84 0.27 0.39 0.78 2.86 1.71

Fertilizer and chemicals 6.10 4.69 0.66 1.98 1.35 5.87 3.95

Labor 6.19 8.06 8.39 13.01 6.91 7.89 8.06

Fuels and oils 3.01 2.63 0.76 1.06 1.22 3.13 2.23

Repairs and maintenance 7.06 6.83 2.30 3.94 3.00 7.70 5.69

Machine-hire and custom work 4.06 4.56 3.79 4.56 5.10 2.70 3.70

Utilities 2.84 3.27 2.41 1.68 2.54 3.28 2.90

Other variable expenses 2.82 1.97 1.22 1.91 0.99 2.98 2.17

Fixed 12.17 11.79 8.76 7.03 6.28 17.62 12.58

Real estate and property taxes 1.47 2.87 0.74 1.26 0.44 3.43 2.19

Interest 5.14 5.04 4.49 3.57 3.82 7.87 5.75

Insurance premiums 1.67 1.96 0.77 1.59 0.64 2.40 1.70

Rent and lease payments 3.89 1.92 2.77 0.61 1.38 3.92 2.95

Net cash farm income 26.29 25.93 23.06 16.32 22.45 23.31 23.75

Depreciation 12.24 10.68 7.57 6.51 8.50 12.31 10.32

Labor, non-cash benefits 0.40 0.49 0.29 0.92 0.94 0.23 0.38

Value of inventory change 0.71 3.23 1.05 9.52 1.66 0.21 1.59

Nonmoney income 4.23 3.94 0.79 0.62 1.12 3.61 2.78

Net farm income 18.60 21.94 17.03 19.02 15.80 14.58 17.42

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
40 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 15—Common size balance sheet for specialized dairy farms, by region, 1993

Corn Southern Upper

Item Belt Northeast Pacific Southeast Plains Midwest U. S.

Percent

Farm assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Current assets 10.86 10.46 24.60 18.50 9.06 10.60 12.52

Livestock inventory 2.11 2.68 9.48 8.96 1.19 2.63 3.57

Crop inventory 4.01 3.62 5.16 2.15 2.01 4.05 3.96

Purchased inputs 0.79 0.94 2.57 1.35 1.12 0.95 1.14

Cash invested in growing crops 0.03 0.12 0.14 0.12 0.02 0.05 0.08

Prepaid insurance 0.10 0.11 0.12 0.17 0.09 0.15 0.12

Other assets 3.82 3.00 7.12 5.75 4.64 2.78 3.65

Non-current assets 89.14 89.54 75.40 81.50 90.94 89.40 87.48

Investment in cooperatives 0.00 0.00 0.01 0.00 0.01 0.00 0.00

Land and buildings 57.01 64.47 36.70 52.37 43.37 55.29 55.38

Operator’s dwelling 9.97 7.65 4.79 2.86 7.19 7.53 7.40

Farm equipment 18.07 13.47 6.81 9.88 17.68 19.56 15.78

Breeding animals 13.98 11.15 30.99 18.75 29.31 14.21 15.90

Farm liabilities 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Current liabilities 27.95 19.82 37.27 28.09 25.45 22.83 26.02

Notes payable within one year 12.24 2.13 18.59 10.21 7.98 6.59 8.97

Current portion of term debt 10.47 12.15 13.85 13.11 13.33 10.74 11.76

Accrued interest 2.84 2.83 2.86 2.86 2.88 2.84 2.84

Accounts payable 2.40 2.70 1.97 1.92 1.26 2.67 2.44

Noncurrent liabilities 72.05 80.18 62.73 71.91 74.55 77.17 73.98

Nonreal estate 18.69 22.84 35.73 29.59 29.61 18.06 23.35

Real estate 53.36 57.35 27.00 42.32 44.94 59.11 50.63

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.

Appendix table 14—Common size income statement for specialized dairy farms, by region, 1996

Corn Southern Upper

Item Belt Northeast Pacific Southeast Plains Midwest U. S.

