An empirical study of the economic growth and capital formation on selected Missouri dairy farms
Authors:   , Fausett Marvin R. 
Published: May 2024

The Missouri Farm Business Research Panel for Dairy Farms was organized to obtain current information on the economic and physical resources and the returns from these resources used on selected types of Missouri dairy farms. The Dairy Research Panel was structured to include five different panel segments based upon the type of production and the size of herd. Two segments were for manufacturing milk producers and three segments were for fluid milk producers. The economic growth and capital formation study was based upon data collected from the dairymen in the fluid milk segments. The three types of fluid milk operations were: Segment 3 - pasture system with less than sixty cows. Segment 4 - pasture system with sixty or more cows, and Segment 5 - drylot system with year-round silage and/or hay feeding. Today's modern dairy farm businesses require sizable amounts of capital and labor resources. Labor used on these farms ranged from an average of 1.9 man equivalents for the smaller pasture systems to almost 3 man equivalents for the larger pasture operations and for the drylot operations. Total capital managed ranged from an average of $104,000 for the smaller pasture operations to $158,000 for the larger pasture operations to almost $200,000 for the drylot operations. The proportion of total capital allocated to land and the other sectors of the farm business remained approximately the same for each type of operation. Slightly over 62 per cent of total capital was invested in land and approximately 19 per cent in livestock, 6 per cent in feed, seed, and supplies, and 13 percent in machinery and equipment. Business earning, even with these large capital investments, were adequate to pay all cash expenses and the going wage for operator's labor and still provide more than 8 per cent return to capital and management for all three systems. Farms in the larger pasture system had the highest per cent return to capital and management averaging over 11 per cent per year. They were more efficient in both labor and capital use than the smaller pasture operations and more efficient in capital use than the drylot operations. The drylot operations had the highest labor efficiency but they also had the lowest capital efficiency. These farms failed to generate enough additional income above the pasture operations to maintain the higher rate of earning for the extra capital investment. A case study of ten dairy farms was used to further analyze the economic growth of dairy farms. The average size of these farms increased 57 per cent from 1965 to 1970, as measured by the average rate of change of eleven size-of- business measures. Not all measures of size increased at the same rate: herd size increased 45 per cent, total land operated increased 20 per cent, and total capital managed increased 81 per cent. The average rate of growth for these farms ranged from a high of 115 per cent to a low of 22 percent. Goals of the operator were important factors in the growth of these farms. When farms were categorized by the dominant goal of the operator, the farms classified into the "high production" and the "farm ownership" categories had higher rates of growth than the farms classified into the "net income" category. Various combinations of operator goals also affected the rate of growth. The combination goal of high production and growth produced the highest rate of growth and the combination goal of a reasonable rate of return, above average level of living, and time for community activities resulted in the lowest rates of growth.