BENCHMARKING FARM FINANCIAL PERFORMANCE:
STABILITY AND MANAGEMENT IMPLICATIONS
By
Carolyn Marie Braun

A THESIS
Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of
Agricultural, Food and Resource Economics-Master of Science
2014

ABSTRACT
BENCHMARKING FARM FINANCIAL PERFORMANCE:
STABILITY AND MANAGEMENT IMPLICATIONS
By
Carolyn Marie Braun
The 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.

ACKNOWLEDGEMENTS

I would like to extend my gratitude to numerous people who helped me write my thesis.
First, I would like to thank my advisor, Dr. Wolf for his help and support throughout the entire
process. I recognize and appreciate the time he spent helping me successfully complete my thesis.
I would also like to thank my committee, Dr. Black and Dr. Weber-Nielsen, for all of their help
and the advice they gave me. Thank you to Eric Wittenberg for his assistance and for granting
me access to the data used throughout my thesis. Whenever I needed help he was always quick to
respond and help me in any way possible. I would also like to thank my family and friends for
their support in everything I do. Thank you to my Nana for her daily prayers as I completed my
Masters degree.

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TABLE OF CONTENTS

LIST OF TABLES………………………………………………………………………………...v
LIST OF FIGURES……………………………………………………………………………...xii
Chapter 1-Introduction…………………………………………………………………………….1
1.1 Objectives……………………………………………………………………………..2
Chapter 2-Data…………………………………………………………………………………….4
2.1 Dairy Farm Data………………………………………………………………………4
2.1.1 All Dairy Farms……………………………………………………………..4
2.1.2 Dairy Farms with Five or more Years of Data…………………………….23
2.1.3 Dairy Farm Summary Statistics……………………………………………37
2.2 Crop Farm Data………………………………………………………………………38
2.2.1 All Crop Farms……………………………………………………………..39
2.2.2 Crop Farm Summary Statistics…………………………………………….47
Chapter 3-Methods and Results………………………………………………………………….48
3.1 Model 1: Stability Across Farms ………………………...........................................48
3.1.1 Step One……………………………………………………………………49
Dairy Farm Results………………………………………………………50
Crop Farm Results……………………………………………………….57
3.1.2 Step Two…………………………………………………………………...62
3.1.3 Step Three………………………………………………………………….63
Dairy Farm Results………………………………………………………64
Crop Farm Results……………………………………………………….67
3.1.4 Management Implications………………………………………………….69
3.2 Model 2: Ranking Farms…………………………………………………………….70
3.1.2 Model 2: Ranking Farms-Results…………………………………………72
Dairy Farm Results………………………………………………………72
Crop Farm Results……………………………………………………….76
3.2.2 Implications………………………………………………………………...76
3.3 Model 3: Estimation of Sources of Variation……………………………………….77
Chapter 4-Conclusions…………………………………………………………………………...80
APPENDICES......……………………………………………………………………………….83
Appendix A: Model 1: Stability Across Years with Results in Quartiles………………84
Appendix B: Test of Stability Across Years………………………………………….....99
REFERENCES………………………………………………………………………………….110

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LIST OF TABLES

Table 2.1: Summary Statistics for Herd Size, All Dairy Farms, 2001-2012……………………..5
Table 2.2: Summary Statistics for Milk Price, All Dairy Farms, 2001-2012…………………….6
Table 2.3: Summary Statistics for Total Owned Crop Acres, All Dairy Farms, 2001-2012……..7
Table 2.4: Summary Statistics for Total Rented Acres, All Dairy Farms, 2001-2012…………...8
Table 2.5: Summary Statistics for CR, All Dairy Farms, 2001-2012…………………………...10
Table 2.6: Summary Statistics for DTA, All Dairy Farms, 2001-2012…………………………12
Table 2.7: Summary Statistics for ATO, All Dairy Farms, 2001-2012…………………………13
Table 2.8: Summary Statistics for ROA, All Dairy Farms, 2001-2012…………………………14
Table 2.9: Summary Statistics for OPMR, All Dairy Farms, 2001-2012……………………….15
Table 2.10: Summary Statistics for NFI, All Dairy Farms, 2001-2012…………………………17
Table 2.11: Summary Statistics for Value of Homegrown Feed, All Dairy Farms, 2001-2012..18
Table 2.12: Summary Statistics for Purchased Feed Cost, All Dairy Farms, 2001-2012……….20
Table 2.13: Summary Statistics for Labor Cost, All Dairy Farms, 2001-2012…………………22
Table 2.14: Summary Statistics for All Dairy Farms, 2001-2012………………………………23
Table 2.15: Summary Statistics for Herd Size, Dairy Farms with 5+ years, 2001-2012……….24
Table 2.16: Summary Statistics for Milk Price, Dairy Farms with 5+ years, 2001-2012………25
Table 2.17: Summary Statistics for Total Owned Crop Acres, Dairy Farms with 5+ years,
2001-2012………………………………………………………………………………..26
Table 2.18: Summary Statistics for Total Rented Crop Acres, Dairy Farms with 5+ years,
2001-2012………………………………………………………………………………..27
Table 2.19: Summary Statistics for CR, Dairy Farms with 5+ years, 2001-2012………………28
Table 2.20: Summary Statistics for DTA, Dairy Farms with 5+ years, 2001-2012…………….29

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Table 2.21: Summary Statistics for ATO, Dairy Farms with 5+ years, 2001-2012…………….30
Table 2.22: Summary Statistics for ROA, Dairy Farms with 5+ years, 2001-2012…………….31
Table 2.23: Summary Statistics for OPMR, Dairy Farms with 5+ years, 2001-2012…………..32
Table 2.24: Summary Statistics for NFI, Dairy Farms with 5+ years, 2001-2012……………...33
Table 2.25: Summary Statistics for Value of Homegrown Feed, Dairy Farms with 5+ years,
2001-2012………………………………………………………………………………..34
Table 2.26: Summary Statistics for Purchased Feed Cost, Dairy Farms with 5+ years,
2001-2012………………………………………………………………………………..35
Table 2.27: Summary Statistics for Labor Cost, Dairy Farms with 5+ years, 2001-2012……...36
Table 2.28: Summary Statistics for Dairy Farms with 5+ years, 2001-2012…………………...37
Table 2.29: Dairy Farm Summary Statistics…………………………………………………….38
Table 2.30: Summary Statistics for Total Owned Crop Acres, All Crop Farms, 2002-2012…...39
Table 2.31: Summary Statistics for Total Rented Acres, All Crop Farms, 2002-2012…………40
Table 2.32: Summary Statistics for CR, All Crop Farms, 2002-2012…………………………..41
Table 2.33: Summary Statistics for DTA, All Crop Farms, 2002-2012………………………...42
Table 2.34: Summary Statistics for ATO, All Crop Farms, 2002-2012………………………...43
Table 2.35: Summary Statistics for ROA, All Crop Farms, 2002-2012………………………...44
Table 2.36: Summary Statistics for OPMR, All Crop Farms, 2002-2012………………………45
Table 2.37: Summary Statistics for NFI, All Crop Farms, 2002-2012………………………….46
Table 2.38: Summary Statistics for All Crop Farms, 2002-2012……………………………….46
Table 2.39: Crop Farm Summary Statistics……………………………………………………..47
Table 3.1: Dairy Farms in the Top Third of Each Measure, 2001-2005………………………..51
Table 3.2: Dairy Farms in the Bottom Third of Each Measure, 2001-2005……………………52
Table 3.3: Dairy Farms in the Top Third of Each Measure, 2002-2006………………………..52

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Table 3.4: Dairy Farms in the Bottom Third of Each Measure, 2002-2006…………………….53
Table 3.5: Dairy Farms in the Top Third of Each Measure, 2003-2007………………………..53
Table 3.6: Dairy Farms in the Bottom Third of Each Measure, 2003-2007…………………….54
Table 3.7: Dairy Farms in the Top Third of Each Measure, 2004-2008………………………..54
Table 3.8: Dairy Farms in the Bottom Third of Each Measure, 2004-2008…………………….54
Table 3.9: Dairy Farms in the Top Third of Each Measure, 2005-2009………………………..55
Table 3.10: Dairy Farms in the Bottom Third of Each Measure, 2005-2009…………………...55
Table 3.11: Dairy Farms in the Top Third of Each Measure, 2006-2010………………………55
Table 3.12: Dairy Farms in the Bottom Third of Each Measure, 2006-2010…………………...56
Table 3.13: Dairy Farms in the Top Third of Each Measure, 2007-2011………………………56
Table 3.14: Dairy Farms in the Bottom Third of Each Measure, 2007-2001…………………...56
Table 3.15: Dairy Farms in the Top Third of Each Measure, 2008-2012………………………57
Table 3.16: Dairy Farms in the Bottom Third of Each Measure, 2008-2012…………………...57
Table 3.17: Crop Farms in the Top Third of Each Measure, 2002-2006………………………..58
Table 3.18: Crop Farms in the Bottom Third of Each Measure, 2002-2006……………………58
Table 3.19: Crop Farms in the Top Third of Each Measure, 2003-2007………………………..59
Table 3.20: Crop Farms in the Bottom Third of Each Measure, 2003-2007……………………59
Table 3.21: Crop Farms in the Top Third of Each Measure, 2004-2008………………………..59
Table 3.22: Crop Farms in the Bottom Third of Each Measure, 2004-2008…………..………..59
Table 3.23: Crop Farms in the Top Third of Each Measure, 2005-2009………………………..60
Table 3.24: Crop Farms in the Bottom Third of Each Measure, 2005-2009……………………60
Table 3.25: Crop Farms in the Top Third of Each Measure, 2006-2010………………………..60
Table 3.26: Crop Farms in the Bottom Third of Each Measure, 2006-2010……………………60

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Table 3.27: Crop Farms in the Top Third of Each Measure, 2007-2011………………………..61
Table 3.28: Crop Farms in the Bottom Third of Each Measure, 2007-2011……………………61
Table 3.29: Crop Farms in the Top Third of Each Measure, 2008-2012………………………..61
Table 3.30: Crop Farms in the Bottom Third of Each Measure, 2008-2012……………………61
Table 3.31: Summary Statistics of ROA Thirds, Dairy Farms, 2001-2005……………………..65
Table 3.32: Summary Statistics of ROA Thirds, Dairy Farms, 2002-2006……………………..65
Table 3.33: Summary Statistics of ROA Thirds, Dairy Farms, 2003-2007……………………..65
Table 3.34: Summary Statistics of ROA Thirds, Dairy Farms, 2004-2008……………………..66
Table 3.35: Summary Statistics of ROA Thirds, Dairy Farms, 2005-2009………………….….66
Table 3.36: Summary Statistics of ROA Thirds, Dairy Farms, 2006-2010……………………..66
Table 3.37: Summary Statistics of ROA Thirds, Dairy Farms, 2007-2011………………….….67
Table 3.38: Summary Statistics of ROA Thirds, Dairy Farms, 2008-2012……………………..67
Table 3.39: Summary Statistics of ROA Thirds, Crop Farms, 2002-2006……………………...68
Table 3.40: Summary Statistics of ROA Thirds, Crop Farms, 2003-2007……………………...68
Table 3.41: Summary Statistics of ROA Thirds, Crop Farms, 2004-2008……………………...68
Table 3.42: Summary Statistics of ROA Thirds, Crop Farms, 2005-2009……………………...68
Table 3.43: Summary Statistics of ROA Thirds, Crop Farms, 2006-2010……………………...69
Table 3.44: Summary Statistics of ROA Thirds, Crop Farms, 2007-2011……………………...69
Table 3.45: Summary Statistics of ROA Thirds, Crop Farms, 2008-2012……………………...69
Table 3.46: Dairy Farms Accurately Ranked into Thirds Using a 7-Year Average as an Estimate
of the True Distribution (2001-2007)………….………………………………………...72
Table 3.47: Dairy Farms Accurately Ranked into Thirds Using a 7-Year Average as an Estimate
of the True Distribution (2006-2012)………….………………………………………...73
Table 3.48: Dairy Farms Accurately Ranked into Thirds Using a 10-Year Average as an
Estimate of the True Distribution (2002-2011)……………………………………..…...75

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Table 3.49: Crop Farms Accurately Ranked into Thirds Using a 5-Year Average as an Estimate
of the True Distribution (2008-2012)……………………………………………………76
Table 3.50: Estimation of Parameters, Dairy Farms, 7-Year Panel, 2001-2007………………..78
Table 3.51: Estimation of Parameters, Dairy Farms, 7-Year Panel, 2006-2012………………..78
Table 3.52: Estimation of Parameters, Dairy Farms, 10-Year Panel, 2002-2011…..…………..79
Table 3.53: Estimation of Parameters, Crop Farms, 5-Year Panel, 2008-2012…………………79
Table A.1: Dairy Farms in the Top Quartile of Each Measure, 2001-2005………...…………..84
Table A.2: Dairy Farms in the Bottom Quartile of Each Measure, 2001-2005…………………84
Table A.3: Dairy Farms in the Top Quartile of Each Measure, 2002-2006…………………….85
Table A.4: Dairy Farms in the Bottom Quartile of Each Measure, 2002-2006…………………85
Table A.5: Dairy Farms in the Top Quartile of Each Measure, 2003-2007…………………….86
Table A.6: Dairy Farms in the Bottom Quartile of Each Measure, 2003-2007…………………86
Table A.7: Dairy Farms in the Top Quartile of Each Measure, 2004-2008…………………….86
Table A.8: Dairy Farms in the Bottom Quartile of Each Measure, 2004-2008…………………87
Table A.9: Dairy Farms in the Top Quartile of Each Measure, 2005-2009…………………….87
Table A.10: Dairy Farms in the Bottom Quartile of Each Measure, 2005-2009………………..87
Table A.11: Dairy Farms in the Top Quartile of Each Measure, 2006-2010…………………...88
Table A.12: Dairy Farms in the Bottom Quartile of Each Measure, 2006-2010………………..88
Table A.13: Dairy Farms in the Top Quartile of Each Measure, 2007-2011…………………...88
Table A.14: Dairy Farms in the Bottom Quartile of Each Measure, 2007-2011……………......89
Table A.15: Dairy Farms in the Top Quartile of Each Measure, 2008-2012…………………...89
Table A.16: Dairy Farms in the Bottom Quartile of Each Measure, 2008-2012…………...…...89
Table A.17: Crop Farms in the Top Quartile of Each Measure, 2002-2006……………………90

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Table A.18: Crop Farms in the Bottom Quartile of Each Measure, 2002-2006………………...90
Table A.19: Crop Farms in the Top Quartile of Each Measure, 2003-2007…………………....90
Table A.20: Crop Farms in the Bottom Quartile of Each Measure, 2003-2007………………...90
Table A.21: Crop Farms in the Top Quartile of Each Measure, 2004-2008……………………91
Table A.22: Crop Farms in the Bottom Quartile of Each Measure, 2004-2008………………...91
Table A.23: Crop Farms in the Top Quartile of Each Measure, 2005-2009……………………91
Table A.24: Crop Farms in the Bottom Quartile of Each Measure, 2005-2009………………...91
Table A.25: Crop Farms in the Top Quartile of Each Measure, 2006-2010……………………92
Table A.26: Crop Farms in the Bottom Quartile of Each Measure, 2006-2010………………...92
Table A.27: Crop Farms in the Top Quartile of Each Measure, 2007-2011……………………92
Table A.28: Crop Farms in the Bottom Quartile of Each Measure, 2007-2011………………...92
Table A.29: Crop Farms in the Top Quartile of Each Measure, 2008-2012…...……………….93
Table A.30: Crop Farms in the Bottom Quartile of Each Measure, 2008-2012………………...93
Table A.31: Summary Statistics for ROA Quartiles, Dairy Farms, 2001-2005………………...94
Table A.32: Summary Statistics for ROA Quartiles, Dairy Farms, 2002-2006………………...94
Table A.33: Summary Statistics for ROA Quartiles, Dairy Farms, 2003-2007………………...95
Table A.34: Summary Statistics for ROA Quartiles, Dairy Farms, 2004-2008………………...95
Table A.35: Summary Statistics for ROA Quartiles, Dairy Farms, 2005-2009………………...95
Table A.36: Summary Statistics for ROA Quartiles, Dairy Farms, 2006-2010………………...96
Table A.37: Summary Statistics for ROA Quartiles, Dairy Farms, 2007-2011………………...96
Table A.38: Summary Statistics for ROA Quartiles, Dairy Farms, 2008-2012………………...96
Table A.39: Summary Statistics for ROA Quartiles, Crop Farms, 2002-2006…………………97
Table A.40: Summary Statistics for ROA Quartiles, Crop Farms, 2003-2007…………………97

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Table A.41: Summary Statistics for ROA Quartiles, Crop Farms, 2004-2008…………………97
Table A.42: Summary Statistics for ROA Quartiles, Crop Farms, 2005-2009…………………97
Table A.43: Summary Statistics for ROA Quartiles, Crop Farms, 2006-2010…………………98
Table A.44: Summary Statistics for ROA Quartiles, Crop Farms, 2007-2011…………………98
Table A.45: Summary Statistics for ROA Quartiles, Crop Farms, 2008-2012…………………98
Table B.1: P-values and Average Differences for Dairy Farms, 2001-2005………………......103
Table B.2: P-values and Average Differences for Dairy Farms, 2002-2006…………………..104
Table B.3: P-values and Average Differences for Dairy Farms, 2003-2007………………......105
Table B.4: P-values and Average Differences for Dairy Farms, 2004-2008………………......106
Table B.5: P-values and Average Differences for Dairy Farms, 2005-2009…………………..107
Table B.6: P-values and Average Differences for Dairy Farms, 2006-2010…………………..108
Table B.7: P-values and Average Differences for Dairy Farms, 2007-2011………………......109