Percent

Sales 100.00 100.00 100.00 na 100.00 100.00 100.00

Livestock 93.22 98.02 98.29 na 99.85 95.22 97.55

Crop (incl. net CCC loans) 6.78 1.98 1.71 na 0.15 4.78 2.45

Cash expenses 84.71 80.31 84.57 na 84.35 78.35 81.27

Variable 72.96 68.61 76.41 na 77.36 64.06 72.00

Livestock purchases 0.01 0.65 0.42 na 0.17 0.21 0.62

Feed 29.43 28.27 48.86 na 47.99 21.29 37.66

Other livestock-related 5.11 5.38 3.14 na 1.99 5.22 3.89

Seed and plants 2.37 1.62 0.41 na 0.46 2.44 1.07

Fertilizer and chemicals 6.70 4.40 1.34 na 2.81 6.49 3.17

Labor 8.97 11.02 9.92 na 10.08 9.19 10.26

Fuels and oils 2.48 2.28 0.96 na 1.57 2.71 1.70

Repairs and maintenance 6.23 6.01 3.07 na 2.88 7.30 4.59

Machine-hire and custom work 5.31 3.02 3.18 na 4.31 2.61 3.49

Utilities 2.23 2.50 2.78 na 2.58 2.54 2.42

Other variable expenses 4.12 3.45 2.33 na 2.49 4.08 3.14

Fixed 11.75 11.71 8.16 na 7.00 14.29 9.27

Real estate and property taxes 1.32 1.91 0.59 na 0.62 1.87 1.01

Interest 5.47 5.76 3.96 na 4.30 6.81 4.50

Insurance premiums 1.38 1.59 1.31 na 1.01 1.86 1.31

Rent and lease payments 3.57 2.44 2.30 na 1.07 3.74 2.45

Net cash farm income 19.21 22.92 18.61 na 18.63 26.55 21.94

Depreciation 10.53 10.88 7.14 na 6.31 12.05 8.52

Labor, non-cash benefits 0.63 0.53 0.52 na 0.51 0.23 0.44

Value of inventory change -0.77 2.53 1.43 na -1.01 0.69 1.55

Nonmoney income 2.97 2.05 0.63 na 0.77 2.46 1.27

Net farm income 10.25 16.10 13.01 na 11.58 17.41 15.80

na = not available, legal disclosure edit required.

Source: Compiled by Economic Research Service from 1996 Agricultural Resource Management Study, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 41

Appendix table 16—Common size balance sheet for specialized dairy farms, by region, 1996

Corn Southern Upper

Item Belt Northeast Pacific Southeast Plains Midwest U. S.

Percent

Farm assets 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Current assets 14.82 15.84 21.94 na 19.13 13.86 16.47

Livestock inventory 1.42 3.63 9.30 na 6.84 3.59 5.62

Crop inventory 4.84 5.48 2.95 na 2.03 6.24 4.14

Purchased inputs 0.70 0.72 2.49 na 0.59 1.30 1.46

Cash invested in growing crops 0.16 0.08 0.11 na 0.16 0.15 0.12

Prepaid insurance 0.09 0.15 0.19 na 0.11 0.15 0.15

Other assets 7.61 5.78 6.89 na 9.40 2.44 4.97

Non-current assets 85.18 84.16 78.06 na 80.87 86.14 83.53

Investment in cooperatives 0.00 0.01 0.01 na 0.01 0.01 0.01

Land and buildings 55.59 53.30 48.11 na 49.81 51.94 51.76

Operators dwelling 6.16 5.47 3.01 na 3.25 6.90 4.81

Farm equipment 15.05 15.26 7.12 na 11.77 18.60 12.90

Breeding animals 14.12 14.77 21.50 na 18.68 14.38 17.91

Farm liabilities 100.00 100.00 100.00 na 100.00 100.00 100.00

Current liabilities 25.21 22.01 49.79 na 50.43 28.95 36.42

Notes payable within one year 11.53 6.45 36.70 na 37.17 13.82 22.16

Current portion of term debt 8.89 10.88 8.57 na 9.45 10.53 9.62

Accrued interest 2.86 2.86 2.86 na 2.89 2.86 2.86

Accounts payable 1.94 1.82 1.66 na 0.92 1.73 1.79

Noncurrent liabilities 74.79 77.99 50.21 na 49.57 71.05 63.58

Nonreal estate 11.26 18.38 18.28 na 22.08 19.28 18.05

Real estate 63.52 59.61 31.93 na 27.50 51.77 45.53

na = not available, legal disclosure edit required.

