Benchmarking upper midwest dairy farm profitability
ISSN: 0002-1466
Article publication date: 3 June 2020
Issue publication date: 5 October 2020
Abstract
Purpose
The purpose of this research is to understand US Upper Midwest dairy farm profitability performance over time and across herd size. Profitability is broken down into asset efficiency and operating profit margin. The primary objective is to determine how much information is required to accurately benchmark farm performance.
Design/methodology/approach
Financial ratios to measure profitability (rate of return on assets), profit margin (operating profit margin ratio), and asset efficiency (asset turnover) were collected from Michigan State University and the University of Wisconsin business analysis programs for dairy farms from 2000 through 2016. Financial ratio patterns were examined both across time and herd size. Annual distributions were divided into quartiles and the use of one to five-year averages were used to determine accuracy of quartile rank compared to true long-run farm profitability performance.
Findings
Financial performance across large herds was more uniform than across smaller herds. Small and large herd profitability performance converged in poor years but diverged in good years. Using three or more years performance greatly improved accuracy of benchmarking profitability.
Originality/value
The data utilized are very rich in the sense of the amount of variation across years and herd size. The results have important implications for farm financial management and benchmarking farm financial performance. Farm firms should benchmark multiple years of profitability before making major management changes to alleviate deficiencies.
Keywords
Acknowledgements
This work is supported by the National Institute of Food and Agriculture award 2016-38504-25571. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the authors and do not necessarily reflect the view of the U.S. Department of Agriculture.
Citation
Wolf, C.A., Black, J.R. and Stephenson, M.W. (2020), "Benchmarking upper midwest dairy farm profitability", Agricultural Finance Review, Vol. 80 No. 5, pp. 733-744. https://doi.org/10.1108/AFR-02-2020-0022
Publisher
:Emerald Publishing Limited
Copyright © 2020, Emerald Publishing Limited