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LIST OF FIGURES

Figure 2.1: Annual Distribution of Herd Size for All Dairy Farms, 2001-2012…………………5
Figure 2.2: Annual Distribution of Herd Size for All Dairy Farms with <1200 cows,
2001-2012…………………………………………………………………………………5
Figure 2.3: Annual Distribution of Milk Price for All Dairy Farms, 2001-2005………………...7
Figure 2.4: Annual Distribution of Total Owned Crop Acres for All Dairy Farms, 2001-2012…8
Figure 2.5: Annual Distribution of Total Rented Crop Acres for All Dairy Farms, 2001-2012…9
Figure 2.6: Annual Distribution of CR for All Dairy Farms, 2001-2012……………………….10
Figure 2.7: Annual Distribution of CR for All Dairy Farms with a CR of 0-5, 2001-2012…….10
Figure 2.8: Annual Distribution of DTA for All Dairy Farms, 2001-2012……………………..12
Figure 2.9: Annual Distribution of ATO for All Dairy Farms, 2001-2012……………………..13
Figure 2.10: Annual Distribution of ROA for All Dairy Farms, 2001-2012……………………14
Figure 2.11: Annual Distribution of OPMR for All Dairy Farms, 2001-2012………………….16
Figure 2.12: Annual Distribution of OPMR for All Dairy Farms with OPMR -20 to 50,
2001-2012………………………………………………………………………………..16
Figure 2.13: Annual Distribution of NFI for All Dairy Farms, 2001-2012……………………..17
Figure 2.14: Annual Distribution of NFI for All Dairy Farms with NFI -5 to 10, 2001-2012….17
Figure 2.15: Annual Distribution of Value of Homegrown Feed for All Dairy Farms,
2001-2012…………………..……………………………………………………………19
Figure 2.16: Annual Distribution of Value of Homegrown Feed for All Dairy Farms with Value
of Homegrown Feed <25, 2001-2012………………………………………………..…..19
Figure 2.17: Annual Distribution of Purchased Feed Cost for All Dairy Farms, 2001-2012…...20
Figure 2.18: Corn Price, 2001-2012…………………………………………………………….21
Figure 2.19: Annual Distribution of Labor Cost for All Dairy Farms, 2001-2012……………..22

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Figure 2.20: Annual Distribution of Herd Size for Dairy Farms with 5+ years, 2001-2012……24
Figure 2.21: Annual Distribution of Milk Price for Dairy Farms with 5+ years, 2001-2012…...25
Figure 2.22: Annual Distribution of Total Owned Crop Acres for Dairy Farms with 5+ years,
2001-2012………………………………………………………………………………..26
Figure 2.23: Annual Distribution of Total Rented Crop Acres for Dairy Farms with 5+ years,
2001-2012………………………………………………………………………………..27
Figure 2.24: Annual Distribution of CR for Dairy Farms with 5+ years, 2001-2012…………..28
Figure 2.25: Annual Distribution of DTA for Dairy Farms with 5+ years, 2001-2012………...29
Figure 2.26: Annual Distribution of ATO for Dairy Farms with 5+ years, 2001-2012………...30
Figure 2.27: Annual Distribution of ROA for Dairy Farms with 5+ years, 2001-2012………...31
Figure 2.28: Annual Distribution of OPMR for Dairy Farms with 5+ years, 2001-2012………32
Figure 2.29: Annual Distribution of NFI for Dairy Farms with 5+ years, 2001-2012………….33
Figure 2.30: Annual Distribution of Value of Homegrown Feed for Dairy Farms with 5+ years,
2001-2012………………………………………………………………………………..34
Figure 2.31: Annual Distribution of Purchased Feed Cost for Dairy Farms with 5+ years,
2001-2012………………………………………………………………………………..35
Figure 2.32: Annual Distribution of Labor Cost for Dairy Farms with 5+ years, 2001-2012…..36
Figure 2.33: Annual Distribution of Total Owned Crop Acres for All Crop Farms,
2002-2012………………………………………………………………………………..40
Figure 2.34: Annual Distribution of Total Owned Crop Acres for All Crop Farms with <1,000
Acres, 2002-2012………………………………………………………………………………...40
Figure 2.35: Annual Distribution of Total Rented Crop Acres for All Crop Farms,
2002-2012………………………………………………………………………………..41
Figure 2.36: Annual Distribution of Total Rented Crop Acres for All Crop Farms with <1,500
Acres, 2002-2012………………………………………………………………………………..41
Figure 2.37: Annual Distribution of CR for All Crop Farms, 2002-2012………………………42
Figure 2.38: Annual Distribution of CR for All Crop Farms, with CR<11, 2002-2012………..42

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Figure 2.39: Annual Distribution of DTA for All Crop Farms, 2002-2012…………………….43
Figure 2.40: Annual Distribution of ATO for All Crop Farms, 2002-2012…………………….43
Figure 2.41: Annual Distribution of ROA for All Crop Farms, 2002-2012…………………….44
Figure 2.42: Annual Distribution of OPMR for All Crop Farms, 2002-2012…………………..45
Figure 2.43: Annual Distribution of OPMR for All Crop Farms, with OPMR -22 to 65,
2002-2012………………....……………………………………………………………..45
Figure 2.44: Annual Distribution of NFI for All Crop Farms, 2002-2012……………………...46

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Chapter 1-Introduction
Benchmarking is a tool used by farm managers to compare the performance of their farm
to the performance of others or an industry standard. Performance may vary across farms due to
external factors such as weather. However, differences between farms due to internal factors,
such as managerial ability, can make benchmarking a useful tool. The individual producer is
responsible for controlling many factors that influence profitability. These include input costs,
and efficiently converting capital, feed, and labor into milk (El-Osta & Johnson, 1998). It is
useful for farm managers to know the characteristics that cause farms to outperform others over
time (Langemeier, 2010).
Through the use of external benchmarking, farmers can identify areas where they are
weak compared to similar farms and work to improve these areas. They can also use
benchmarking to identify their strengths. Knowing their strengths and weaknesses and using this
information to strategize, can allow farms to outperform the competition in the future (Barney &
Clark, 2007).
One convention is to compare farm financial performance over the course of the past year
to the performance of other similar farms over the past year. The volatility in the dairy industry
may affect farm performance. In order to draw conclusions from benchmarking, it is necessary to
understand the effect on performance that is firm specific versus industry wide. Before making
managerial decisions based on benchmarking, a farmer should know not just how their
performance over the past year compared to other farms, but how their long-run performance
compared to the rest of the industry in the long run. Rougoor et al. (1998) argued that the goal is
to achieve long-term financial success, thus it is imperative to analyze the relationship between
farm management and financial performance over time.

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For this analysis, several financial ratios were used. The current ratio was included as a
measure of a farm’s liquidity, or its ability to pay its short-term financial obligations using
current assets. The debt-to-asset ratio is a measure of farm solvency and shows what percent of
the farm’s assets were financed by debt. The asset turnover rate represents the farm’s efficiency
at generating sales using assets. The rate of return on assets shows the firm’s efficiency at using
its assets to generate profits. And, a farm’s operating profit margin ratio measures the proportion
of every dollar of sales that is kept by the farm as profit. Several cost and income measures were
also analyzed (net farm income, value of homegrown feed, purchased feed cost, and labor cost).
1.1 Objectives
The motivation behind this thesis was to take a closer look at benchmarking. Is it enough
for a farm to use one year of data? Or do they need data over a longer period, in order to be
confident that their ranking is a reflection of their true performance? Data from Michigan State
University Farm Business Analysis on both crop and dairy farms was used to assess variation in
farm financial performance. If the variation were due solely to industry effects and therefore
common across all farms, one year of data would be sufficient to use when benchmarking.
However, if the variation about the true, but unknown performance over the long-term is at least
partially firm specific, the question becomes, “how many years are of data are needed to be
reasonably sure that farms are ranked correctly?”
In order to answer this question, four research objectives were addressed. The first
objective was to summarize Michigan farm performance using profitability, solvency and
liquidity measures. The second objective was to examine the stability of rankings across farms.
The third objective was to ascertain the number of years of data needed to estimate a farm’s
relative long-run performance. This was accomplished by comparing a farm’s ranking using one-

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year, two-year average, three-year average, etc. to their ranking using an estimated long-run true
value. Then the percent of farms placed in to the correct third was calculated. The fourth
objective was to examine how large the common year effects were compared to firm effects
through regression analysis. The results of this analysis were used to estimate the parameters that
will be used in the future in Monte Carlo simulations.
The thesis proceeds as follows: in chapter two the data for both the dairy and crop farms
are analyzed through the use of summary statistics and plot graphs. The methods and results for
each model are presented in chapter three. Chapter four summarizes and concludes.

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Chapter 2-Data
2.1 Dairy Farm Data
The data used for this study were obtained from the Michigan Dairy Farm Business
Summary. The farms included in the dataset were any farm that had provided financial records to
Michigan State Farm Business Analysis for at least one year between 2001 and 2012. A dairy
farm was defined as any farm that received more than 50% of its revenue from dairy sales. There
was data available for 299 dairy farms between 2001 and 2012. There were 139 dairy farms that
had data for five or more years during the period, 100 that had data for seven or more years, and
62 that had data for ten or more years. These farms were larger and better managed than the
average dairy. This was not a random sample and it was biased, however it is valid data to use in
a study on benchmarking because you want to benchmark against better farms.
The dataset was used to form five groups of data that were used throughout the analysis.
The first group consisted of all 299 dairy farms with records in one or more years during the
period 2001-2012. The second group consisted of only the 139 dairy farms with five or more
years of records between 2001 and 2012. The third group consisted of a panel of 41 farms with
ten years of continuous data between 2002 and 2011. The fourth group consisted of 61 farms
with continuous data between 2001 and 2007. The final group had 51 farms with continuous data
between 2006 and 2012.
2.1.1 All Dairy Farms
The herd size for all dairy farms ranged from ten to more than 4,000 milk cows. The
majority of farms in the sample had less than 1,000 cows as seen in figures 2.1 and 2.2. The
average herd size of the farms in the sample increased throughout the period.

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Table 2.1: Summary Statistics for Herd Size, All Dairy Farms, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
(cows)
2001
196
140
318
3,704
28
124
2002
206
145
237
2,200
25
151
2003
195
145
175
1,543
18
160
2004
199
149
179
1,544
14
133
2005
194
150
172
1,613
20
133
2006
211
161
189
1,638
21
149
2007
226
171
208
1,611
10
156
2008
230
167
211
1,564
18
180
2009
243
192
220
1,558
18
187
2010
267
186
247
1,581
20
211
2011
303
185
482
4,467
40
232
2012
291
195
352
2,700
40
202
Figure 2.1: Annual Distribution of Herd Size for All Dairy Farms, 2001-2012

Figure 2.2: Annual Distribution of Herd Size for All Dairy Farms with <1200 cows, 20012012

!

5!

Throughout the period, the average milk price received varied from year to year. Figure
2.3 shows the distribution in milk price received by farm by year. It reveals the difference in the
milk price received during boom and bust years. Also evident are the higher milk prices since
2007. Milk prices trended upwards throughout the period, which coincided with an increase in
feed costs. Although, the margin between milk price and feed cost decreased.
Table 2.2: Summary Statistics for Milk Price, All Dairy Farms, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 15.19
15.18
0.75
18.86
13.02
0.73
2002 12.49
12.44
0.66
15.86
11.11
0.61
2003 12.57
12.52
0.76
15.36
10.13
0.79
2004 16.38
16.29
0.89
20.11
14.15
0.81
2005 15.63
15.50
0.74
18.70
14.39
0.83
2006 13.31
13.25
0.66
17.08
11.65
0.61
2007 19.11
19.12
1.28
22.65
12.89
0.94
2008 19.33
19.25
1.08
22.55
16.34
0.97
2009 13.17
13.04
0.90
16.36
11.28
0.99
2010 16.78
16.68
0.95
20.56
14.37
0.99
2011 20.55
20.40
1.05
24.44
17.36
1.03
2012 18.54
18.50
1.03
22.23
13.90
0.83
!
!

!

!

6!

Figure 2.3: Annual Distribution of Milk Price for All Dairy Farms, 2001-2012

Both the average owned and rented crop acres increased slightly throughout the period
(table 2.3 and 2.4). Aside from 2002, the farms in the sample owned on average more crop acres
than they rented. This coincided with an increase in the average total crop acres per farm. The
average owned crop acres per farm and average rented crop acres per farm both increased by
about 100 acres throughout the period, while the total crop acres per farm increased by about 200
acres.
Table 2.3: Summary Statistics for Total Owned Crop Acres, All Dairy Farms, 2001-2012

!

Year

Mean

Median

Standard
Deviation

2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

355
352
403
402
422
468
489
482
470
494
477
486

240
300
295
293
294
318
334
340
347
328
300
352

432
309
474
469
465
523
524
497
504
482
567
529

Maximum
(acres)
2,440
2,440
3,250
3,250
2,440
2,500
2,841
2,841
2,841
2,402
3,600
3,181

7!

Minimum

Interquartile
Range

0
0
0
0
0
0
0
0
0
0
0
0

459
331
350
335
345
378
382
430
473
434
479
501

Figure 2.4: Annual Distribution of Total Owned Crop Acres for All Dairy Farms, 20012012

Table 2.4: Summary Statistics for Total Rented Acres, All Dairy Farms, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
(acres)
2001
278
160
398
2,467
0
158,687
2002
404
260
404
2,562
0
163,560
2003
336
230
356
2,057
0
126,643
2004
349
208
413
2,803
0
170,567
2005
377
225
472
3,517
0
223,153
2006
304
141
429
3,143
0
183,880
2007
322
170
427
2,523
0
181,936
2008
347
177
455
2,633
0
207,457
2009
377
230
474
2,660
0
224,437
2010
311
197
382
1,990
0
145,615
2011
281
155
336
1,608
0
112,828
2012
390
225
509
2,220
0
258,740

!

8!

Figure 2.5: Annual Distribution of Total Rented Crop Acres for All Dairy Farms, 20012012

The current ratio (CR) is a measure of a farm’s liquidity, or its ability to pay its shortterm financial obligations using current assets. Assets were valued at market value.
!"! =

!"##$%&!!""#$"!
, !ℎ!"!!! = !"!!"#!$!#%&'!!"#$
!"##$%&!!"#$"%"&"'(!

A CR>1 suggests that the farm will be able to cover expected liabilities to come due
during the current year using its current assets. If the CR<1, the farm will not be able to meet its
financial obligations by liquidating its current assets and may have to use long term assets or an
operating loan. This can present an issue for the farm in the future, as it needs these long-term
assets to continue production. Also, long-term assets are often illiquid and therefore not easily
converted to cash, often resulting in them being sold for less than their value.
The mean CR for the farms in the sample was greater than one for all years in the period,
which is positive (table 2.5). However, the minimum was less than one in every year, which
means that there were farms in the sample that were illiquid.

!

9!

Table 2.5: Summary Statistics for CR, All Dairy Farms, 2001-2012
Standard
Year Mean
Median
Deviation
Maximum
Minimum
(ratio)
2001 4.23
1.81
8.18
58.62
0.16
2002 6.22
1.55
15.45
134.15
0.07
2003 3.33
1.58
7.09
56.78
0.02
2004 4.68
1.85
10.35
90.26
0.02
2005 8.42
1.94
22.99
184.16
0.13
2006 7.49
2.34
21.31
184.42
0.17
2007 8.37
3.26
23.64
211.59
0.30
2008 6.71
2.81
16.51
130.43
0.39
2009 5.36
2.34
11.30
77.90
0.19
2010 5.37
2.78
11.01
85.27
0.24
2011 7.36
3.05
16.54
111.73
0.20
2012 10.18
3.43
24.65
158.26
0.47

Interquartile
Range
2.28
2.95
1.97
3.01
3.30
3.44
4.77
3.12
2.82
3.86
4.01
4.55

Figure 2.6: Annual Distribution of CR for All Dairy Farms, 2001-2012

Figure 2.7: Annual Distribution of CR for All Dairy Farms with a CR of 0-5, 2001-2012

!

10!

The debt to asset ratio (DTA) is a measure of farm solvency. A high DTA ratio implies
that a farm is financing its assets with debt rather than equity, thus increasing the riskiness of the
investment. A DTA>50% means that the farm has more liabilities than equity. This can present a
problem when milk prices are down, such as in 2009, because it will be difficult to pay operating
expenses let alone repaying debt. Also, as a farm continues to increase its debt load, creditors
will begin to charge a higher interest rate. Once a farm takes out too much debt, creditors will no
longer lend to them. The level of debt that would be considered “too much” would depend on the
farm and the creditor. For dairy farms, the standard benchmark is to have a DTA<60%.
!"#!!"#$%!!""#$"! + !"#$%%$%#!!"#$%!!""#$"!
2
!"#! =
!"#!!"#$%!!"#$"%"&"'(! + !"#$%%$%#!!"#$%!!"#$"%"&"'(!
2
While the mean DTA for all dairy farms in the sample was less than 50% (table 2.6),
there were 236 observations throughout the period that had a DTA greater than 50%. 156 of
these observations occurred from 2001 to 2006. The farms with a DTA greater than 50% are
financing over half of their assets using debt as opposed to equity. There were 5.85% of farms in
the dataset that had a DTA>60%.

!

11!

Table 2.6: Summary Statistics for DTA, All Dairy Farms, 2001-2012
Standard
Year Mean
Median
Deviation
Maximum
Minimum
(%)
2001 31.88
28.77
19.70
94.82
(0.02)
2002 30.27
27.82
20.13
97.71
0.00
2003 31.68
29.48
19.71
86.70
0.00
2004 31.24
30.22
19.17
79.46
0.00
2005 28.38
25.86
18.95
103.82
0.00
2006 28.70
26.48
18.28
76.65
0.00
2007 25.83
25.02
16.81
75.95
0.00
2008 27.26
25.30
17.95
74.93
0.00
2009 31.31
29.45
19.88
89.90
0.00
2010 29.91
27.24
20.10
92.42
0.00
2011 26.67
24.62
17.52
87.03
0.00
2012 27.71
25.51
18.00
83.95
(0.01)

Interquartile
Range
27.46
32.75
32.21
32.64
25.22
25.47
25.22
28.47
27.42
25.60
23.21
22.80

Figure 2.8: Annual Distribution of DTA for All Dairy Farms, 2001-2012

Asset turnover rate (ATO) represents the farm’s efficiency at generating sales using its
assets.
!"#! =

!"#$%!
!"#!!"#$%!!""#$"! + !"#$%%$%#!!"#$%!!""#$"!
2

As seen in the plot graph (figure 2.9), there is a wide range of ATO between the dairy
farms in the sample. The farms with a low ATO have unproductive assets that are not generating
sales. The average ATO between 2001 and 2012 was 30.29, so it would be preferable to be
above this.
!

12!

Table 2.7: Summary Statistics for ATO, All Dairy Farms, 2001-2012
Standard
Year Mean
Median
Deviation
Maximum
Minimum
(%)
2001 32.88
30.27
14.18
85.04
8.99
2002 28.94
26.04
12.73
66.93
4.23
2003 30.22
27.52
14.46
93.80
5.13
2004 33.94
32.54
15.07
93.48
9.54
2005 31.34
29.41
12.27
72.43
8.42
2006 27.78
26.50
10.23
60.64
5.73
2007 34.05
32.16
12.90
70.98
7.38
2008 29.66
29.49
12.36
68.17
1.19
2009 21.98
20.92
9.38
51.04
(0.60)
2010 29.41
28.57
11.20
64.68
6.88
2011 32.77
30.96
11.19
71.96
10.16
2012 29.84
29.13
10.32
69.05
10.06

Interquartile
Range
19.80
17.80
18.45
19.70
15.22
12.97
15.87
14.58
10.33
14.57
15.22
12.28

Figure 2.9: Annual Distribution of ATO for All Dairy Farms, 2001-2012

Return on assets (ROA) shows the efficiency at using assets to generate profits. When
calculating the ROA, unpaid labor was adjusted for. The average ROA throughout the period
was 5.63%, so in the long run it would be ideal for a farm to have a higher ROA than that.
!"#! =

!"#! − !"#$%$&#! − !"#$%!!"!!!"#$!!!"#$%!!"#!!"#"$%&%#'!!!!
!"#!!"#$%!!""#$"! + !"#$%%$%#!!"#$%!!""#$"!
2
=

!