Source: Compiled by Economic Research Service from 1996 Agricultural Resource Management Study, USDA.
42 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 17—Use of marketing, financial, and production strategies for specialized dairy farms, by size of

farm, 1993 1/

Economic size of farm

$50,000- $100,000- $250,000 $500,000 All

Item $99,999 $249,999 $499,999 and over farms

Production strategies

Number of farms 19,988 30,087 9,890 5,548 79,528

Percent of farms 67.88 61.95 76.83 71.49 61.85

For those using production

strategies, percent that used:

Stable income 29.68 18.05 27.29 18.12 22.08

Diversification 18.70 8.57 36.56 13.11 14.65

Custom/contract inputs 10.77 17.33 2.11 10.28 10.20

Insurance 10.37 22.86 17.99 6.92 17.70

Government programs 20.77 30.48 42.62 36.14 27.55

Leased livestock 0.83 1.00 0.00 5.08 1.03

Leased land 19.65 26.87 25.56 35.22 23.46

Share rent land 7.68 3.75 1.30 0.46 4.04

Leased equipment 4.44 4.62 0.37 3.58 3.00

Nonfarm use of land 0.00 0.50 0.00 0.00 0.84

Other 22.95 10.50 19.43 16.11 13.68

Financial strategies

Number of farms 14,811 34,108 10,336 6,000 72,108

Percent of farms 50.30 70.23 80.30 77.31 65.50

For those using financial

strategies, percent that used:

Open credit lines 19.83 38.24 61.88 50.51 31.61

Maintain equity in cash 19.60 49.35 32.31 56.63 31.05

Match loan maturity with sales 15.58 12.49 41.40 30.76 14.40

Renegotiated loans 14.37 20.71 34.43 26.11 17.12

Other 18.38 11.47 8.55 0.98 11.71

Marketing strategies

Number of farms 16,795 29,532 8,651 5,239 67,529

Percent of farms 57.03 60.81 67.21 67.50 52.26

For those using marketing

strategies, percent that used:

Hedging 0.00 0.62 8.14 1.97 1.81

Contract sale of product 15.42 15.99 5.14 30.77 12.53

Spread sales 43.57 39.89 57.42 47.96 38.53

Contract sales 14.33 24.28 24.91 50.07 17.88

Other 30.08 21.44 34.00 16.54 20.25

1/ Legal disclosure edit required for economic size of less than $50,000 in gross farm income.

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 43

Appendix table 18—Use of marketing, financial, and production strategies for specialized dairy farms, by size of

farm, Corn Belt, 1993 

Economic size of farm

$50,000- $100,000- $250,000 $500,000 All

Item $99,999 $249,999 $499,999 and over farms

Production strategies

Number of farms 5,070 1,997 511 173 7,750

Percent of farms 55.22 49.75 46.79 100.00 45.22

For those using production

strategies, percent that used:

Stable income 28.12 36.63 0.00 0.00 23.64

Diversification 0.00 8.38 46.79 32.47 5.27

Custom/contract inputs 14.70 0.00 0.00 0.00 7.88

Insurance 3.48 25.35 44.61 0.00 10.64

Government programs 33.89 2.90 44.61 100.00 22.68

Leased livestock 2.30 0.00 0.00 0.00 1.23

Leased land 12.39 13.14 0.00 32.47 10.04

Share rent land 24.64 0.00 0.00 0.00 13.20

Leased equipment 0.00 0.00 0.00 0.00 0.00

Nonfarm use of land 0.00 0.00 0.00 0.00 0.00

Other 17.84 28.23 0.00 25.18 16.42

Financial strategies

Number of farms 5,070 2,675 604 173 8,522

Percent of farms 55.22 66.63 55.39 100.00 49.72

For those using financial

strategies, percent that used:

