BENCHMARKING FARM FINANCIAL PERFORMANCE: STABILITY AND MANAGEMENT IMPLICATIONSBy: Carolyn Marie BraunThe primary research question of this study was, "how many years are of data are needed to be reasonably sure that farms are ranked correctly?" The data were obtained from the Michigan Dairy and Crop Farm Business Summaries. First, the stability across farms was examined to determine if farms consistently rank in the top or bottom third. Asset driven measures (ATO, DTA, CR) were less variable than income and profitability measures (NFI, ROA, OPMR). Then, farms were ranked according to their five-year average for each financial measure to test if there was a significant difference between the top and bottom third. The results revealed that there was a significant difference between the top and bottom thirds for every financial measure for both the dairy and crop farms. The farms were then organized into thirds using their five-year average ROA and the differences between the most profitable and least profitable farms were examined. Farms in the top third tended to have a significantly higher ATO, OPMR, and NFI than the farms in the bottom third for ROA. Next, the number of years of data needed to rank farms into thirds with a high degree of accuracy was estimated. This was accomplished by estimating the farm's true, long-run performance and calculating how many years it took to be reasonably confident that the farm was ranked in the correct third. The number of years that were ideal to use depended on which variable the farmer is looking at and the level of accuracy they desire.
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