!"#$%&'()!!"#$%&!
!"#$%&#!!""#$!!"#$%!

13!

The industry effect for ROA is evident in figure 2.10. The majority of farms did well in
2011 and 2012 and poor in 2009. The range in ROA between farms is also clear. In 2009, one
farm had an ROA of -20% while another had an ROA around 15%. Table 2.8 and figure 2.10
show that there were two years that were high for ROA and one year that had on average an
extremely low ROA. In 2007 and 2011, the average ROA was above 10%. In 2009, the average
and median ROA were negative. Looking at the plot graph, every farm except one had an ROA
less than 10% in 2009. This conveys the variability and riskiness associated with farming.
Table 2.8: Summary Statistics for ROA, All Dairy Farms, 2001-2012
Standard
Year Mean
Median
Deviation
Maximum
Minimum
(%)
2001 5.82
4.47
7.56
34.82
(15.41)
2002 2.79
1.83
7.26
33.09
(16.69)
2003 3.47
3.27
6.26
31.86
(14.48)
2004 6.91
6.80
6.65
29.20
(20.82)
2005 5.78
5.57
6.51
31.84
(11.39)
2006 5.02
4.26
5.85
23.51
(10.90)
2007 10.39
9.63
7.87
34.39
(8.55)
2008 5.52
4.90
7.94
35.44
(16.55)
2009 (1.11)
(0.65)
6.02
13.00
(20.12)
2010 5.88
5.44
5.33
27.01
(6.01)
2011 10.54
9.23
8.31
36.45
(17.98)
2012 7.32
6.62
7.41
29.96
(9.26)
Figure 2.10: Annual Distribution of ROA for All Dairy Farms, 2001-2012

!

14!

Interquartile
Range
9.05
8.35
6.37
7.71
6.62
6.34
9.17
7.70
7.27
6.31
8.07
8.26

A farm’s operating profit margin ratio (OPMR) measures the proportion of every dollar
of sales that is kept by the farm as profit. As a guideline, a farm should make sure it’s OPMR in
the long run was greater than the average OPMR throughout the period, which was 16.99%.
!"#$! =

!"#! − !"#$%$&#! − !"#$%!!"!!"#$%&!!"#$%!!"#!!"#"$%&%#'!
!"#$%!
=

!"#$%&'()!!"#$%&!
!"#$%!

OPMR was very volatile throughout the period. Not only has the average OPMR for each
year varied, within each year there was a large variance and standard deviation between farms. In
2009 both the average and median OPMR were negative (table 2.9). This was due in large part to
the margin between feed cost and milk price received being extremely low.
Table 2.9: Summary Statistics for OPMR, All Dairy Farms, 2001-2012
Standard
Year Mean
Median
Deviation
Maximum
Minimum
(%)
2001 19.08
15.52
31.22
165.86
(71.89)
2002 6.66
6.25
31.16
100.94
(153.02)
2003 11.24
11.77
27.06
184.70
(82.23)
2004 18.51
18.58
17.36
105.36
(38.17)
2005 17.55
17.97
26.56
137.24
(106.88)
2006 17.73
15.67
24.16
145.87
(70.28)
2007 29.49
28.05
25.18
106.42
(71.55)
2008 17.67
17.51
25.41
87.04
(104.24)
2009 (6.47)
(2.53)
33.55
57.83
(144.55)
2010 19.60
20.16
20.75
132.75
(49.29)
2011 31.35
26.70
27.40
129.16
(79.18)
2012 23.42
21.96
24.28
77.33
(40.78)

!

15!

Interquartile
Range
27.73
23.19
19.67
18.96
21.43
20.55
22.69
25.19
33.18
18.94
20.68
28.23

Figure 2.11: Annual Distribution of OPMR for All Dairy Farms, 2001-2012

Figure 2.12: Annual Distribution of OPMR for All Dairy Farms with OPMR -20 to 50,
2001-2012

NFI/cwt represents the after tax dollars that a farm has available per hundredweight to
reinvest in the farm or withdraw. A farm should strive for its long run average NFI/cwt to be
greater than the average throughout the period of $4.40.
!"#/!"#!
=

!"#$%! − !"#$! − !"#$%&'()!!"#$%&$&! − !"#$"%&'(&)*! − !"#$%$&#! − !"#$%!
[!"#$%&!!"!!"#$!!"#$! 100]
As seen in figure 2.13, the average NFI/cwt varied greatly throughout the period, ranging

from -$0.21 in 2009 to $8.71 in 2011.

!

16!

Table 2.10: Summary Statistics for NFI, All Dairy Farms, 2001-2012
Standard
Year Mean
Median
Deviation
Maximum
Minimum
($/cwt)
2001 4.53
3.52
5.94
45.89
(9.46)
2002 3.71
2.08
8.59
69.06
(6.41)
2003 3.29
2.80
4.96
36.79
(7.99)
2004 5.10
4.10
5.76
47.65
(2.41)
2005 4.48
4.11
4.66
26.60
(8.57)
2006 3.79
3.34
4.16
30.92
(7.16)
2007 7.11
6.04
7.37
44.53
(9.97)
2008 4.15
3.65
6.62
43.29
(13.98)
2009 (0.21)
(0.29)
5.11
23.53
(14.43)
2010 3.78
3.68
4.13
17.54
(8.26)
2011 8.71
5.88
9.09
50.14
(2.77)
2012 5.54
5.04
4.97
21.46
(6.20)

Interquartile
Range
4.42
3.99
3.06
3.26
3.99
3.06
4.99
5.26
4.00
4.24
5.03
5.31

Figure 2.13: Annual Distribution of NFI for All Dairy Farms, 2001-2012

Figure 2.14: Annual Distribution of NFI for All Dairy Farms with NFI -5 to 10, 2001-2012

!

17!

!"#$%!!"!!"#$%!!"#$%! = !"#$%!!"#$%!!!!"#$%!!!!"#$%&#!!"#$%!!"#!!"#ℎ!"#$
!"#$%!!"!!"#$%!!"#$%!
−!"#$%!!"#$!
− !"#$"%!!"#$"%&'(!!"#$%!&!!""# − !"#$%!"!#!!"#$"%&'(!!"#$%!&!!""#
!
!"#$%!!"!!"#$%&"'(!!""#!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!"#$%!!"!!"#$%&"'(!!""#/!"#! =

!"#$!!!"!!"#$%&"'(!!""#!
[!"#$%&!!"!!"#$!!"#$! 100]

Figure 2.18 shows the corn price between 2001 and 2012. As seen in figure 2.18, the corn
price increased throughout the period with a spike in 2008. The average value of homegrown
feed per farm followed a similar trend, as seen in table 2.11.
Table 2.11: Summary Statistics for Value of Homegrown Feed, All Dairy Farms,
2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 4.78
3.81
5.06
29.27
0.00
6.49
2002 3.16
2.78
3.48
16.22
0.00
5.03
2003 4.54
3.51
5.77
50.01
0.00
6.01
2004 7.22
5.60
7.11
70.41
0.00
4.77
2005 5.65
4.55
4.12
26.89
0.00
4.28
2006 5.75
4.57
5.15
28.35
0.00
4.13
2007 8.75
5.74
8.35
51.41
0.00
7.41
2008 12.33
9.66
10.95
74.74
1.41
9.23
2009 9.33
6.87
9.46
62.77
0.00
5.41
2010 8.25
5.47
9.61
75.56
0.00
6.05
2011 14.54
9.37
14.09
74.46
0.00
14.39
2012 12.05
9.32
10.25
78.93
0.14
8.06

!

18!

Figure 2.15: Annual Distribution of Value of Homegrown Feed for All Dairy Farms, 20012012

Figure 2.16: Annual Distribution of Value of Homegrown Feed for All Dairy Farms with
Value of Homegrown Feed<25, 2001-2012

Each farm in the study provided their purchased feed cost for the year.
!"#$ℎ!"#$!!""#!!"#$/!"#! =

!"#$ℎ!"#$!!""#!!"#$!
[!"#$%&!!"!!"#$!!"#$! 100]

The average purchased feed cost increased throughout the period as the price of feed
increased. Comparing table 2.11 to table 2.12, on average the farms in the study grew more crops
than they purchased. In earlier years, purchasing grain was optimal, but higher feed prices
encouraged growing them on farm. This accounts for the faster and larger growth in mean value
of homegrown feed (table 2.11) compared to the growth of purchased feed cost (table 2.12).

!

19!

Table 2.12: Summary Statistics for Purchased Feed Cost, All Dairy Farms, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 3.69
3.59
1.37
10.83
0.48
1.44
2002 3.35
3.23
1.25
10.73
0.00
1.44
2003 3.51
3.47
1.22
7.29
0.00
1.41
2004 4.36
4.23
1.35
9.30
1.31
1.65
2005 4.06
3.99
1.35
9.15
0.92
1.67
2006 3.74
3.73
1.29
11.04
0.66
1.36
2007 4.99
4.71
1.77
11.31
0.77
1.89
2008 5.56
5.43
1.82
9.95
1.28
2.62
2009 4.56
4.29
1.74
10.97
0.87
1.54
2010 4.72
4.53
1.74
8.89
0.55
2.14
2011 6.01
6.17
1.92
10.78
1.81
2.52
2012 6.14
6.08
2.09
12.11
1.26
2.63
Figure 2.17: Annual Distribution of Purchased Feed Cost for All Dairy Farms, 2001-2012

!

20!

Figure 2.18: Corn Price, 2001-2012

The labor cost used accounted for both paid and unpaid labor and management.
!"#$%!!"#$/!"#! =

!"#$%!!"!!"#$%&!!"#$%!!"#!!"#"$%&%#'! + !!"#$!!"#$%!!"#$%&$!
[!"#$%&!!"!!"#$!!"#$! 100]

The labor cost/cwt decreased slightly throughout the period. One explanation for this may
be increased efficiency in labor use. If a farm is producing more pounds of milk using the same
amount of labor, the labor cost per hundredweight will decrease.

!

21!

Table 2.13: Summary Statistics for Labor Cost, All Dairy Farms, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 4.60
4.37
1.58
10.93
1.66
1.87
2002 4.76
4.38
1.60
11.47
2.29
1.92
2003 4.34
3.96
1.65
11.59
1.76
1.71
2004 4.42
4.04
1.66
12.98
1.53
1.39
2005 4.51
4.17
1.68
12.37
1.99
1.90
2006 4.21
3.93
1.70
12.73
1.63
1.76
2007 4.33
4.05
1.84
12.07
1.39
1.77
2008 4.20
3.84
1.86
12.57
1.18
2.28
2009 4.66
4.32
1.78
10.97
1.21
1.63
2010 3.65
3.54
1.22
7.56
1.50
1.57
2011 4.30
3.91
1.86
13.33
1.52
1.87
2012 3.91
3.55
1.96
13.05
1.41
1.66
Figure 2.19: Annual Distribution of Labor Cost for All Dairy Farms, 2001-2012

The plot graphs convey the movement of the mean and range of the data points for each
variable throughout the twelve-year period. As seen in the graphs along with the tables of
summary statistics for each variable, it would not be recommended to benchmark using only one
year of data, as the variability for each performance measure is large and can change
dramatically from year to year.

!

22!

Table 2.14: Summary Statistics for All Dairy Farms, 2001-2012
Standard
Mean Median Deviation Maximum
Herd Size
(cows)
224
160
257
4,467
Milk Price
($/cwt)
15.83
15.57
2.80
24.44
Total Owned
(acres)
434
300
480
3,600
Crop Acres
Total Rented
(acres)
340
203
423
3,517
Crop Acres
CR
(ratio)
6.36
2.21
16.77
211.59
DTA
(%)
29.37
26.84
18.96
103.82
ATO
(%)
30.29
28.73
12.51
73.98
ROA
(%)
5.63
5.12
7.51
36.45
OPMR
(%)
16.99
16.92
28.05
184.70
NFI
($/cwt)
4.40
3.60
5.99
50.14
Value of
Homegrown ($/cwt)
7.49
5.29
8.47
78.93
Feed
Purchased
($/cwt)
4.42
4.17
1.78
12.11
Feed Cost
Labor Cost
($/cwt)
4.36
4.04
1.72
13.33

Minimum
10
10.13
0
0
0.02
0.00
(0.60)
(20.82)
(153.02)
(14.43)
0.00
0.00
1.39

2.1.2 Dairy Farms with Five or more Years of Data
The herd size of the farms with five or more years of data ranged from less than 50 (with
one farm only having 10 cows in 2007), to more than 1,500 (table 2.15). The average herd size
increased from 189 cows in 2002 to 274 cows in 2012.

!

23!

Table 2.15: Summary Statistics for Herd Size, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
(cows)
2001
189
150
173
1,544
41
133
2002
196
151
176
1,557
45
139
2003
202
150
184
1,543
45
156
2004
203
153
184
1,544
24
128
2005
211
166
187
1,613
24
144
2006
221
172
202
1,638
21
179
2007
233
177
217
1,611
10
172
2008
229
167
216
1,564
18
164
2009
243
185
229
1,558
18
172
2010
269
187
252
1,581
20
215
2011
263
185
239
1,550
40
228
2012
274
195
261
1596
40
196
Figure 2.20: Annual Distribution of Herd Size for Dairy Farms with 5+ years, 2001-2012

The milk price received was extremely volatile throughout the period. In 2011 farms
received on average $20.72/cwt (table 2.16). Milk prices were lowest in 2002, 2003, and 2009.

!

24!

Table 2.16: Summary Statistics for Milk Price, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 15.21
15.24
0.72
17.66
13.12
0.84
2002 12.50
12.46
0.63
15.57
11.11
0.64
2003 12.63
12.57
0.71
15.01
10.88
0.72
2004 16.38
16.30
0.80
19.15
14.15
0.83
2005 15.62
15.50
0.72
18.67
14.39
0.84
2006 13.36
13.26
0.66
17.08
12.00
0.61
2007 19.15
19.17
1.29
22.65
12.89
1.02
2008 19.33
19.24
1.12
22.55
16.34
1.07
2009 13.13
13.06
0.81
16.90
11.28
0.95
2010 16.80
16.68
0.96
20.56
14.37
1.01
2011 20.60
20.42
0.97
24.44
17.36
0.94
2012 18.60
18.50
0.96
22.23
15.30
0.83
Figure 2.21: Annual Distribution of Milk Price for Dairy Farms with 5+ years, 2001-2012

Comparing table 2.17 to table 2.18, besides 2002, dairy farms with five or more years of
data owned on average more crop acres than they rented.

!

25!

Table 2.17: Summary Statistics for Total Owned Crop Acres, Dairy Farms with 5+
years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
(acres)
2001
407
288
439
2,440
0
456
2002
371
300
340
2,440
0
304
2003
447
305
522
3,250
0
345
2004
442
313
501
3,250
0
332
2005
475
318
503
2,440
0
413
2006
490
361
487
2,402
0
396
2007
495
346
512
2,841
0
450
2008
507
340
524
2,841
0
475
2009
487
360
528
2,841
0
470
2010
514
355
487
2,402
0
452
2011
487
322
496
2,596
0
468
2012
510
390
524
3,181
0
477
Figure 2.22: Annual Distribution of Total Owned Crop Acres for Dairy Farms with 5+
years, 2001-2012

!

26!

Table 2.18: Summary Statistics for Total Rented Crop Acres, Dairy Farms with 5+
years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
(acres)
2001
260
141
377
2,467
0
359
2002
414
315
405
2,562
0
466
2003
314
228
329
1,745
0
361
2004
348
214
421
2,803
0
396
2005
405
250
503
3,517
0
474
2006
330
151
447
3,143
0
427
2007
340
194
430
2,523
0
458
2008
361
230
455
2,633
0
479
2009
398
309
497
2,660
0
588
2010
318
190
391
1,990
0
481
2011
299
184
345
1,608
0
492
2012
401
230
502
2,220
0
450
Figure 2.23: Annual Distribution of Total Rented Acres for Dairy Farms with 5+ years,
2001-2012

The average CR throughout the period was greater than21 (table 2.19). On average, the
farms in the sample were liquid; they had sufficient current assets to cover their current liabilities.
The median was not always greater than 2, which is the standard for dairy farms. Median is a
better measure of CR, as farms with a small value of liabilities will have a large CR. Every year
from 2002 to 2012 there were farms with a CR less than 1. These farms were illiquid.

!

27!

Table 2.19: Summary Statistics for CR, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
(ratio)
2001 4.28
1.86
7.30
47.84
0.19
2.74
2002 5.66
1.64
12.20
68.75
0.23
2.93
2003 3.36
1.65
7.20
56.78
0.20
2.05
2004 5.20
1.90
11.29
90.26
0.31
2.88
2005 8.13
2.11
19.52
146.76
0.26
3.33
2006 8.25
2.16
23.28
184.42
0.36
3.67
2007 8.88
3.25
25.22
211.59
0.30
4.96
2008 7.43
2.86
17.60
130.43
0.39
3.64
2009 5.92
2.53
12.16
77.90
0.19
2.82
2010 5.59
2.91
11.31
85.27
0.24
4.01
2011 7.96
3.06
17.88
111.73
0.20
3.93
2012 10.58
3.24
26.86
158.26
0.47
3.94
Figure 2.24: Annual Distribution of CR for Dairy Farms with 5+ years, 2001-2012

DTA was constant throughout the period (figure 2.25), with the farms financing on
average 25 to 30% of their assets with debt (table 2.20).

!

28!

Table 2.20: Summary Statistics for DTA, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean Median
Deviation
Maximum
Minimum
Range
(%)
2001 31.18
28.11
19.35
80.44
0.00
23.37
2002 30.77
29.61
19.06
87.31
0.00
28.93
2003 31.20
29.48
18.84
77.22
0.00
31.97
2004 30.78
29.90
18.76
76.99
0.00
32.92
2005 27.74
26.64
18.08
77.56
0.00
25.95
2006 28.71
27.72
18.50
76.65
0.00
25.69
2007 25.93
25.10
17.12
75.95
0.00
26.10
2008 26.32
24.90
18.08
74.93
0.00
28.69
2009 30.06
27.26
19.26
81.81
0.00
27.63
2010 28.37
26.84
18.30
82.16
0.00
25.75
2011 26.46
24.62
16.96
64.19
0.00
23.54
2012 26.05
25.25
16.02
60.25
0.00
22.41
Figure 2.25: Annual Distribution of DTA for Dairy Farms with 5+ years, 2001-2012

!