Open credit lines 15.88 30.21 53.21 100.00 19.98

Maintain equity in cash 5.78 42.43 25.67 32.47 15.00

Match loan maturity with sales 27.10 29.90 30.66 0.00 23.47

Renegotiated loans 3.48 36.41 0.00 0.00 10.39

Other 39.34 15.11 0.00 0.00 24.61

Marketing strategies

Number of farms 7,888 1,820 811 130 10,649

Percent of farms 85.92 45.32 74.33 74.82 62.13

For those using marketing

strategies, percent that used:

Hedging 0.00 0.00 0.00 0.00 0.00

Contract sale of product 30.70 36.63 0.00 74.82 25.78

Spread sales 55.22 30.21 74.33 32.47 41.71

Contract sales 0.84 8.38 44.61 42.35 5.68

Other 41.64 23.81 27.54 32.47 29.96

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
44 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 19—Use of marketing, financial, and production strategies for specialized dairy farms, by size of

farm, Northeast, 1993

Economic size of farm

$50,000- $100,000- $250,000 $500,000 All

Item $99,999 $249,999 $499,999 and over farms

Production strategies

Number of farms 4,720 8,095 1,099 1,017 18,464

Percent of farms 67.96 83.82 69.09 94.05 80.00

For those using production

strategies, percent that used:

Stable income 17.60 29.10 0.82 5.95 33.12

Diversification 15.97 14.42 1.18 0.00 26.23

Custom/contract inputs 5.81 30.98 0.00 0.00 14.71

Insurance 4.64 3.59 0.00 0.00 2.90

Government programs 17.60 3.42 0.00 88.11 10.86

Leased livestock 0.00 0.00 0.00 0.00 0.00

Leased land 8.13 65.04 30.09 82.34 35.59

Share rent land 0.00 6.80 0.00 0.00 2.85

Leased equipment 18.82 0.20 0.00 10.06 6.22

Nonfarm use of land 0.00 0.00 0.00 0.00 0.00

Other 18.29 17.39 37.00 2.57 15.45

Financial strategies

Number of farms 3,763 7,960 1,079 1,017 17,351

Percent of farms 54.17 82.42 67.83 94.05 75.18

For those using financial

strategies, percent that used:

Open credit lines 17.80 51.40 37.73 94.05 49.18

Maintain equity in cash 26.26 71.32 37.73 68.03 43.54

Match loan maturity with sales 4.43 8.29 36.92 67.29 10.50

Renegotiated loans 15.97 16.29 0.82 10.06 12.15

Other 5.81 11.22 30.09 21.74 9.53

Marketing strategies

Number of farms 1,198 7,360 480 963 13,533

Percent of farms 17.25 76.21 30.18 89.02 58.64

For those using marketing

strategies, percent that used:

Hedging 0.00 0.00 0.00 0.00 0.00

Contract sale of product 4.65 12.47 0.09 0.00 6.62

Spread sales 10.29 60.88 0.00 87.37 47.97

Contract sales 2.85 52.19 0.00 88.11 26.82

Other 6.96 17.85 30.09 6.68 11.95

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 45

Appendix table 20—Use of marketing, financial, and production strategies for specialized dairy farms, by size of

farm, Pacific, 1993

Economic size of farm

$50,000- $100,000- $250,000 $500,000 All

Item $99,999 $249,999 $499,999 and over farms

Production strategies

Number of farms 0 0 15 1,806 2,347

Percent of farms 0.00 0.00 4.04 67.07 45.76

For those using production

strategies, percent that used:

