| One of the fundamental farm management questions is what makes farm profitable. A farm's profitability determines if a farm can get financing to purchase new equipment, replacement animals, or expand. In that light, the major objective of this study is to determine what makes Michigan dairy farms profitable.; The data that was used was taken from the Michigan Dairy Farm Business Analysis summary data which included 1499 observations over the period of 1995 to 2004. However, due to the need for a balanced panel 31 farms that had all ten years of data available were identified for a total of 310 observations.; The farms were separated into three profitability groups: high profitability, medium profitability and low profitability. The sorting variable, Return on Assets, was the least stable over the entire period with only 6 of 31 farms ranking in one profitability group seven or more times out of ten years. However, these numbers were increased when broken into high and low milk price years.; Discriminant analysis was performed, however a lack of consistent variables were identified as discriminating and therefore this method provides limited insight into dairy farm profitability. Regression analysis showed that labor efficiency as well as total feed expenses per hundredweight and total feed expense per dollar of milk sold were significantly negatively affecting dairy farm profitability. |