29!

Table 2.21: Summary Statistics for ATO, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
(%)
2001 32.95
30.93
12.97
73.98
10.97
18.17
2002 29.05
26.83
11.66
66.93
7.71
13.44
2003 29.67
28.09
12.48
65.67
10.46
17.44
2004 33.21
32.09
13.54
72.25
9.83
19.10
2005 31.91
30.56
12.48
72.43
8.42
14.93
2006 28.26
26.44
10.46
60.64
5.73
13.34
2007 34.52
32.82
12.49
70.98
7.41
14.67
2008 29.10
29.35
12.32
68.17
1.19
14.75
2009 21.20
20.92
8.34
39.73
(0.60)
9.47
2010 29.15
28.36
11.11
64.68
6.88
14.57
2011 32.69
30.97
11.22
71.96
10.16
14.59
2012 29.17
28.94
9.80
60.71
10.06
12.57
Figure 2.26: Annual Distribution of ATO for Dairy Farms with 5+ years, 2001-2012

The average ROA for the farm with five or more years of data varied throughout the
period. In 2007 the average ROA was 10.30, whereas in 2009 the average ROA was -0.84. The
movement in ROA from year to year can be seen in figure 2.27. It shows the significant
difference in ROA in good years and bad years for the dairy industry in Michigan.

!

30!

Table 2.22: Summary Statistics for ROA, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
(%)
2001 6.21
6.17
7.03
34.82
(15.41)
8.09
2002 3.35
1.83
7.43
33.09
(14.80)
7.91
2003 4.28
4.06
6.33
31.86
(13.77)
6.19
2004 7.19
6.84
6.22
29.20
(5.14)
7.75
2005 5.91
5.70
6.42
31.84
(11.39)
6.76
2006 4.75
4.16
5.49
23.13
(10.90)
6.09
2007 10.30
9.63
7.43
34.39
(8.55)
8.17
2008 5.01
4.59
7.88
35.44
(16.55)
7.46
2009 (0.84)
(0.60)
5.98
13.00
(20.12)
7.27
2010 5.65
5.32
4.78
15.77
(6.01)
6.22
2011 9.57
8.28
8.00
36.45
(17.98)
8.00
2012 6.51
6.62
6.58
29.84
(9.26)
8.10
Figure 2.27: Annual Distribution of ROA for Dairy Farms with 5+ years, 2001-2012

Table 2.23 shows that in 2009, the farms in the sample had a negative average OPMR.
Looking at the figure 2.28, no farms had an OPMR above 50 in 2009.

!

31!

Table 2.23: Summary Statistics for OPMR, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean Median
Deviation
Maximum
Minimum
Range
(%)
2001 19.85
16.83
29.77
165.86
(71.89)
24.04
2002 9.78
7.71
26.25
100.94
(102.74)
23.14
2003 13.92
14.61
28.94
184.70
(82.23)
18.79
2004 19.54
20.00
16.74
105.36
(26.48)
18.91
2005 17.82
17.65
24.45
137.24
(70.21)
20.40
2006 16.41
14.95
23.90
145.87
(70.28)
20.69
2007 29.14
28.34
20.89
93.66
(40.44)
21.19
2008 16.43
17.18
25.79
87.04
104.24
25.19
2009 (4.36)
(2.05)
31.74
57.83
(144.55)
33.25
2010 18.52
20.08
16.93
62.41
(49.29)
18.94
2011 29.08
25.64
26.25
129.16
(79.18)
19.75
2012 21.98
21.47
24.60
74.58
(40.78)
27.14
Figure 2.28: Annual Distribution of OPMR for Dairy Farms with 5+ years, 2001-2012

!

32!

Table 2.24: Summary Statistics for NFI, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 4.62
3.55
6.14
45.89
(9.46)
4.43
2002 2.99
2.21
3.84
15.95
(4.92)
3.81
2003 3.31
2.82
4.35
31.11
(7.99)
2.84
2004 5.25
4.25
6.18
47.65
(2.41)
3.23
2005 4.53
4.08
4.22
18.31
(5.75)
4.10
2006 3.72
3.35
4.28
30.92
(7.16)
2.89
2007 7.24
6.12
6.82
44.53
(9.86)
4.16
2008 3.85
3.53
6.36
43.29
(13.98)
4.73
2009 (0.72)
(0.29)
6.43
19.41
(14.43)
4.22
2010 3.87
3.79
3.88
17.24
(6.53)
4.07
2011 7.67
5.86
7.13
38.99
(2.77)
3.85
2012 5.48
5.02
5.19
21.46
(6.20)
5.44
Figure 2.29: Annual Distribution of NFI for Dairy Farms with 5+ years, 2001-2012

Comparing table 2.25 to table 2.26, dairy farms with more than five years of data grew on
average more feed than the purchased in every year in the dataset except for 2002. However, as
seen in table 2.25 and 2.26 along with figure 2.30 and 2.31, the feed grown by each farm
increased faster and higher than the purchased feed cost.

!

33!

Table 2.25: Summary Statistics for Value of Homegrown Feed, Dairy Farms with 5+
years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 4.66
3.79
4.80
26.75
0.00
5.39
2002 2.85
2.72
3.10
12.79
0.00
4.68
2003 4.26
3.67
3.80
16.29
0.00
4.26
2004 7.63
5.68
7.49
70.41
0.00
5.42
2005 5.99
5.26
4.14
26.89
0.00
4.45
2006 5.90
4.78
4.75
28.35
0.00
3.70
2007 8.76
5.55
8.54
51.41
0.00
7.51
2008 13.02
10.76
11.50
74.74
1.41
8.72
2009 9.46
7.25
9.50
62.77
0.40
5.65
2010 8.54
5.59
9.81
75.56
0.00
6.06
2011 16.01
10.75
14.77
74.46
0.00
15.96
2012 12.37
9.48
10.43
78.93
2.25
8.53
Figure 2.30: Annual Distribution of Value of Homegrown Feed for Dairy Farms with 5+
years, 2001-2012

!

34!

Table 2.26: Summary Statistics for Purchased Feed Cost, Dairy Farms with 5+ years,
2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 3.58
3.58
1.01
6.56
1.67
1.17
2002 3.26
3.20
1.04
5.68
0.00
1.36
2003 3.58
3.56
1.18
7.76
0.16
1.27
2004 4.22
4.13
1.20
7.36
1.31
1.55
2005 4.04
4.08
1.27
8.27
0.92
1.70
2006 3.57
3.60
1.05
6.45
0.66
1.35
2007 4.86
4.71
1.54
8.66
0.77
1.86
2008 5.52
5.38
1.82
9.95
1.69
2.61
2009 4.54
4.32
1.59
10.92
0.87
1.65
2010 4.61
4.44
1.71
8.58
0.55
2.15
2011 5.95
6.17
1.77
9.63
1.90
2.49
2012 5.87
5.79
1.92
10.12
1.26
2.54
Figure 2.31: Annual Distribution of Purchased Feed Cost for Dairy Farms with 5+ years,
2001-2012

!

35!

Table 2.27: Summary Statistics for Labor Cost, Dairy Farms with 5+ years, 2001-2012
Standard
Interquartile
Year Mean
Median
Deviation
Maximum
Minimum
Range
($/cwt)
2001 4.41
4.09
1.32
10.93
2.37
1.68
2002 4.51
4.38
1.29
10.51
2.29
1.73
2003 4.25
3.97
1.51
11.59
1.76
1.68
2004 4.36
4.04
1.47
9.79
1.53
1.42
2005 4.57
4.17
1.80
12.37
1.99
1.91
2006 4.32
4.00
1.54
10.71
1.63
1.74
2007 4.24
4.08
1.62
9.81
1.39
1.69
2008 4.27
3.93
1.67
9.70
1.53
2.19
2009 4.60
4.32
1.51
10.92
1.70
1.70
2010 3.67
3.62
1.25
7.56
1.50
1.58
2011 4.33
3.91
1.70
10.18
1.52
2.23
2012 4.15
3.77
2.04
13.05
1.41
1.79
Figure 2.32: Annual Distribution of Labor Cost for Dairy Farms with 5+ years, 2001-2012

Comparing table 2.28 and table 2.14, the summary statistics for each variable showed a
similar trend in both the dataset of all dairy farms and the sample of only those with five or more
years of data.

!

36!

Table 2.28: Summary Statistics for Dairy Farms with 5+ years, 2001-2012
Standard
Year
Mean Median Deviation Maximum Minimum
Herd Size
(cows)
224
166
209
1,638
10
Milk Price
($/cwt) 16.00 15.77
2.83
24.44
10.88
Total Owned Crop Acres
(acres)
467
323
488
3,250
0
Total Rented Crop Acres
(acres)
349
214
431
3,517
0
CR
(ratio)
6.66
2.35
17.07
211.59
0.19
DTA
(%)
28.60 26.53
18.23
87.31
0.00
ATO
(%)
30.29 28.94
12.18
73.98
(0.60)
ROA
(%)
5.78
5.51
7.19
36.45
(20.12)
OPMR
(%)
17.65 17.60
26.19
184.70
(144.55)
NFI
($/cwt) 4.47
3.74
5.89
50.14
(14.43)
Value of Homegrown Feed
($/cwt) 7.94
5.53
8.82
78.93
0.00
Purchased Feed Cost
($/cwt) 4.38
4.16
1.66
10.92
0.00
Labor Cost
($/cwt) 4.33
4.05
1.63
13.33
1.39
2.1.3 Dairy Farm Summary Statistics
Although the sample size for the panel data was small, the mean and standard deviation
for each variable are generally consistent with the dataset consisting of all dairy farms. However,
this is not true for the 2001-2007 panel and the 10-year panel for CR. The CR for both panels is
much lower on average and has a standard deviation of roughly half that of the dataset with all
farms. The standard deviation for ROA is slightly lower for the panels. The mean value of
homegrown feed and purchased feed cost were much lower for the 2001-2007 panel and higher
for the 2006-2012 panel compared to the mean for both variables for the dataset with all farms.
This can be mainly attributed to the increase in feed values from 2001 to 2012.

!

37!

Table 2.29: Dairy Farm Summary Statistics
All
farms
20012012

Year

Farms
with 5+
years

7-year
panel
20012007

Mean
(Standard Deviation)
6.36
6.66
3.83*
CR
(ratio)
(16.77)
(17.07)
(6.84)
29.37
28.60
28.89
DTA
(%)
(18.96)
(18.23)
(17.92)
30.29
30.29
32.77*
ATO
(%)
(12.51)
(12.18)
(11.74)
5.63
5.78
6.13
ROA
(%)
(7.51)
(7.19)
(6.59)
16.99
17.65
17.47
OPMR
(%)
(28.05)
(26.19)
(22.03)
4.40
4.47
4.25
NFI
($/cwt)
(5.99)
(5.89)
(4.32)
7.49
7.94
5.35*
Value of Homegrown Feed ($/cwt)
(8.47)
(8.82)
(5.33)
4.42
4.38
3.85*
Purchased Feed Cost
($/cwt)
(1.78)
(1.66)
(1.27)
Labor Cost
($/cwt)
4.36
4.33
4.30
(1.72)
(1.63)
(1.28)
*=Significantly different from the dataset with All Farms at the 5% level

7-year
panel
20062012

10-year
panel

6.09
(15.70)
26.98*
(16.22)
28.71*
(10.21)
5.45
(6.62)
18.01
(24.44)
4.19
(5.28)
10.44*
(9.33)
4.98*
(1.80)
4.06*
(1.35)

4.49*
(8.19)
27.75*
(16.29)
30.59
(10.44)
5.58
(6.99)
16.61
(23.34)
3.97
(5.11)
7.31
(8.39)
4.50
(1.62)
4.05*
(1.17)

2.2 Crop Farm Data
The data for the crop farms was obtained from Michigan State University Crop Farm
Business Analysis. A crop farm was defined as any farm that received more than 50% of its
revenue from crop sales. There were records for 242 crop farms between 2002 and 2012. There
were 72 farms that had five or more years of data.
Three different groups of the data were used throughout the analysis. The first group
consisted of all 242-crop farms with records in one or more years during the period 2002-2012.
The second group consisted of only the 72 crop farms with five or more years of records between

!

38!

2002 and 2012. The third group consisted of a panel of 22 farms with ten years of continuous
data between 2008 and 2012.
2.2.1 All Crop Farms
Through 2005, the crop farms in the dataset owned on average significantly less acres
than they rented. The average number of acres owned versus acres rented has moved inversely of
one another over the period (table 2.30 and table 2.31). The number of crop acres rented has
decreased dramatically, while the number of owned acres has increased slightly. Table 2.34 and
figure 2.40 show that ATO remained relatively stable over the period, although the variability
between crop farms was large. Figure 2.42 and table 2.36 show that OPMR moved around often
and had a large standard deviation and variance. The average DTA ratio decreased between 2002
and 2012 (table 2.33) while the CR increased (table 2.32). Thus, many of the crop farms in the
dataset improved their solvency and liquidity over the past eleven years.
Table 2.30: Summary Statistics for Total Owned Crop Acres, All Crop Farms, 2002-2012
Standard
Interquartile
Year Mean Median
Deviation
Maximum
Minimum
Range
(acres)
2002
354
247
341
1,669
0
295
2003
308
232
301
1,740
0
340
2004
375
254
458
2,682
0
355
2005
442
317
512
2,902
0
326
2006
512
320
709
4,489
0
401
2007
413
236
596
3,100
0
359
2008
413
250
609
3,165
0
469
2009
460
263
621
3,321
0
442
2010
478
326
572
3,470
0
424
2011
477
333
592
3,410
0
412
2012
424
300
442
2,250
0
378

!

39!

Figure 2.33: Annual Distribution of Total Owned Crop Acres for All Crop Farms, 20022012

Figure 2.34: Annual Distribution of Total Owned Crop Acres for All Crop Farms with
<1,000 Acres, 2002-2012

Table 2.31: Summary Statistics for Total Rented Acres, All Crop Farms, 2002-2012
Standard
Interquartile
Year Mean Median
Deviation
Maximum
Minimum
Range
(acres)
2002 823
456
1,138
6,354
0
826
2003 760
491
1,067
6,354
0
857
2004 747
420
1,020
5,837
0
753
2005 703
342
979
5,389
0
838
2006 512
300
659
3,445
0
664
2007 586
300
709
3,445
0
707
2008 576
430
617
2,474
0
693
2009 442
138
568
2,488
0
699
2010 481
245
570
2,526
0
788
2011 452
190
605
2,995
0
635
2012 524
314
622
2,700
0
837

!

40!

Figure 2.35: Annual Distribution of Total Rented Crop Acres for All Crop Farms, 20022012

Figure 2.36: Annual Distribution of Total Rented Crop Acres for All Crop Farms with
<1,500 Acres, 2002-2012

Table 2.32: Summary Statistics for CR, All Crop Farms, 2002-2012
Standard
Year Mean Median
Deviation
Maximum
Minimum
(ratio)
2002 2.93
1.59
4.01
20.93
0.02
2003 2.94
1.27
5.70
39.97
0.00
2004 3.68
1.41
7.13
48.33
0.00
2005 5.76
1.96
15.18
105.72
0.15
2006 5.08
1.77
8.22
49.59
0.04
2007 5.58
1.99
8.81
56.39
0.04
2008 5.96
2.62
8.21
39.64
0.19
2009 8.86
2.28
15.29
99.99
0.01
2010 7.08
2.68
11.92
82.45
0.02
2011 10.22
4.12
15.59
96.29
0.05
2012 10.43
3.99
17.79
110.16
0.11

!

41!

Interquartile
Range
2.61
1.60
2.18
2.67
3.67
4.02
4.99
7.97
4.69
9.65
8.41

Figure 2.37: Annual Distribution of CR for All Crop Farms, 2002-2012

Figure 2.38: Annual Distribution of CR for All Crop Farms, with CR<11, 2002-2012

Table 2.33: Summary Statistics for DTA, All Crop Farms, 2002-2012
Standard
Year
Mean
Median
Deviation
Maximum
Minimum
(%)
2002
30.65
27.88
22.25
97.87
0.00
2003
34.14
29.84
26.08
114.84
0.00
2004
31.04
25.44
24.92
109.38
0.00
2005
28.26
21.88
24.39
104.85
0.00
2006
25.95
23.03
20.42
84.57
0.00
2007
24.49
21.87
20.31
84.98
0.00
2008
27.80
24.00
23.04
96.32
0.00
2009
23.32
16.35
22.46
98.16
0.00
2010
25.03
22.10
20.18
80.72
0.00
2011
22.68
21.25
17.57
81.55
0.00
2012

!

22.50

20.20

17.19

68.83

42!

0.00

Interquartile
Range
32.42
37.36
34.55
36.00
31.21
29.32
33.03
31.55
30.96
25.58
25.33

Figure 2.39: Annual Distribution of DTA for All Crop Farms, 2002-2012

Table 2.34: Summary Statistics for ATO, All Crop Farms, 2002-2012
Standard
Year Mean Median
Deviation
Maximum
Minimum
(%)
2002 29.21
21.49
29.69
193.88
(0.38)
2003 29.76
20.36
28.61
165.73
0.63
2004 30.77
23.19
30.60
189.37
0.40
2005 28.85
25.85
21.40
110.72
2.50
2006 32.20
24.09
28.81
162.68
4.80
2007 33.49
25.18
30.89
175.26
2.18
2008 36.60
28.66
33.18
164.38
0.72
2009 25.84
19.86
22.05
116.79
(0.34)
2010 30.29
27.27
23.30
109.22
(0.93)
2011 30.61
28.06
19.77
105.09
1.93
2012 29.78
26.99
18.17
103.89
1.56
Figure 2.40: Annual Distribution of ATO for All Crop Farms, 2002-2012

!

43!

Interquartile
Range
23.05
24.98
20.65
22.41
26.31
28.08
23.68
23.86
23.95
21.56
23.03

Table 2.35: Summary Statistics for ROA, All Crop Farms, 2002-2012
Standard
Year Mean Median
Deviation
Maximum
Minimum
(%)
2002 2.49
2.57
9.69
46.06
(23.03)
2003 2.45
2.24
7.29
30.34
(27.21)
2004 3.81
2.79
8.05
29.11
(15.96)
2005 5.05
3.67
5.98
22.78
(7.20)
2006 7.75
5.42
10.18
42.63
(12.84)
2007 8.44
6.55
9.64
31.68
(23.24)
2008 6.57
5.60
8.14
45.14
(10.37)
2009 3.48
2.60
7.63
38.16
(11.68)
2010 7.37
7.05
11.40
44.18
(29.45)
2011 7.91
7.72
8.35
34.90
(22.67)
2012 8.93
8.07
7.71
37.72
(9.35)
Figure 2.41: Annual Distribution of ROA for All Crop Farms, 2002-2012

!