Stable income 0.00 0.00 0.00 23.63 12.41

Diversification 0.00 0.00 0.00 14.64 7.69

Custom/contract inputs 0.00 0.00 0.00 12.99 17.07

Insurance 0.00 0.00 0.00 0.00 0.00

Government programs 0.00 0.00 0.00 1.72 0.90

Leased livestock 0.00 0.00 0.00 14.64 7.69

Leased land 0.00 0.00 0.00 18.67 20.05

Share rent land 0.00 0.00 0.00 0.00 0.00

Leased equipment 0.00 0.00 0.00 0.00 0.00

Nonfarm use of land 0.00 0.00 0.00 0.00 0.00

Other 0.00 0.00 4.04 30.46 16.29

Financial strategies

Number of farms 49 510 172 2,133 2,864

Percent of farms 100.00 34.24 46.30 79.19 55.83

For those using financial

strategies, percent that used:

Open credit lines 100.00 30.51 27.03 57.67 42.05

Maintain equity in cash 100.00 0.00 0.00 53.26 28.92

Match loan maturity with sales 0.00 0.00 19.26 30.59 17.46

Renegotiated loans 0.00 3.74 4.04 47.53 26.34

Other 0.00 0.00 15.84 19.52 11.40

Marketing strategies

Number of farms 49 355 172 1,187 1,762

Percent of farms 100.00 23.81 46.30 44.06 34.35

For those using marketing

strategies, percent that used:

Hedging 0.00 20.07 0.00 0.87 6.29

Contract sale of product 0.00 3.74 27.03 43.19 25.72

Spread sales 100.00 3.74 31.07 27.63 18.79

Contract sales 0.00 0.00 15.84 39.75 22.02

Other 0.00 0.00 4.04 10.41 5.76

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
46 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 21—Use of marketing, financial, and production strategies for specialized dairy farms, by size of

farm, Southeast, 1993

Economic size of farm

$50,000- $100,000- $250,000 $500,000 All

Item $99,999 $249,999 $499,999 and over farms

Production strategies

Number of farms 0 223 74 63 360

Percent of farms 0.00 88.85 50.00 17.26 47.06

For those using production

strategies, percent that used:

Stable income 0.00 43.56 0.00 0.00 14.31

Diversification 0.00 43.56 0.00 0.00 14.31

Custom/contract inputs 0.00 43.56 0.00 0.00 14.31

Insurance 0.00 45.29 0.00 0.00 14.88

Government programs 0.00 45.29 0.00 17.26 23.15

Leased livestock 0.00 100.00 100.00 100.00 100.00

Leased land 0.00 0.00 0.00 17.26 8.27

Share rent land 0.00 100.00 100.00 100.00 100.00

Leased equipment 0.00 0.00 0.00 8.63 4.14

Nonfarm use of land 0.00 100.00 100.00 100.00 100.00

Other 0.00 0.00 50.00 0.00 9.61

Financial strategies

Number of farms 0 223 147 32 402

Percent of farms 0 88.85 100.00 8.63 52.53

For those using financial

strategies, percent that used:

Open credit lines 0.00 88.85 0.00 8.63 33.32

Maintain equity in cash 0.00 0.00 50.00 0.00 9.61

Match loan maturity with sales 0.00 0.00 50.00 0.00 9.61

Renegotiated loans 0.00 45.29 50.00 8.63 28.62

Other 0.00 100.00 100.00 100.00 100.00

Marketing strategies

Number of farms 0 223 74 63 361

Percent of farms 0 88.85 50.00 17.26 47.06

For those using marketing

strategies, percent that used:

Hedging 0.00 100.00 100.00 100.00 100.00

Contract sale of product 0.00 43.56 50.00 8.63 28.05

Spread sales 0.00 0.00 50.00 8.63 13.74

Contract sales 0.00 0.00 0.00 8.63 4.14 

Other 0.00 88.85 0.00 0.00 29.19

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 47

Appendix table 22—Use of marketing, financial, and production strategies for specialized dairy farms, by size of

farm, Southern Plains, 1993

Economic size of farm

$50,000- $100,000- $250,000 $500,000 All

Item $99,999 $249,999 $499,999 and over farms

Production strategies

Number of farms 0 307 0 294 602

Percent of farms 0.00 46.31 0.00 80.55 22.46

For those using production

strategies, percent that used:

Stable income 0.00 46.31 0.00 0.00 11.47

Diversification 0.00 0.00 0.00 9.72 1.33

Custom/contract inputs 0.00 0.00 0.00 0.00 0.00

Insurance 0.00 0.00 0.00 0.00 0.00

Government programs 0.00 0.00 0.00 9.72 1.33

Leased livestock 0.00 0.00 0.00 0.00 0.00

Leased land 0.00 46.31 0.00 70.83 21.13

Share rent land 0.00 0.00 0.00 9.72 1.33

Leased equipment 0.00 0.00 0.00 0.00 0.00

Nonfarm use of land 0.00 0.00 0.00 0.00 0.00

Other 0.00 0.00 0.00 0.00 0.00

Financial strategies

Number of farms 0 307 231 107 645

Percent of farms 0 46.31 100.00 29.17 24.07

For those using financial

strategies, percent that used:

Open credit lines 0.00 0.00 100.00 19.45 11.27

Maintain equity in cash 0.00 0.00 100.00 19.45 11.27

Match loan maturity with sales 0.00 0.00 100.00 9.72 9.95

Renegotiated loans 0.00 46.31 0.00 19.45 14.13

Other 0.00 0.00 0.00 0.00 0.00

Marketing strategies

Number of farms 0 307 0 142 450

Percent of farms 0 46.31 0.00 38.90 16.78

For those using marketing

strategies, percent that used:

Hedging 0.00 0.00 0.00 9.72 1.33

Contract sale of product 0.00 0.00 0.00 29.17 3.98

Spread sales 0.00 46.31 0.00 0.00 11.47

Contract sales 0.00 0.00 0.00 19.45 2.65

Other 0.00 0.00 0.00 0.00 0.00

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
48 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 23- Use of marketing, financial, and production strategies for specialized dairy farms, by size of

farm, Upper Midwest, 1993

Economic size of farm

$50,000- $100,000- $250,000 $500,000 All

Item $99,999 $249,999 $499,999 and over farms

Production strategies 

Number of farms 7,037 13,075 6,185 1,003 34,324

Percent of farms 83.07 61.12 100.00 91.44 70.07

For those using production

strategies, percent that used:

Stable income 26.53 10.24 26.31 25.68 14.67

Diversification 21.86 7.64 41.51 0.00 12.36

Custom/contract inputs 10.44 22.10 0.00 17.12 11.84

Insurance 28.48 32.04 29.58 46.69 33.74

Government programs 20.49 52.33 68.68 74.32 49.36

Leased livestock 0.00 0.00 0.00 0.00 0.00

Leased land 47.83 16.85 28.33 65.76 30.72

Share rent land 0.00 0.00 1.80 0.00 0.23

Leased equipment 0.00 9.28 0.00 0.00 4.05

Nonfarm use of land 0.00 0.00 0.00 0.00 1.71

Other 14.84 8.04 26.31 8.56 11.30

Financial strategies

Number of farms 5,437 16,169 6,185 1,003 29,949

Percent of farms 64.18 75.58 100.00 91.44 61.14

For those using financial

strategies, percent that used:

Open credit lines 34.36 45.11 80.95 72.37 37.53

Maintain equity in cash 36.55 48.19 26.50 74.32 34.09

Match loan maturity with sales 19.10 9.46 44.55 17.12 13.44

Renegotiated loans 32.14 21.60 62.39 8.56 25.38

Other 14.84 12.85 6.29 38.13 11.54

Marketing strategies

Number of farms 4,410 13,831 4,969 1,097 26,857

Percent of farms 52.06 64.65 80.34 100.00 54.83

For those using marketing

strategies, percent that used:

Hedging 0.00 0.00 1.80 8.56 2.13

Contract sale of product 16.50 17.64 6.29 46.69 14.11

Spread sales 44.22 38.80 79.53 44.75 39.13

Contract sales 16.50 22.83 26.31 72.37 17.76 

Other 22.02 22.13 45.95 19.07 19.70

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.
Economic Research Service/USDA Structure, Management, and Performance of Dairy Farms 49

Appendix table 24—Characteristics of specialized dairy businesses with low, mid, and high-NFI, 1993