44!

Interquartile
Range
7.79
6.00
8.48
7.08
9.27
11.00
8.72
7.73
10.41
8.99
9.53

Table 2.36: Summary Statistics for OPMR, All Crop Farms, 2002-2012
Year

Mean

Median

Standard
Deviation

Maximum

Minimum

Interquartile
Range

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

11.90
11.65
10.85
21.84
25.19
28.03
17.76
9.74
19.72
23.43
31.95

8.91
9.55
10.30
15.78
20.61
25.79
20.99
15.06
25.91
29.05
29.34

48.61
42.08
41.20
38.19
39.54
47.79
39.32
40.78
52.68
33.49
30.64

(%)
226.03
197.36
207.87
148.22
144.06
155.14
178.98
102.55
152.93
93.53
151.04

(102.88)
(171.98)
(191.43)
(103.04)
(106.85)
(227.95)
(120.08)
(175.10)
(224.57)
(208.03)
(43.23)

40.71
30.39
34.46
27.21
25.70
30.91
23.48
29.66
24.57
21.04
25.54

Figure 2.42: Annual Distribution of OPMR for All Crop Farms, 2002-2012

Figure 2.43: Annual Distribution of OPMR for All Crop Farms, with OPMR -22 to 65,
2002-2012

!

45!

Table 2.37: Summary Statistics for NFI, All Crop Farms, 2002-2012
Standard
Year Mean Median
Deviation
Maximum
Minimum
($/acre operated)
2002 92.26
52.88
191.08
962.18
(312.42)
2003 77.59
54.07
146.38
1,021.31
(210.71)
2004 78.24
69.10
135.13
756.26
(220.00)
2005 121.35 72.23
149.54
653.59
(172.50)
2006 168.44 116.97
217.34
1,117.12
(280.91)
2007 219.89 185.62
222.54
845.91
(425.90)
2008 138.56 139.65
143.29
424.65
(199.17)
2009 94.90
89.04
230.49
1,419.34
(421.91)
2010 192.44 196.76
203.47
719.11
(365.25)
2011 247.78 236.89
219.86
858.38
(464.75)
2012 327.09 264.44
285.78
1,284.90
(204.39)

Interquartile
Range
141.11
101.07
123.61
138.50
160.51
219.66
175.54
174.17
218.69
240.69
270.78

Figure 2.44: Annual Distribution of NFI for All Crop Farms, 2002-2012

Table 2.38: Summary Statistics for All Crop Farms, 2002-2012
Standard
Year
Mean Median Deviation Maximum
Total
Owned
(acres)
423
275
533
4,489
Crop Acres
Total
Rented
(acres)
595
329
805
6,354
Crop Acres
CR
(ratio)
6.31
2.09
11.91
110.16
DTA
(%)
26.81
22.74
21.99
114.84
ATO
(%)
30.70
25.05
26.21
193.88
ROA
(%)
5.86
5.11
8.99
46.06
OPMR
(%)
19.27
19.64
42.20
226.03
NFI
($/acre) 161.43 124.10
216.58
1,419.34

!

46!

Minimum
0
0
0.00
0.00
0.38
(29.45)
(227.95)
(464.75)

2.2.2 Crop Farm Summary Statistics
Table 2.39 shows that some of the variables in the data set of crop farms with five or
more years of data and the five-year panel of crop farms from 2008-2012 are significantly
different than the data from farms across all years. This is due to the years represented in the
samples along with a low number of farms.
Table 2.39: Crop Farm Summary Statistics
All farms
Year
2002-2012

Farms with
5 year panel
5+ years
2008-2012
Mean
(Standard Deviation)
Total Owned
423
489*
430
(acres)
Crop Acres
(533)
(599)
(537)
Total Rented
595
554
694
(acres)
Crop Acres
(805)
(655)
(610)
6.30
6.82
4.64
CR
(ratio)
(11.91)
(11.64)
(8.20)
26.81
23.25*
32.58*
DTA
(%)
(21.99)
(18.73)
(19.77)
30.70
28.00*
33.45
ATO
(%)
(26.21)
(20.04)
(20.48)
5.86
6.10
7.80*
ROA
(%)
(8.99)
(8.10)
(6.70)
19.27
21.84
22.72
OPMR
(%)
(42.20)
(40.04)
(20.38)
($/acre
155.31
172.61
198.49
NFI
operated)
(252.83)
(262.06)
(426.58)
*=Significantly different from the dataset with All Farms at the 5% level

!

47!

Chapter 3-Methods and Results
This chapter explains the relative stability of the financial ratios across farms and over
time. The difference in the top and bottom thirds over time is tested to see the importance of a
farm’s ranking relative to other similar farms. The industry effect for a given year is estimated
using regression analysis. The impact of long-term data versus using data for only one year is
explored. Also considered is the number of years required to have some assurances that a farm is
ranked correctly.
3.1 Model 1: Stability Across Farms
Langemeier (2010) conducted a study on farms in the Kansas Farm Management
Association between 2004 and 2008 to determine whether a farm was consistently ranked in the
top or bottom quartile for OPMR and ATO. The farms were not split into crop farms and
livestock farms. The stated goal was to determine whether performance differences were due to
external factors, such as weather, or internal factors, such as managerial ability. The results
showed that Kansas farms did not rank in the same quartile for OPMR or ATO consistently
throughout the five-year period. However, when a farm’s five-year average for each measure
was used, there was a significant difference between the characteristics of farms in the top and
bottom quartiles. Langemeier concluded that not ranking consistently in the top quartile was due
to external factors, but that there was still a need for benchmarking as the difference between the
characteristics of farms in the top and bottom quartiles for both OPMR and ATO was significant.
Langemeier said this suggested that there was the potential for a farm to have a competitive
advantage over time due to internal factors. He also concluded that it is important to use more
than one year of data to benchmark farm financial performance.

!

48!

This study first follows the Langemeier (2010) study in order to ascertain whether or not
farms tended to consistently be classified in the top or bottom third for a given measure. It was
not possible to determine whether performance differences were due to external or internal
factors using this method because industry effects were not accounted for. The results of this
study reveal the emphasis that a farm should place on their performance relative to other similar
operations in the short-term and long-term. If there is a propensity for individual farms to rank
consistently in the top or bottom third for a given financial measure, then a farm manager should
make decisions based on where they rank relative to other farms. If farms do not rank in the top
or bottom third consistently, it is then necessary to understand if over time there is a significant
difference in the characteristics of farms in the top and bottom third. If there is, then by using a
long-run average when obtaining their relative ranking, a farm will be more able to determine
their actual strengths and weaknesses and use these to form a management strategy for the future.
The dairy farm data were split into eight balanced panels, 2001-2005 (n=76), 20022006(n=70), 2003-2007(n=73), 2004-2008(n=72), 2005-2009(n=71), 2006-2010(n=62), 20072011(n=61), and 2008-2012 (n=55). The crop farm data was split into seven balanced panels,
2002-2006 (n=22), 2003-2007 (n=30), 2004-2008 (n=20), 2005-2009 (n=17), 2006-2010 (n=21),
2007-2011(n=19), and 2008-2012 (n=22). Each panel consisted only of farms that had records
for every year during the five-year period.
3.1.1 Step One
For each panel the data were split into individual years. Then, for the dairy farms, thirds
were calculated each year for nine financial performance measures: current ratio (CR), debt-toasset ratio (DTA), asset turnover rate (ATO), rate of return on assets (ROA), operating profit
margin ratio (OPMR), NFI ($/cwt), value of homegrown feed ($/cwt), purchased feed cost

!

49!

($/cwt), and labor cost ($/cwt). For the crop farms, thirds were calculated for six measures: CR,
DTA, ATO, ROA, OPMR and NFI ($/acre operated). The number of years each individual farm
was in the top third for each measure was recorded. The number of years they ranked in the
bottom third was also counted. Then, the number of farms that had ranked in the top third all five
years for a specific measure was counted.

T!,! = Number of farms ranked in the top third, f=financial measure, y=number of times in the
top third (y=0, 1, 2, 3, 4, or 5).

B!,! = Number of years ranked in the bottom third
This number was divided by the total number of farms in the panel to obtain the percentage of
farms that had ranked in the top third for all five years for the financial measure.
!!,!
!
!!,!
!

= % of farms that ranked in the top third y times over the period
= % of farms that ranked in the bottom third y times over the period
This process was then repeated to see what percent of farms ranked in the top third zero,

one, two, three, four, or five years for each financial measure. The same method was used to
analyze the farms in the bottom third.
The percent of farms that ranked in the top or bottom zero, one, two, three, four, or five
during the period was recorded and can be seen in tables 3.1 – 3.30.
Dairy Farm Results
Tables 3.1 - 3.16 revealed that farms were able to rank in the same third the most
consistently for CR, DTA and ATO. More than 9% of dairy farms were ranked in the top third
and more than 11% were ranked in the bottom third for CR, DTA and ATO in every five-year
panel. This is likely because DTA and ATO are asset driven and therefore more stable. More

!

50!

than 42% of the farms were never ranked in the bottom for CR, DTA, and ATO. This indicates
that producers can make informed management decisions if they rank in the top bottom third for
CR, DTA, or ATO for even one year, as this is a stable ranking. Although, it may be difficult to
adjust these measures in the short-term as they are asset driven. Farms ranked in the same third
least consistently for ROA, OPMR, and NFI. More than 10% of farms ranked in the top third for
only one year and more than 17% in the bottom third for only one year. Less than 40% of the
dairy farms were never ranked in the bottom for ROA, OPMR, and NFI. Ranking in the top or
bottom third for one year for ROA, OPMR, or NFI was not a clear signal for managerial
decision-making.
These findings were similar to Langemeier (2010) in that it was easier to be ranked in the
top third consistently for ATO than in the top OPMR quartile. The results indicate that farms
often moved thirds from year to year. That is, their relative rankings were unstable.
Table 3.1: Dairy Farms in the Top Third of Each Measure, 2001-2005
5 years 4 years 3 years 2 years 1 year
(%)
CR
14.47
9.21
5.26
11.84
15.79
DTA
21.05
6.58
5.26
5.26
6.58
ATO
15.79
13.16
6.58
1.32
10.53
ROA
1.32
14.47
13.16
15.79
28.95
OPMR
0.00
14.47
15.79
19.74
19.74
NFI
2.63
13.16
9.21
25.00
21.05
Value of
Homegrown Feed
3.95
3.95
26.32
15.79
18.42
Purchased Feed
Cost
13.16
9.21
5.26
14.47
17.11
Labor Cost

14.47

10.53

3.95

!
!
!
!

!

51!

10.53

17.11

0 years
43.42
55.26
52.63
26.32
30.26
28.95
31.58
40.79
43.42

Table 3.2: Dairy Farms in the Bottom Third of Each Measure, 2001-2005
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
13.16
5.26
10.53
17.11
11.84
42.11
DTA
23.68
3.95
3.95
5.26
7.89
55.26
ATO
18.42
5.26
9.21
7.89
7.89
51.32
ROA
1.32
7.89
17.11
23.68
27.63
22.37
OPMR
1.32
11.84
17.11
19.74
19.74
30.26
NFI
7.89
10.53
6.58
21.05
21.05
32.89
Value of
Homegrown Feed
3.95
6.58
11.84
27.63
27.63
22.37
Purchased Feed
Cost
13.16
6.58
11.84
7.89
21.05
39.47
Labor Cost
14.47
7.89
10.53
9.21
10.53
47.37
Table 3.3: Dairy Farms in the Top Third of Each Measure, 2002-2006
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
14.29
12.86
5.71
5.71
12.86
48.57
DTA
20.00
8.57
4.29
5.71
5.71
55.71

!

ATO
ROA

18.57
2.86

5.71
7.14

7.14
17.14

10.00
18.57

7.14
32.86

51.43
21.43

OPMR
NFI
Value of
Homegrown Feed
Purchased Feed
Cost
Labor Cost

2.86
2.86

10.00
10.00

20.00
14.29

11.43
25.71

27.14
15.71

28.57
31.43

4.29

8.57

18.57

15.71

21.43

31.43

11.43
20.00

12.86
4.29

8.57
4.29

7.14
10.00

15.71
14.29

44.29
47.14

52!

Table 3.4: Dairy Farms in the Bottom Third of Each Measure, 2002-2006
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
11.43
10.00
10.00
14.29
8.57
45.71
DTA
ATO

21.43
12.86

5.71
14.29

4.29
8.57

7.14
4.29

7.14
8.57

54.29
51.43

ROA
OPMR
NFI
Value of
Homegrown Feed
Purchased Feed
Cost

0.00
2.86
4.29

8.57
8.57
11.43

20.00
17.14
10.00

20.00
18.57
18.57

30.00
27.14
30.00

21.43
25.71
25.71

5.71

8.57

8.57

20.00

35.71

21.43

12.86

5.71

11.43

11.43

20.00

38.57

Labor Cost

15.71

7.14

10.00

7.14

12.86

47.14

Table 3.5: Dairy Farms in the Top Third of Each Measure, 2003-2007
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
15.07
12.33
6.85
2.74
13.70
49.32
DTA
23.29
5.48
2.74
5.48
6.85
56.16
ATO
15.07
8.22
9.59
9.59
8.22
49.32
ROA
5.48
9.59
8.22
27.40
19.18
30.14
OPMR
4.11
10.96
12.33
19.18
24.66
28.77
NFI
4.11
10.96
13.70
20.55
17.81
32.88
Value of
Homegrown Feed
5.48
20.55
5.48
10.96
16.44
41.10
Purchased Feed
Cost
15.07
5.48
10.96
8.22
17.81
42.47
Labor Cost
16.44
10.96
4.11
8.22
9.59
50.68

!

53!

Table 3.6: Dairy Farms in the Bottom Third of Each Measure, 2003-2007
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
17.81
5.48
8.22
9.59
9.59
49.32
DTA
20.55
6.85
5.48
4.11
9.59
53.42
ATO
16.44
9.59
5.48
8.22
10.96
49.32
ROA
1.37
9.59
17.81
17.81
30.14
23.29
OPMR
5.48
6.85
13.70
17.81
32.88
23.29
NFI
4.11
8.22
17.81
13.70
30.14
26.03
Value of
Homegrown Feed
5.48
15.07
10.96
5.48
32.88
30.14
Purchased Feed
Cost
13.70
6.85
6.85
13.70
20.55
38.36
Labor Cost
15.07
9.59
5.48
8.22
17.81
43.84
Table 3.7: Dairy Farms in the Top Third of Each Measure, 2004-2008
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
11.11
15.28
6.94
8.33
12.50
45.83
DTA
25.00
5.56
1.39
4.17
6.94
56.94
ATO
16.67
5.56
8.33
9.72
16.67
43.06
ROA
4.17
12.50
6.94
23.61
27.78
25.00
OPMR
1.39
15.28
12.50
13.89
33.33
23.61
NFI
2.78
9.72
15.28
27.78
12.50
31.94
Value of
Homegrown Feed
18.06
4.17
6.94
12.50
13.89
44.44
Purchased Feed
Cost
13.89
6.94
5.56
18.06
16.67
38.89
Labor Cost
15.28
5.56
8.33
16.67
9.72
44.44
Table 3.8: Dairy Farms in the Bottom Third of Each Measure, 2004-2008
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
19.44
6.94
2.78
11.11
11.11
48.61
DTA
25.00
2.78
4.17
5.56
6.94
55.56
ATO
20.83
6.94
4.17
6.94
8.33
52.78
ROA
4.17
5.56
13.89
22.22
37.50
16.67
OPMR
4.17
6.94
16.67
15.28
37.50
19.44
NFI
6.94
9.72
12.50
12.50
30.56
27.78
Value of
Homegrown Feed
12.50
12.50
8.33
5.56
18.06
43.06
Purchased Feed
Cost
15.28
6.94
2.78
18.06
18.06
38.89
Labor Cost
16.67
8.33
4.17
8.33
20.83
41.67

!

54!

Table 3.9: Dairy Farms in the Top Third of Each Measure, 2005-2009
5 years 4 years 3 years 2 years 1 year
(%)
CR
9.86
12.68
12.68
9.86
11.27
DTA
22.54
7.04
2.82
7.04
5.63
ATO
19.72
2.82
7.04
11.27
15.49
ROA
4.23
11.27
12.68
16.90
30.99
OPMR
1.41
11.27
15.49
23.94
22.54
NFI
4.23
7.04
15.49
26.76
19.72
Value of
Homegrown Feed
9.86
12.68
12.68
9.86
11.27
Purchased Feed
Cost
7.04
18.31
4.23
12.68
22.54
Labor Cost
7.04
15.49
8.45
11.27
23.94

0 years
43.66
54.93
43.66
23.94
25.35
26.76
43.66
35.21
33.80

Table 3.10: Dairy Farms in the Bottom Third of Each Measure, 2005-2009
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
15.49
11.27
8.45
4.23
12.68
47.89
DTA
25.35
1.41
4.23
7.04
9.86
52.11
ATO
16.90
11.27
7.04
5.63
7.04
52.11
ROA
4.23
5.63
12.68
26.76
33.80
16.90
OPMR
1.41
14.08
11.27
16.90
38.03
18.31
NFI
2.82
11.27
14.08
19.72
28.17
23.94
Value of
Homegrown Feed
15.49
11.27
2.82
9.86
18.31
42.25
Purchased Feed
Cost
12.68
5.63
9.86
15.49
22.54
33.80
Labor Cost
5.63
18.31
8.45
11.27
19.72
36.62
Table 3.11: Dairy Farms in the Top Third of Each Measure, 2006-2010
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
9.21
6.58
11.84
13.16
3.95
55.26
DTA
18.42
5.26
3.95
2.63
7.89
61.84
ATO
14.47
2.63
6.58
13.16
9.21
53.95
ROA
3.95
7.89
7.89
18.42
26.32
35.53
OPMR
3.95
7.89
14.47
11.84
19.74
42.11
NFI
2.63
7.89
14.47
15.79
18.42
40.79
Value of
Homegrown Feed
9.21
11.84
3.95
11.84
9.21
53.95
Purchased Feed
Cost
5.26
15.79
3.95
10.53
15.79
48.68
Labor Cost
5.26
11.84
5.26
13.16
22.37
42.11

!

55!