Low-NFI Mid-NFI High-NFI

Item Unit businesses businesses businesses

Share of FCRS dairy:

Farms percent 25 50 25

Milk sales percent 21 29 50

Operated acres acres 335 281 416

Milk production value dollars 128,688 92,417 323,548

Farm production value dollars 143,860 103,217 361,147

Average milk cow inventory head 69 49 152

Financial position:

Favorable percent of farms 20 87 91

Marginal income percent of farms 64 0 0

Marginal solvency percent of farms 1 13 9

Vulnerable percent of farms 15 0 0

Farm debt-to-asset ratio 0.17 0.15 0.21

Milk production regions:

Northeast percent of farms 21 55 24

Southeast percent of farms 27 26 47

Upper Midwest Percent of farms 28 48 24

Corn Belt percent of farms 24 59 17

Southern Plains percent of farms 34 23 43

Major occupation:

Farming percent of farms 89 96 97

Other percent of farms 11 4 3

Farm organization:

Individual percent of farms 87 88 68

Partnership percent of farms 12 10 27

Corporations or cooperatives percent of farms 1 2 5

Operator age:

Less than 35 years percent of farms 8 11 9

35 to 49 years percent of farms 44 44 45

50 to 64 years percent of farms 35 40 35

65 years or more percent of farms 13 5 11

Experience in milk production:

Operator of 1993 operation years 21 21 22

Work on any operation years 33 32 32

Operator education:

Less than high school percent of farms 27 25 25

Completed high school percent of farms 48 49 48

Attended college percent of farms 22 20 14

Completed college percent of farms 3 6 13

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA
50 Structure, Management, and Performance of Dairy Farms Economic Research Service/USDA

Appendix table 25—Performance and production practices of specialized dairy businesses with low, mid,

and high-NFI, 1993

Low-NFI Mid-NFI High-NFI

Item Unit businesses businesses businesses

Output per cow pounds 14,984 14,785 17,210

Feed efficiency:

Concentrates and grains pounds per cwt of milk sold 56 51 49

Hay and straw pounds per cwt of milk sold 40 42 33

Silage pounds per cwt of milk sold 108 112 78

Other pounds per cwt of milk sold 13 11 7

Total pounds per cwt of milk sold 217 216 167

Feed efficiency pounds per cow 31,189 30,935 28,262

Feed ration:

Roughage percent 68 71 66

Concentrates percent 26 24 29

Pasture percent 1 3 1

Other percent 5 2 4

Homegrown feed:

Grain percent of grain fed 58 75 58

Hay and straw percent of hay and straw fed 64 84 50

Silage percent of silage fed 86 97 79

Labor efficiency:

Paid labor hours per cwt of milk sold 0.14 0.11 0.11

Unpaid labor hours per cwt of milk sold 0.31 0.49 0.16

Total hours per cwt of milk sold 0.45 0.60 0.27

Labor efficiency hours per cow 64 85 45

Housing facilities:

Stanchion/tie stall barns percent of capacity 30 40 14

Loafing barns/loose housing percent of capacity 20 18 11

Freestall barns percent of capacity 17 15 20

Calf barns percent of capacity 15 12 10

Dry lot corrals percent of capacity 12 10 37

Other percent of capacity 6 5 8

Milking facilities:

Herringbone parlors percent of capacity 27 20 41

Parallel parlors percent of capacity 6 4 4

Polygon parlors percent of capacity 0 0 0

Carousel parlors percent of capacity 0 0 1

Other parlors percent of capacity 7 7 9

Barns with pipeline percent of capacity 46 56 41

Pail/buckets percent of capacity 14 13 4

Times cows milked times/day 2 2 2

Hours milking system operational hours 5 4 6

Times milk picked up:

Once a day percent of farms 18 17 35

Every other day percent of farms 82 82 62

More than once a day percent of farms 0 1 3

Capacity of milk tanks/silos gallons 865 784 1,649

Source: Compiled by Economic Research Service from 1993 Farm Costs and Returns Survey, USDA.