Table 3.12: Dairy Farms in the Bottom Third of Each Measure, 2006-2010
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
13.16
10.53
2.63
9.21
3.95
60.53
DTA
18.42
5.26
3.95
2.63
7.89
61.84
ATO
13.16
6.58
7.89
7.89
6.58
57.89
ROA
1.32
10.53
9.21
22.37
17.11
39.47
OPMR
2.63
9.21
9.21
19.74
21.05
38.16
NFI
0.00
13.16
9.21
19.74
18.42
39.47
Value of
Homegrown Feed
9.21
13.16
3.95
5.26
17.11
51.32
Purchased Feed
Cost
11.84
6.58
6.58
11.84
9.21
53.95
Labor Cost
5.26
10.53
11.84
9.21
15.79
47.37
Table 3.13: Dairy Farms in the Top Third of Each Measure, 2007-2011
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
9.84
8.20
13.11
14.75
13.11
40.98
DTA
21.31
3.28
6.56
6.56
11.48
50.82
ATO
13.11
6.56
11.48
11.48
14.75
42.62
ROA
0.00
11.48
11.48
26.23
31.15
19.67
OPMR
0.00
14.75
13.11
19.67
26.23
26.23
NFI
3.28
9.84
18.03
14.75
24.59
29.51
Value of
Homegrown Feed
9.84
11.48
9.84
14.75
9.84
44.26
Purchased Feed
Cost
9.84
8.20
9.84
14.75
22.95
34.43
Labor Cost
8.20
11.48
11.48
11.48
19.67
37.70
Table 3.14: Dairy Farms in the Bottom Third of Each Measure, 2007-2011
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
13.11
11.48
9.84
6.56
9.84
49.18
DTA
22.95
4.92
4.92
4.92
4.92
57.38
ATO
13.11
11.48
6.56
13.11
6.56
49.18
ROA
1.64
9.84
13.11
22.95
31.15
21.31
OPMR
3.28
8.20
16.39
18.03
29.51
24.59
NFI
1.64
9.84
16.39
18.03
31.15
22.95
Value of
Homegrown Feed
14.75
4.92
8.20
11.48
22.95
37.70
Purchased Feed
Cost
14.75
4.92
11.48
9.84
16.39
42.62
Labor Cost
6.56
11.48
11.48
13.11
24.59
32.79

!

56!

Table 3.15: Dairy Farms in the Top Third of Each Measure, 2008-2012
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
10.91
14.55
5.45
10.91
12.73
45.45
DTA
20.00
7.27
1.82
9.09
10.91
50.91
ATO
12.73
9.09
7.27
14.55
12.73
43.64
ROA
0.00
9.09
18.18
23.64
25.45
23.64
OPMR
1.82
9.09
12.73
32.73
14.55
29.09
NFI
1.82
12.73
16.36
21.82
10.91
36.36
Value of
Homegrown Feed
9.09
14.55
7.27
12.73
12.73
43.64
Purchased Feed
Cost
9.09
7.27
12.73
16.36
18.18
36.36
Labor Cost
9.09
10.91
12.73
9.09
18.18
40.00
Table 3.16: Dairy Farms in the Bottom Third of Each Measure, 2008-2012
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
10.91
18.18
5.45
1.82
16.36
47.27
DTA
21.82
7.27
1.82
7.27
5.45
56.36
ATO
12.73
12.73
7.27
5.45
16.36
45.45
ROA
3.64
10.91
7.27
23.64
32.73
21.82
OPMR
3.64
7.27
18.18
18.18
25.45
27.27
NFI
1.82
7.27
16.36
25.45
25.45
23.64
Value of
Homegrown Feed
14.55
5.45
9.09
10.91
20.00
40.00
Purchased Feed
Cost
16.36
9.09
5.45
7.27
14.55
47.27
Labor Cost
5.45
14.55
9.09
14.55
21.82
34.55
Crop Farm Results
The results for the crop farms were consistent with the results for the dairy farms. DTA,
CR, and ATO had the most persistent rankings. More than 13% of farms were ranked in the top
third for all five years. More than 9% were also ranked in the bottom third for all five years. For
CR, DTA, or ATO, there were more than 42% of farms that were never ranked in the bottom
third. This supports the results from the dairy farm data that ranking in the top or bottom third
just once for CR, DTA, or ATO is enough for a farm manager to make decisions based on. ROA,
OPMR, and NFI were the least consistent in their rankings. As many as 52% of farms only

!

57!

ranked in the top or bottom third for OPMR, ROA, and NFI once depending on the five-year
panel being looked at. Also, there were less than 36% of farms that never ranked in the bottom
third for ROA, OPMR, and NFI. The implication is that farm managers should not make huge
decisions based on ranking in the bottom third once for ROA, OPMR, and NFI. The results show
that these measures are too variable and ranking in the top or bottom once does not provide
enough insight into a farm’s long-run performance to make management decisions. These results
are similar to the dairy farm results and Langemeier’s (2009) conclusion that it was difficult for a
farm to consistently rank in the top third.
Table 3.17: Crop Farms in the Top Third of Each Measure, 2002-2006
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
13.64
4.55
9.09
18.18
9.09
45.45
DTA
13.64
9.09
9.09
13.64
0.00
54.55
ATO
18.18
4.55
13.64
0.00
9.09
54.55
ROA
0.00
13.64
9.09
31.82
13.64
31.82
OPMR
4.55
9.09
9.09
22.73
27.27
27.27
NFI
4.55
4.55
22.73
18.18
13.64
36.36
Table 3.18: Crop Farms in the Bottom Third of Each Measure, 2002-2006
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
18.18
4.55
4.55
9.09
18.18
45.45
DTA
22.73
4.55
0.00
9.09
9.09
54.55
ATO
9.09
22.73
0.00
9.09
4.55
54.55
ROA
4.55
13.64
0.00
22.73
36.36
22.73
OPMR
0.00
18.18
9.09
18.18
22.73
31.82
NFI
4.55
4.55
22.73
9.09
31.82
27.27

!

58!

Table 3.19: Crop Farms in the Top Third of Each Measure, 2003-2007
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
20.00
13.33
0.00
0.00
13.33
53.33
DTA
20.00
6.67
10.00
3.33
3.33
56.67
ATO
16.67
10.00
3.33
13.33
6.67
50.00
ROA
0.00
16.67
6.67
26.67
26.67
23.33
OPMR
3.33
23.33
0.00
20.00
16.67
36.67
NFI
3.33
16.67
10.00
10.00
33.33
26.67
Table 3.20: Crop Farms in the Bottom Third of Each Measure, 2003-2007
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
10.00
16.67
6.67
6.67
16.67
43.33
DTA
16.67
10.00
6.67
10.00
3.33
53.33
ATO
26.67
0.00
10.00
0.00
3.33
60.00
ROA
3.33
10.00
16.67
20.00
20.00
30.00
OPMR
0.00
13.33
23.33
13.33
16.67
33.33
NFI

6.67

3.33

26.67

13.33

13.33

36.67

Table 3.21: Crop Farms in the Top Third of Each Measure, 2004-2008
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
14.29
19.05
4.76
0.00
4.76
57.14
DTA
19.05
9.52
4.76
9.52
0.00
57.14
ATO
14.29
9.52
9.52
9.52
9.52
47.62
ROA
0.00
14.29
19.05
14.29
23.81
28.57
OPMR
0.00
23.81
9.52
14.29
14.29
38.10
NFI
0.00
14.29
9.52
33.33
14.29
28.57
Table 3.22: Crop Farms in the Bottom Third of Each Measure, 2004-2008
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
14.29
14.29
9.52
4.76
0.00
57.14
DTA
23.81
9.52
0.00
0.00
9.52
57.14
ATO
23.81
4.76
4.76
4.76
4.76
57.14
ROA
9.52
9.52
4.76
19.05
28.57
28.57
OPMR
4.76
9.52
14.29
14.29
33.33
23.81
NFI
9.52
14.29
0.00
14.29
33.33
28.57

!

59!

Table 3.23: Crop Farms in the Top Third of Each Measure, 2005-2009

CR
DTA
ATO
ROA
OPMR
NFI

5 years

4 years

3 years

17.65
17.65
17.65
5.88
0.00
0.00

5.88
11.76
11.76
0.00
11.76
5.88

17.65
0.00
5.88
23.53
23.53
23.53

2 years
(%)
5.88
17.65
11.76
23.53
23.53
29.41

1 year

0 years

0.00
5.88
0.00
29.41
11.76
23.53

52.94
47.06
52.94
17.65
29.41
17.65

Table 3.24: Crop Farms in the Bottom Third of Each Measure, 2005-2009
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
29.41
0.00
5.88
0.00
11.76
52.94
DTA
29.41
5.88
0.00
0.00
5.88
58.82
ATO
23.53
5.88
5.88
5.88
5.88
52.94
ROA
0.00
5.88
17.65
35.29
29.41
11.76
OPMR
5.88
11.76
11.76
17.65
29.41
23.53
NFI
5.88
11.76
11.76
23.53
17.65
29.41
Table 3.25: Crop Farms in the Top Third of Each Measure, 2006-2010
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
23.81
9.52
0.00
4.76
0.00
61.90
DTA
23.81
0.00
9.52
9.52
0.00
57.14
ATO
23.81
4.76
0.00
9.52
9.52
52.38
ROA
9.52
0.00
14.29
19.05
38.10
19.05
OPMR
9.52
4.76
9.52
19.05
33.33
23.81
NFI
0.00
14.29
9.52
23.81
33.33
19.05
Table 3.26: Crop Farms in the Bottom Third of Each Measure, 2006-2010
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
19.05
4.76
9.52
4.76
14.29
47.62
DTA
19.05
4.76
4.76
14.29
9.52
47.62
ATO
23.81
0.00
0.00
19.05
9.52
47.62
ROA
4.76
4.76
19.05
19.05
28.57
23.81
OPMR
4.76
0.00
23.81
19.05
33.33
19.05
NFI
4.76
4.76
19.05
19.05
28.57
23.81

!

60!

Table 3.27: Crop Farms in the Top Third of Each Measure, 2007-2011
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
21.05
5.26
5.26
5.26
5.26
57.89
DTA
21.05
5.26
5.26
5.26
5.26
57.89
ATO
21.05
5.26
5.26
5.26
5.26
57.89
ROA
0.00
10.53
10.53
31.58
21.05
26.32
OPMR
5.26
10.53
10.53
15.79
26.32
31.58
NFI
0.00
10.53
15.79
15.79
36.84
21.05
Table 3.28: Crop Farms in the Bottom Third of Each Measure, 2007-2011
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
15.79
15.79
0.00
0.00
15.79
52.63
DTA
15.79
5.26
10.53
5.26
15.79
47.37
ATO
21.05
0.00
5.26
5.26
26.32
42.11
ROA
5.26
5.26
10.53
15.79
47.37
15.79
OPMR
5.26
5.26
10.53
15.79
47.37
15.79
NFI
0.00
15.79
10.53
5.26
52.63
15.79
Table 3.29: Crop Farms in the Top Third of Each Measure, 2008-2012
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
22.73
0.00
4.55
9.09
13.64
50.00
DTA
13.64
9.09
13.64
4.55
4.55
54.55
ATO
13.64
18.18
0.00
9.09
0.00
59.09
ROA
0.00
4.55
27.27
13.64
31.82
22.73
OPMR
9.09
4.55
4.55
27.27
27.27
27.27
NFI
4.55
4.55
27.27
13.64
9.09
40.91
Table 3.30: Crop Farms in the Bottom Third of Each Measure, 2008-2012
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
27.27
0.00
0.00
4.55
13.64
54.55
DTA
13.64
13.64
4.55
9.09
4.55
54.55
ATO
18.18
4.55
4.55
13.64
9.09
50.00
ROA
4.55
0.00
18.18
27.27
27.27
22.73
OPMR
0.00
9.09
18.18
27.27
13.64
31.82
NFI
0.00
4.55
18.18
27.27
31.82
18.18

!

61!

3.1.2 Step Two
The five-year average for all nine measures was calculated for each dairy farm for every
panel. The five-year average for all six measures was calculated for each crop farm for every
panel. !!,! = Five-year average for an individual farm, where f is the financial measure
Thirds were computed across farms using the five-year average value for each farm.
Organize x! across farms into thirds
A t-test was conducted using Excel to test if there was a statistically significant difference
(p<0.10) between the top and bottom third for each measure.
X!,! = Sample mean for the top third
X!,! = Sample mean for the bottom third
H! :!X!,! = X!,! !
H! :!X!,! ≠ X!,! !
α = 0.10

t=

!!,! !!!,!
!!

!,! !!!,!

where, s!!,! !!!,! =

!!!,!
!!,!

+

!!!,!
!!,!

!.

The results revealed that there was a significant difference between the top and bottom
thirds for every financial measure for both the crop and dairy farms. This implies that a relative
farm ranking using a long-term average does have value and should be used when making
management decisions. Even for financial measures, such as ROA, OPMR, and NFI, which have
a lot of variability making it difficult to rank in the same third consistently, there was a
significant difference between the farms in the top and bottom thirds when using a five-year
average. While ranking in the bottom for just one year did not always provide enough

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62!

information for a producer to use to make a managerial decision, ranking in the bottom using a
five-year average does give them a lot of insight into farm performance.
3.1.3 Step Three
In order to examine the different characteristics of farms that were highly profitable and
those that were less profitable, the farms were organized into thirds based on their five-year
average ROA. Farms were organized into thirds based on x!,!"# . The first ROA third
represented the farms with the highest ROA. For each third, the average ROA of the farms was
recorded. Then, for the top ROA third, the average ATO, OPMR, DTA, CR, labor cost/cwt,
purchased feed cost/cwt, value of homegrown feed/cwt and NFI/cwt of the dairy farms was
recorded. This was repeated for the middle, and bottom thirds. The same process was repeated
for the crop farms, using CR, DTA, ATO, OPMR, and NFI/acre.

Z!,! = Sample mean for each f, where q = 1 (the top ROA third), 2 (the middle ROA third), or 3
(the bottom ROA third).
A t-test was conducted using Excel to see if there was a statistically significant (p<0.10)
difference between the financial performance measures of those farms in the top and bottom
ROA third.
H0 :!Z1,f !=!Z3,f !
H1 :!Z1,f! ≠!Z3,f !
α=0.10!
Z -Z3,f

t= s 1,f

Z1,f -Z3,f

!

s21,f

s23,f

where, sZ -Z =
+
.!
1,f 3,f
!1,f N3,f

63!

Dairy Farm Results
Based on the results in Tables 3.31-3.38, farms in the top and bottom third for ROA did
not have significantly different values for CR and DTA. This goes back to figures 2.6 and 2.8,
which show CR and DTA are similar across farms. Having a high CR or a low DTA does not
necessarily imply that a farm will be in the top ROA quartile. In the early panels (2001-2005,
2002-2006, 2003-2007), there was not a significant difference between the farms in the top and
bottom thirds for purchased feed cost. The difference in purchased feed cost between the top and
bottom thirds was significant in the later panels (2004-2008 and later). This shows that in recent
years, the least profitable farms have not been successful at controlling their feed costs relative to
the more profitable farms. Feed costs have become more important recently, as the margin
between milk income and feed price in the U.S. has gotten smaller and more volatile. Farms in
the top third tended to have a significantly higher ATO, OPMR, and NFI than the farms in the
bottom third for ROA. This conclusion was based on a t-test comparing the top and bottom thirds
at a 10% significance level. A farm that is not currently in the top ROA third could look at these
results and realize that maybe they need to also improve their OPMR and/or ATO in order to
obtain a higher ROA. If a farm was to only look at their relative ranking for one measure, ROA
would be a reasonable ratio to use. If the farm sees that they are not performing at a high enough
level with regards to ROA, they can then look at their relative ranking for ATO and OPMR.
Multiplying ATO and OPMR results in ROA and both were significantly different between the
farms in the top and bottom third for ROA. This will allow the farm to see if they have an
efficiency problem or a profit margin problem. Looking at their relative ranking for NFI would
also provide valuable insight.

!

64!

The results are consistent with Langemeier’s findings that there was a significant
difference in the characteristics of farms in the top and bottom quartiles for ROA.
Table 3.31: Summary Statistics of ROA Thirds, Dairy Farms, 2001-2005
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
9.19
5.06
0.93
0.00
(ratio)
CR
5.65
7.24
3.38
0.29
(%)
DTA
32.13
25.23
33.16
0.82
(%)
ATO
33.97
33.03
26.55
0.03
(%)
OPMR
24.17
16.22
1.46
0.00
NFI
($/cwt)
4.79
4.19
2.16
0.00
($/cwt)
Value of Homegrown Feed
3.41
5.17
6.13
0.01
($/cwt)
Purchased Feed Cost
3.55
3.69
3.87
0.26
($/cwt)
Labor Cost
3.76
4.54
4.59
0.04
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.32: Summary Statistics of ROA Thirds, Dairy Farms, 2002-2006
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
9.72
5.78
3.54
0.00
(ratio)
CR
9.78
4.50
6.55
0.47
(%)
DTA
30.80
29.63
25.08
0.27
ATO
(%)
34.64
32.14
27.90
0.03
(%)
OPMR
22.74
15.74
4.90
0.00
($/cwt)
NFI
4.47
3.91
2.48
0.01
($/cwt)
Value of Homegrown Feed
3.40
4.72
6.33
0.00
($/cwt)
Purchased Feed Cost
3.64
3.71
3.70
0.83
($/cwt)
Labor Cost
3.81
4.11
4.67
0.02
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.33: Summary Statistics of ROA Thirds, Dairy Farms, 2003-2007
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
11.14
6.71
2.61
0.00
(ratio)
CR
4.43
8.68
5.66
0.65
(%)
DTA
32.52
23.72
29.57
0.54
(%)
ATO
38.06
30.31
29.71
0.01
(%)
OPMR
29.96
22.16
8.34
0.00
($/cwt)
NFI
6.19
5.36
2.92
0.00
($/cwt)
Value of Homegrown Feed
4.78
6.74
7.13
0.04
Purchased Feed Cost
($/cwt)
4.05
3.90
4.27
0.52
($/cwt)
Labor Cost
3.64
4.00
4.90
0.00
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

!

65!

Table 3.34: Summary Statistics of ROA Thirds, Dairy Farms, 2004-2008
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
11.26
6.50
2.44
0.00
(ratio)
CR
10.16
4.00
10.55
0.95
(%)
DTA
30.60
23.86
29.72
0.86
(%)
ATO
39.01
27.97
28.51
0.00
(%)
OPMR
29.82
23.10
8.76
0.00
NFI
($/cwt)
6.24
6.25
2.63
0.00
($/cwt)
Value of Homegrown Feed
5.23
10.89
8.26
0.00
($/cwt)
Purchased Feed Cost
4.22
4.38
4.93
0.03
($/cwt)
Labor Cost
3.86
3.98
5.09
0.01
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.35: Summary Statistics of ROA Thirds, Dairy Farms, 2005-2009
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
9.66
4.90
1.67
0.00
(ratio)
CR
9.52
5.00
8.64
0.89
(%)
DTA
25.94
30.22
27.27
0.74
(%)
ATO
33.60
27.16
27.67
0.05
(%)
OPMR
28.88
15.78
4.49
0.00
($/cwt)
NFI
6.25
4.05
1.83
0.00
Value of Homegrown Feed
($/cwt)
6.72
7.64
10.52
0.03
($/cwt)
Purchased Feed Cost
4.31
4.16
5.19
0.01
($/cwt)
Labor Cost
3.96
3.87
5.15
0.02
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.36: Summary Statistics of ROA Thirds, Dairy Farms, 2006-2010
ROA Third
Top
Middle
Bottom p-value
(%)
ROA
8.70
4.63
1.35
0.00
CR
5.61
10.07
3.72
0.27
(%)
DTA
28.51
25.88
27.46
0.82
ATO
(%)
33.88
25.69
24.03
0.00
(%)
OPMR
25.75
16.90
6.92
0.00
($/cwt)
NFI
4.99
3.96
2.26
0.01
($/cwt)
Value of Homegrown Feed
6.38
8.51
13.71
0.02
($/cwt)
Purchased Feed Cost
4.31
4.20
5.29
0.02
($/cwt)
Labor Cost
3.62
3.88
4.55
0.00
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

!

66!

Table 3.37: Summary Statistics of ROA Thirds, Dairy Farms, 2007-2011
ROA Third
Top
Middle
Bottom p-value
(%)
ROA
9.57
5.95
1.76
0.00
(ratio)
CR
6.84
6.22
4.59
0.32
(%)
DTA
29.08
27.52
24.89
0.40
(%)
ATO
32.74
29.95
25.21
0.01
(%)
OPMR
29.17
19.56
5.27
0.00
NFI
($/cwt)
6.51
4.23
2.30
0.00
($/cwt)
Value of Homegrown Feed
10.04
10.35
12.07
0.36
($/cwt)
Purchased Feed Cost
4.83
4.72
5.56
0.11
($/cwt)
Labor Cost
3.76
4.11
4.22
0.16
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.38: Summary Statistics of ROA Thirds, Dairy Farms, 2008-2012
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
8.20
5.44
0.48
0.00
(ratio)
CR
6.74
5.15
11.75
0.40
(%)
DTA
27.35
26.44
26.80
0.92
(%)
ATO
30.97
27.77
25.53
0.08
(%)
OPMR
28.02
18.59
(0.09)
0.00
($/cwt)
NFI
5.84
4.51
1.00
0.00
Value of Homegrown Feed
($/cwt)
10.17
10.69
13.93
0.10
($/cwt)
Purchased Feed Cost
5.01
4.70
6.06
0.03
($/cwt)
Labor Cost
3.81
3.94
4.47
0.11
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Crop Farm Results
Based on the results in Tables 3.39 – 3.45, crop farms in the top and bottom third for
ROA did not have significantly different CR and DTA (p>.10). This is consistent with the dairy
farm results. In the later panels, tables 3.42 – 3.45, OPMR and NFI were not statistically
significant between the top and bottom thirds. The difference between the ATO for the top and
bottom thirds was only significant in table 3.39, 3.41, and 3.45. These results did not align with
the dairy farm results. The analysis of the crop farms suggests that in recent years there was no
real difference between farms in the top and bottom thirds for ROA. However, the small number
of farms in each panel (n<30) may have affected these results.

!

67!

Table 3.39: Summary Statistics of ROA Thirds, Crop Farms, 2002-2006
ROA Third
Top
Middle Bottom p-value
ROA
(%)
9.88
4.78
0.12
0.00
CR
(ratio)
3.94
5.29
8.76
0.30
DTA
(%)
25.45
22.66
16.68
0.31
ATO
(%)
41.89
21.17
14.44
0.07
OPMR
(%)
35.45
32.84 (10.29)
0.01
NFI
($/acre operated)
187.37
148.04
35.22
0.01
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.40: Summary Statistics of ROA Thirds, Crop Farms, 2003-2007
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
11.84
4.92
0.33
0.00
CR
(ratio)
3.78
6.90
9.95
0.20
DTA
(%)
26.07
27.26
21.16
0.60
ATO
(%)
40.49
26.21
24.34
0.15
OPMR
(%)
47.02
23.63
(12.14)
0.00
NFI
($/acre operated)
251.76
125.82
39.90
0.00
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.41: Summary Statistics of ROA Thirds, Crop Farms, 2004-2008
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
13.46
7.16
2.38
0.00
CR
4.77
4.67
12.24
0.13
DTA
(%)
19.84
31.01
12.58
0.39
ATO
(%)
48.63
25.54
23.55
0.08
OPMR
(%)
45.82
34.00
8.93
0.01
NFI
($/acre operated)
242.23
179.58
114.46
0.08
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.42: Summary Statistics of ROA Thirds, Crop Farms, 2005-2009
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
10.67
6.84
1.82
0.00
CR
(ratio)
6.76
6.22
14.01
0.27
DTA
(%)
15.96
26.50
18.78
0.79
ATO
(%)
38.68
23.89
33.41
0.73
OPMR
(%)
39.47
35.13
22.88
0.22
NFI
($/acre operated)
228.55
181.58
133.33
0.19
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
!

68!

Table 3.43: Summary Statistics of ROA Thirds, Crop Farms, 2006-2010
ROA Third
Top
Middle
Bottom p-value
ROA
(%)
11.78
6.87
2.83
0.00
CR
(ratio)
4.47
3.45
10.17
0.14
DTA
(%)
24.56
36.49
15.67
0.37
ATO
(%)
40.59
36.11
30.44
0.48
OPMR
(%)
37.94
22.94
11.73
0.11
NFI
($/acre operated)
133.86
186.06
117.14
0.78
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.44: Summary Statistics of ROA Thirds, Crop Farms, 2007-2011
ROA Third
Top
Middle
Bottom
ROA
(%)
11.47
7.83
2.19
CR
(ratio)
5.94
4.91
11.38
DTA
(%)
30.00
31.43
17.37
ATO
(%)
53.96
29.81
27.64
OPMR
(%)
24.67
27.16
18.07

p-value
0.00
0.30
0.25
0.10
0.76

NFI
($/acre operated)
183.43
249.52
55.60
0.24
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table 3.45: Summary Statistics of ROA Thirds, Crop Farms, 2008-2012
ROA Third
Top
Middle
Bottom
p-value
ROA
(%)
11.93
7.92
4.13
0.00
CR
(ratio)
10.09
3.43
5.48
0.31
DTA
(%)
25.07
38.42
34.78
0.40
ATO
(%)
48.60
35.28
17.76
0.02
OPMR
(%)
27.41
23.07
23.58
0.63
NFI
($/acre operated)
275.63
238.36
62.55
0.09
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
3.1.4 Management Implications
The results of the Stability Across Farms steps reveal that it was difficult for a farm to
consistently rank in the top third for a given performance measure from year to year. However,
over a period of time it was possible for a farm to distinguish itself as a top performer. If a farm
manager is using their relative ranking to make future plans, it is important that they do not base

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69!

their decision on their performance for a single year for measures that are not asset driven, as
they are too variable. Using their long-run average, even for asset-driven measures, can provide
valuable insight into how the farm has been performing relative to others. Farm managers can
use their long-run performance to determine areas where they need to improve their management
strategy and areas where they are doing well. This will help the producer plan for the future.
The results of Model 1: Stability Across Farms for steps 1-3 were consistent with the
results when the farms were ranked into quartiles, as shown in Appendix A.
3.2 Model 2: Ranking Farms
Tone of the primary questions this thesis set out to answer is, "how many years of data
are necessary to accurately classify a farm as performing in the top, middle, or bottom relative to
other farms?" By using Model 2: Ranking Farms, industry fluctuations in the milk and feed
prices are accounted for because the model is simply determining how farms performed relative
to one another in a given year. This model reveals how many years of data a farm should use in
order to predict its true performance relative to other farms.
If a farm manager is going to make management decisions based on their ranking relative
to other farms for a financial performance measure, they need to know that the value they are
using represents their performance over time. As seen in Model 1: Stability Across Farms there
was a lot of variation in financial performance measures from year to year making it difficult for
producers to form a conclusion on their performance using one-year of data. It is important that
the farm manager base their decisions on their long-run performance. Model 1: Stability Across
Farms revealed that farms that perform well over a given period have significantly different
characteristics than those who perform poorly. Over time, a farm can distinguish itself as a top
performer. This means that benchmarking has a purpose and can provide farms with an

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70!

assessment of their strengths and weaknesses so long as the benchmarks and the farm financial
performance measure are calculated using a long-term average. As most individual farms do not
have data for every year they have been in business, farm managers would want to know how
many years of data they need to estimate their long-run performance with a high degree of
certainty. This is what Model 2: Ranking Farms reveals. In the future, simulations can be run to
estimate the benchmarks for each performance measure that a farm should compare their
performance to.
A balanced panel of dairy farms with data for all ten years between 2002 and 2011 was
used (n=41) for the analysis. A ten-year average was calculated for each farm for each of the
nine benchmarking measures. This was considered to be a farm’s true performance for each
measure. Then the farms were separated into thirds. Using 2002 as the one-year data, the farms
were again organized into thirds. Then, these rankings were compared with the rankings using
the ten-year data to determine the percentage of farms that were put into the correct third. This
was then continued using 2002 and 2003 as the two-year average data, and so on until 2002
through 2010 was used as the nine-year average data. This was done to determine how many
years of data are necessary until the true underlying effects and not random effects are observed.

!! = Number of farms ranked correctly, where t = 1, 2, 3, 4, 5, 6, 7, 8, or 9-year average.
!!
!

= % Correct for that year, where N=the number of farms.
This was repeated using a seven-year average as the true distribution in order to compare

with the previous method using the ten-year average as the true distribution. First, a balanced
panel from 2001-2007 (n=61) was used. Then the process was repeated using a second balanced
panel from 2006-2012 (n=51). Comparisons can be made between the two sets as one set is more
recent and includes 2009, which was a poor economic year for dairy farms.

!

71!

The same process was used to analyze the crop farms. Data from a balanced panel (n=22)
of crop farms from 2008-2012 was used. The five-year average 2008-2012 was used as the
farm’s true performance for each measure. The measures included in the analysis were CR, DTA,
ROA ATO, OPMR, and NFI ($/acre operated).
3.2.1 Model 2: Ranking Farms-Results
Dairy Farm Results
Comparing table 3.54 to table 3.55, the impact of 2009 is evident. Farms were ranked
correctly less often in terms of ATO, OPMR, and NFI when 2009 was included in the dataset.
For both panels, more than 60% of farms were placed into the correct third for each financial
performance measure using a four-year average.
Table 3.46: Dairy Farms Accurately Ranked into Thirds Using a 7-Year Average as an
Estimate of the True Distribution (2001-2007)
2 year
3 year
4 year
5 year
6 year
1 year
average
average
average
average
average
(%)
CR
71.70
69.81
73.58
73.58
81.13
92.45
72.13
70.49
77.05
86.89
90.16
93.44
DTA
80.33
83.61
86.89
93.44
93.44
96.72
ATO
ROA
50.85
54.24
71.19
77.97
71.19
86.44
55.74
63.93
73.77
77.05
83.61
93.44
OPMR
67.21
70.49
73.77
83.61
83.61
80.33
NFI
Value of
Homegrown
52.46
49.18
49.18
63.93
80.33
86.89
Feed
Purchased
70.49
77.05
80.33
86.89
86.89
93.44
Feed Cost
Labor Cost
60.66
67.21
73.77
83.61
83.61
93.44

!

72!

Table 3.47: Dairy Farms Accurately Ranked into Thirds Using a 7-Year Average as an
Estimate of the True Distribution (2006-2012)
2 year
3 year
4 year
5 year
6 year
1 year
average
average
average
average
average
(%)
CR
82.35
80.39
80.39
88.24
92.16
96.08
82.35
84.31
84.31
92.16
92.16
92.16
DTA
60.78
72.55
76.47
72.55
88.24
88.24
ATO
ROA
52.94
58.82
72.55
80.39
76.47
92.16
50.98
58.82
60.78
74.51
84.31
92.16
OPMR
43.14
64.71
68.63
66.67
72.55
88.24
NFI
Value of
Homegrown
80.39
84.31
84.31
84.31
88.24
100.00
Feed
Purchased
64.71
70.59
78.43
84.31
88.24
88.24
Feed Cost
74.51
70.59
80.39
72.55
80.39
88.24
Labor Cost
Using a ten-year average as the true value for a given measure, it was clear that using
even two years of data was better than using one year of data. Farms were placed in the correct
third over 50% of the time when using a two year average for all measures analyzed except the
value of homegrown feed. For DTA and purchased feed cost/cwt the farm was correct over 80%
of the time with a two-year average. For ROA the percentage of farms ranked correctly increased
by 24% when using two years of data. Using a three year average resulted in an increased
probability of a correct benchmark for ROA, ATO, DTA, labor cost/cwt and purchased feed
cost/cwt. OPMR and CR both correctly benchmark farms about 15% better when using a fouryear average compared to a three-year average. NFI is the least predictable measure to
benchmark, as it only reaches a high of 85% of farms being ranked correctly. Langemeier and
Yeager (2009) found that farms stabilized more often when benchmarking OPMR compared to
ATO. This is in contrast to the results of Model 2: Ranking Farms. Farms were ranked correctly
more often using ATO than when using OPMR. It is expected that ATO would be more stable
than OPMR because a farm’s assets are assumed to remain relatively unchanged from year to

!

73!

year, whereas profit margin is extremely variable from year to year. Examining table 3.56, if the
ten-year average was considered true, using a four-year average for all measures a farm resulted
in a farm being placed in the correct third, 58-85% of the time. Compared to the current system
of benchmarking using one year of data and only being correct 15-78% of the time depending on
the measure, 58-85% accuracy is desirable. Of the 291 dairy farms in the data set, 55% had four
or more years of data.
If 75% is the desired level of accuracy when benchmarking, table 3.56 can be used to
determine the number of years needed to benchmark each financial performance measure. A
four-year average is necessary for CR, DTA only needs one year of data, purchased feed cost
needs a two-year average, ATO and labor cost need a three-year average, a five-year average is
needed for ROA, a six-year average needed for homegrown fed and a seven-year average is
necessary for OPMR and NFI. As seen in tables 3.54-3.56, the number of years that should be
used for benchmarking performance depends on the measure being analyzed and how accurate
the farm wishes to be.

!

74!

Table 3.48: Dairy Farms Accurately Ranked into Thirds Using a 10-Year Average as an Estimate of the True Distribution
(2002-2011)
2 year
3 year
4 year
5 year
6 year
7 year
8 year
9 year
1 year
average
average
average
average
average
average
average
average
(%)
CR
65.79
60.53
60.53
76.32
71.05
73.68
84.21
89.47
100.00
78.05
82.93
85.37
85.37
80.49
85.37
90.24
95.12
100.00
DTA
58.54
65.85
75.61
75.61
80.49
90.24
90.24
95.12
95.12
ATO
ROA
36.59
60.98
68.29
70.73
78.05
75.61
80.49
85.37
95.12
56.10
56.10
53.66
68.29
68.29
70.73
75.61
90.24
95.12
OPMR
56.10
56.10
51.22
58.54
56.10
65.85
80.49
85.37
80.49
NFI
Value of
Homegrown
15.38
35.90
46.15
58.97
69.23
82.05
89.74
89.74
89.74
Feed
Purchased Feed
Cost
Labor Cost

!

73.17

80.49

82.93

82.93

82.93

80.49

85.37

90.24

100.00

65.85

70.73

75.61

75.61

80.49

85.37

85.37

95.12

100.00

75!

Crop Farm Results
The crop results show that all measures except ROA and OPMR were accurately ranked
more than two-thirds of the time using one year. These results may be skewed due to the small
sample size (n=22). The sample may not be an accurate representation of all Michigan crop
farms. A five-year average was used as the true distribution, which is likely different than the
farms actual long-run average. Although the number of years of data needed to obtain an
accurate reflection of a farm’s true long-term performance may not be the same as what these
results revealed, they did were consistent with the results of the study. The profitability measures
needed more years of data than the asset driven measures to be ranked correctly 75% of the time
(table 3.57).
Table 3.49: Crop Farms Accurately Ranked into Thirds Using a 5-Year
Average as an Estimate of the True Distribution (2008-2012)
1 year
CR
DTA
ATO
ROA
OPMR
NFI

2 year average

72.73
81.82
81.82
54.55
31.82
68.18

68.18
81.82
81.82
54.55
54.55
54.55

3 year average
(%)
77.27
81.82
90.91
63.64
54.55
63.64

4 year average
77.27
81.82
90.91
77.27
72.73
81.82

3.2.2 Implications
These results can be used by farm managers to determine the number of years of data
needed to calculate an estimate of their long-run average for each financial performance measure.
They can then use these long-run values to compare their performance to other farms. When
farms use only one year of data to analyze their relative performance, they are not necessarily
obtaining a full understanding of how their management strategies are working long-term. It is
important to understand how their farm performed throughout the past year, but also how this
relates to their long-term performance.
!

76!

3.3 Model 3: Estimation of Sources of Variation
In order to determine the number of years of data needed when benchmarking, it is
necessary to understand the sources and extent of variation that describe Michigan dairy and crop
farm financial performance. One approach is to model variation in observed annual farm
financial performance as the result of the underlying, but unknown, mean farm performance, a
common annual effect across farms, and annual farm specific idiosyncratic variation. Common
sources of variation across farms are called systemic risk and are the result of factors such as a
common market price. This static model can be described by:
y!" = !! + θ! + ε!" for i=1,…,N and t=1,…,T
where:
y!" : is observed performance for firm i for a financial measure, y, in year t,
!! : is the mean value of the financial measure for firm i,
θ! : is common, annual, systemic source of variation across firms in year t (normalized to have
mean zero), and
ε!" : is idiosyncratic, firm specific variation associated with firm i.
If all variation were common across all farms, then only one year of data would be
sufficient to accurately rank farms. However, if some of the variation is firm specific, multiple
years of data are needed to accurately rank farm performance. Thus, estimation of the
magnitudes of variation helps in understanding the reported results and to support subsequent
Monte Carlo simulations to refine classification rules. The results of this future analysis will
provide producers, farm management groups and lenders with a complete picture of how to
change the benchmarking process. The new benchmarking process will result in an accurate
ranking of a farm’s true long-run performance independent of any common, systemic variation.

!

77!

The variance parameters were estimated for ROA, OPMR, and ATO using ordinary least
squares to estimate the model described:

!! : Average firm effect
σ!,! : Distribution of firm effects
σ!"#$ : Distribution of year effects, systemic source of variation
σ!!,! : Distribution of random events given firm and year, idiosyncratic source of variation
Tables 3.50 – 3.53 describe the parameter estimates for different panels. The variance
estimates for the 2001-2007 and 2006-2012 dairy panels are similar for their common measures.
But, on a relative basis there were some large differences across panels. While the coefficient of
variation (CV) of idiosyncratic variation was 92% to 96% for ROA, the CV of OPMR was 58%
in the 2001-2007 and 169% in the 2006-2012 panel. The respective CV’s for ATO are 31% and
19%. While average OPMR’s and ATO’s were very different for each of the panels, their net
effect on rate of return resulted in similar performance across panels.
The CV of idiosyncratic variation of ROA for crop farms for the 2008-2012 panel was
74%, lower than the 2006-2012 dairy panel.
Table 3.50: Estimation of Parameters, Dairy Farms, 7-Year Panel, 2001-2007
y
ROA
OPMR
ATO

!!

6.13
32.77
17.47

σ!,!

σ!"#$

σ!!,!

3.01
10.19
2.91

1.04
3.45
0.99

5.64
19.06
5.44

σ!"!#$
6.59
22.03
11.74

Table 3.51: Estimation of Parameters, Dairy Farms, 7-Year Panel, 2006-2012
y
ROA
OPMR
ATO

!

!!

5.45
18.01
28.71

σ!,!

σ!"#$

σ!!,!

2.78
10.91
2.66

1.02
4.00
0.98

5.21
20.42
4.97

78!

σ!"!#$
6.62
24.44
10.21

Table 3.52: Estimation of Parameters, Dairy Farms, 10-Year Panel, 2002-2011
y
ROA
OPMR
ATO

!!

5.58
16.61
30.59

σ!,!

σ!"#$

σ!!,!

2.66
9.17
2.59

1.31
4.53
1.28

5.94
20.50
5.79

σ!"!#$
6.99
23.34
10.44

Table 3.53: Estimation of Parameters, Crop Farms, 5-Year Panel, 2008-2012
y
ROA
OPMR
ATO

!

!!

7.80
22.72
33.45

σ!,!

σ!"#$

σ!!,!

3.64
5.94
12.03

1.78
2.83
6.01

5.75
9.39
19.02

79!

σ!"!#$
6.70
20.38
20.48

Chapter 4-Conclusions
In conclusion, chapter 2 showed that there is a great deal of variation in financial
performance measures from year to year for both dairy and crop farms. This in turn means that in
order to use long-term averages to rank farms, year effects should be controlled. When ranking
farms, the industry effect is not of interest. Rather, the firm’s performance aside from the
industry effect is what a producer is interested in using when ranking its performance relative to
other farms.
It was difficult for farms to consistently rank in the top third. Asset driven performance
measures were less variable then income and profitability measures. The rankings across farms
were more stable for DTA, ATO, and CR, so a change in the third a farm is ranked in from one
year to the next is a significant event that the producer should assess.
Using a five-year average, the top and bottom thirds were significantly different for each
financial measure for both crop and dairy farms. Farms that were highly profitable over a fiveyear period had different characteristics than farms that were less profitable. Farms in the top
third tended to have a significantly higher ATO, OPMR, and NFI than the farms in the bottom
third for ROA.
Many farms were placed in the wrong third when only one year of data was used. There
was evidence that using multiple years of data over time would provide a better estimation of the
farm’s performance. 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. The crop farms showed a similar trend
to the dairy farms, with producers needing to use data over a longer period when ranking their
performance for profitability measures than for asset driven measures. One limitation of this

!

80!

analysis might be the small sample size. In the future it would be beneficial to repeat this study
using a larger sample.
Future research is necessary to determine a more accurate estimation of the true
underlying distribution for each financial performance measure for the industry and also to
estimate the long-run average for each measure for an individual farm. Simulations should be
used to estimate the true distribution for each financial performance measure for the industry.
The results of Model 3: Estimation of Sources of Variation can be used as the parameters for
running a Monte Carlo simulation. This will result in a method for ranking farms independent of
industry effects for a given year.
For this study, when ranking farms, thirds were used. However, if the last farm in the top
third and the first farm in the second third do not significantly differ, the third they are ranked in
does not provide insight. Instead, future research should look at using critical values to place
farms into a certain bin. Using this method the farms would not be split evenly amongst the three
bins.
Farm management groups and University Extension personnel can use the results of this
thesis in combination with the results of the future simulations to provide farm managers with a
better method for obtaining their relative ranking. At the moment, farm managers could calculate
their five-year average for a given measure provided they have recorded data over the past five
years. However, they do not have access to the dataset they need to use to compare their
performance. This also means that benchmarking reports should report longer-run performance
measures.
Lenders can also use the results of this thesis in order to better evaluate a farm when
deciding whether or not to give a producer a loan. The results of this study revealed that using

!

81!

only a couple years of past data does not accurately reflect a farm’s long-term performance.
Creditors often project how a farm will perform in the next few years. This study showed that if
an average of the farm’s performance over a period of time is used, creditors could obtain an
estimate of the farm’s true long-run performance. This in combination with forward projections
would provide creditors with a more complete picture of a farm’s past performance and future
outlook.

!

82!

APPENDICES

!

83!

Appendix A
Model 1: Stability Across Years with Results in Quartiles
Step One: Dairy Farm Results
Table A.1: Dairy Farms in the Top Quartile of Each Measure, 2001-2005
5 years 4 years 3 years 2 years 1 year
0 years
(%)
9.21
5.26
9.21
7.89
14.47
53.95
CR
14.47
6.58
2.63
6.58
5.26
64.47
DTA
11.84
10.53
2.63
5.26
5.26
64.47
ATO
0.00
5.26
10.53
22.37
27.63
34.21
ROA
0.00
6.58
13.16
14.47
30.26
35.53
OPMR
2.63
10.53
5.26
14.47
25.00
42.11
NFI
Value of
2.63
2.63
18.42
14.47
17.11
44.74
Homegrown Feed
Purchased Feed
9.21
9.21
3.95
7.89
14.47
55.26
Cost
5.26
11.84
5.26
9.21
17.11
51.32
Labor Cost
Table A.2: Dairy Farms in the Bottom Quartile of Each Measure, 2001-2005
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
7.89
6.58
5.26
15.79
11.84
52.63
17.11
5.26
2.63
2.63
5.26
67.11
DTA
10.53
5.26
7.89
9.21
9.21
57.89
ATO
1.32
3.95
10.53
19.74
31.58
32.89
ROA
1.32
3.95
13.16
22.37
18.42
40.79
OPMR
3.95
9.21
3.95
17.11
22.37
43.42
NFI
Value of
3.95
5.26
7.89
36.84
17.11
28.95
Homegrown Feed
Purchased Feed
10.53
6.58
3.95
7.89
18.42
52.63
Cost
9.21
3.95
5.26
17.11
13.16
51.32
Labor Cost

!

84!

Table A.3: Dairy Farms in the Top Quartile of Each Measure, 2002-2006
5 years 4 years 3 years 2 years 1 year
0 years
(%)
8.57
10.00
5.71
7.14
14.29
54.29
CR
15.71
4.29
7.14
2.86
5.71
64.29
DTA
ATO
ROA
OPMR
NFI
Value of
Homegrown Feed
Purchased Feed
Cost
Labor Cost

15.71
1.43
1.43

4.29
4.29
5.71

4.29
14.29
11.43

5.71
12.86
17.14

8.57
35.71
30.00

61.43
31.43
34.29

2.86

7.14

8.57

18.57

22.86

40.00

1.43

8.57

17.14

10.00

15.71

47.14

7.14

10.00

8.57

7.14

12.86

54.29

12.86

4.29

7.14

5.71

14.29

55.71

Table A.4: Dairy Farms in the Bottom Quartile of Each Measure, 2002-2006
5 years 4 years 3 years 2 years 1 year
0 years
(%)
8.57
7.14
8.57
10.00
11.43
54.29
CR
14.29
8.57
2.86
2.86
8.57
62.86
DTA

!

ATO
ROA

10.00
0.00

7.14
4.29

7.14
12.86

10.00
21.43

8.57
30.00

57.14
31.43

OPMR
NFI
Value of
Homegrown Feed
Purchased Feed
Cost
Labor Cost

1.43
2.86

4.29
7.14

12.86
7.14

20.00
18.57

25.71
27.14

35.71
37.14

5.71

2.86

11.43

24.29

22.86

32.86

11.43

4.29

5.71

8.57

20.00

50.00

10.00

7.14

8.57

5.71

12.86

55.71

85!

Table A.5: Dairy Farms in the Top Quartile of Each Measure, 2003-2007
5 years 4 years 3 years 2 years 1 year
0 years
(%)
8.22
12.33
4.11
10.96
5.48
58.90
CR
17.81
5.48
2.74
2.74
5.48
65.75
DTA
12.33
5.48
6.85
8.22
9.59
57.53
ATO
1.37
10.96
6.85
13.70
31.51
35.62
ROA
2.74
5.48
9.59
19.18
27.40
35.62
OPMR
2.74
9.59
6.85
16.44
24.66
39.73
NFI
Value of
4.11
15.07
5.48
8.22
16.44
50.68
Homegrown Feed
Purchased Feed
9.59
6.85
8.22
5.48
19.18
50.68
Cost
Labor Cost
13.70
2.74
8.22
8.22
9.59
57.53
Table A.6: Dairy Farms in the Bottom Quartile of Each Measure, 2003-2007
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
10.96
8.22
4.11
8.22
13.70
54.79
17.81
5.48
2.74
2.74
5.48
65.75
DTA
10.96
4.11
9.59
10.96
8.22
56.16
ATO
0.00
6.85
16.44
13.70
26.03
36.99
ROA
0.00
6.85
13.70
16.44
28.77
34.25
OPMR
2.74
5.48
12.33
15.07
27.40
36.99
NFI
Value of
1.37
13.70
8.22
8.22
28.77
39.73
Homegrown Feed
Purchased Feed
8.22
6.85
8.22
6.85
23.29
46.58
Cost
12.33
8.22
1.37
9.59
12.33
56.16
Labor Cost
Table A.7: Dairy Farms in the Top Quartile of Each Measure, 2004-2008
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
9.72
4.17
11.11
6.94
12.50
55.56
16.67
5.56
2.78
4.17
2.78
68.06
DTA
12.50
5.56
8.33
1.39
12.50
59.72
ATO
2.78
8.33
5.56
15.28
30.56
37.50
ROA
1.39
4.17
12.50
18.06
27.78
36.11
OPMR
2.78
5.56
8.33
19.44
25.00
38.89
NFI
Value of
12.50
4.17
8.33
6.94
6.94
61.11
Homegrown Feed
Purchased Feed
6.94
9.72
2.78
12.50
18.06
50.00
Cost
11.11
5.56
2.78
11.11
16.67
52.78
Labor Cost

!

86!

Table A.8: Dairy Farms in the Bottom Quartile of Each Measure, 2004-2008
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
12.50
2.78
9.72
4.17
13.89
56.94
18.06
1.39
5.56
4.17
4.17
66.67
DTA
11.11
8.33
2.78
11.11
5.56
61.11
ATO
2.78
4.17
9.72
16.67
31.94
34.72
ROA
2.78
2.78
13.89
9.72
38.89
31.94
OPMR
2.78
5.56
8.33
18.06
27.78
37.50
NFI
Value of
5.56
11.11
11.11
2.78
13.89
55.56
Homegrown Feed
Purchased Feed
8.33
8.33
4.17
9.72
18.06
51.39
Cost
12.50
2.78
8.33
8.33
9.72
58.33
Labor Cost
Table A.9: Dairy Farms in the Top Quartile of Each Measure, 2005-2009
5 years 4 years 3 years 2 years 1 year
0 years
(%)
7.04
8.45
7.04
9.86
16.90
50.70
CR
15.49
4.23
5.63
4.23
7.04
63.38
DTA
11.27
9.86
2.82
2.82
16.90
56.34
ATO
1.41
8.45
11.27
9.86
32.39
36.62
ROA
0.00
8.45
5.63
23.94
28.17
33.80
OPMR
1.41
5.63
9.86
22.54
22.54
38.03
NFI
Value of
8.45
11.27
4.23
4.23
18.31
53.52
Homegrown Feed
Purchased Feed
5.63
9.86
8.45
4.23
25.35
46.48
Cost
5.63
9.86
7.04
5.63
26.76
45.07
Labor Cost
Table A.10: Dairy Farms in the Bottom Quartile of Each Measure, 2005-2009
5 years 4 years 3 years 2 years 1 year
0 years
(%)
7.04
11.27
7.04
7.04
11.27
56.34
CR
15.49
5.63
4.23
4.23
5.63
64.79
DTA
11.27
5.63
9.86
4.23
9.86
59.15
ATO
0.00
5.63
14.08
16.90
28.17
35.21
ROA
1.41
2.82
11.27
19.72
35.21
29.58
OPMR
0.00
8.45
8.45
16.90
33.80
32.39
NFI
Value of
7.04
11.27
4.23
8.45
16.90
52.11
Homegrown Feed
Purchased Feed
7.04
4.23
7.04
15.49
22.54
43.66
Cost
Labor Cost
4.23
12.68
7.04
5.63
22.54
47.89

!

87!

Table A.11: Dairy Farms in the Top Quartile of Each Measure, 2006-2010
5 years 4 years 3 years 2 years 1 year
0 years
(%)
6.45
6.45
8.06
16.13
14.52
48.39
CR
16.13
3.23
8.06
4.84
1.61
66.13
DTA
ATO
11.29
8.06
4.84
6.45
12.90
56.45
3.23
6.45
9.68
17.74
22.58
40.32
ROA
4.84
6.45
4.84
20.97
22.58
40.32
OPMR
1.61
6.45
8.06
22.58
25.81
35.48
NFI
Value of
8.06
14.52
1.61
3.23
19.35
53.23
Homegrown Feed
Purchased Feed
4.84
8.06
9.68
12.90
17.74
46.77
Cost
4.84
11.29
3.23
12.90
24.19
43.55
Labor Cost
Table A.12: Dairy Farms in the Bottom Quartile of Each Measure, 2006-2010
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
12.90
4.84
4.84
11.29
8.06
58.06
16.13
3.23
6.45
4.84
6.45
62.90
DTA
12.90
3.23
8.06
9.68
8.06
58.06
ATO
0.00
8.06
6.45
25.81
25.81
33.87
ROA
0.00
4.84
9.68
24.19
32.26
29.03
OPMR
0.00
4.84
8.06
29.03
27.42
30.65
NFI
Value of
6.45
8.06
11.29
8.06
14.52
51.61
Homegrown Feed
Purchased Feed
8.06
1.61
11.29
16.13
16.13
46.77
Cost
Labor Cost
3.23
8.06
9.68
17.74
16.13
45.16
Table A.13: Dairy Farms in the Top Quartile of Each Measure, 2007-2011
5 years 4 years 3 years 2 years 1 year
0 years
(%)
4.92
8.20
8.20
14.75
19.67
44.26
CR
18.03
3.28
4.92
4.92
3.28
65.57
DTA
11.48
6.56
4.92
11.48
9.84
55.74
ATO
0.00
6.56
9.84
21.31
32.79
29.51
ROA
0.00
9.84
9.84
14.75
32.79
32.79
OPMR
1.64
8.20
9.84
18.03
24.59
37.70
NFI
Value of
6.56
9.84
8.20
9.84
14.75
50.82
Homegrown Feed
Purchased Feed
6.56
4.92
9.84
14.75
19.67
44.26
Cost
6.56
8.20
8.20
9.84
21.31
45.90
Labor Cost

!

88!

Table A.14: Dairy Farms in the Bottom Quartile of Each Measure, 2007-2011
5 years 4 years 3 years 2 years 1 year
0 years
(%)
6.56
9.84
11.48
8.20
8.20
55.74
CR
14.75
6.56
6.56
1.64
8.20
62.30
DTA
9.84
6.56
6.56
13.11
9.84
54.10
ATO
1.64
1.64
13.11
24.59
27.87
31.15
ROA
1.64
1.64
11.48
27.87
26.23
31.15
OPMR
0.00
1.64
13.11
24.59
36.07
24.59
NFI
Value of
6.56
8.20
8.20
8.20
24.59
44.26
Homegrown Feed
Purchased Feed
6.56
6.56
9.84
14.75
13.11
49.18
Cost
1.64
8.20
14.75
11.48
22.95
40.98
Labor Cost
Table A.15: Dairy Farms in the Top Quartile of Each Measure, 2008-2012
5 years 4 years 3 years 2 years 1 year
0 years
(%)
9.09
5.45
5.45
16.36
10.91
52.73
CR
16.36
7.27
1.82
1.82
7.27
65.45
DTA
10.91
3.64
7.27
14.55
7.27
56.36
ATO
0.00
3.64
12.73
25.45
23.64
34.55
ROA
1.82
9.09
9.09
12.73
29.09
38.18
OPMR
1.82
9.09
10.91
12.73
23.64
41.82
NFI
Value of
7.27
7.27
10.91
5.45
18.18
50.91
Homegrown Feed
Purchased Feed
5.45
5.45
7.27
18.18
20.00
43.64
Cost
Labor Cost
7.27
7.27
5.45
12.73
20.00
47.27
Table A.16: Dairy Farms in the Bottom Quartile of Each Measure, 2008-2012
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
3.64
18.18
5.45
5.45
9.09
58.18
14.55
3.64
7.27
7.27
3.64
63.64
DTA
9.09
7.27
9.09
3.64
18.18
52.73
ATO
3.64
3.64
9.09
20.00
27.27
36.36
ROA
3.64
3.64
7.27
21.82
29.09
34.55
OPMR
1.82
1.82
16.36
16.36
29.09
34.55
NFI
Value of
7.27
5.45
9.09
9.09
23.64
45.45
Homegrown Feed
Purchased Feed
9.09
5.45
7.27
10.91
16.36
50.91
Cost
3.64
7.27
14.55
5.45
25.45
43.64
Labor Cost

!

89!

Step 1: Crop Farm Results
Table A.17: Crop Farms in the Top Quartile of Each Measure, 2002-2006
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
9.09
9.09
0.00
22.73
9.09
50.00
DTA
13.64
9.09
0.00
9.09
13.64
54.55
ATO
9.09
9.09
13.64
4.55
4.55
59.09
ROA
0.00
4.55
13.64
31.82
13.64
36.36
OPMR
4.55
9.09
4.55
18.18
27.27
36.36
NFI
4.55
4.55
9.09
22.73
22.73
36.36
Table A.18: Crop Farms in the Bottom Quartile of Each Measure, 20022006
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
9.09
13.64
4.55
0.00
22.73
50.00
DTA
18.18
4.55
4.55
4.55
4.55
63.64
ATO
4.55
9.09
18.18
4.55
13.64
50.00
ROA
4.55
9.09
4.55
13.64
36.36
31.82
OPMR
0.00
18.18
4.55
13.64
22.73
40.91
NFI
4.55
4.55
13.64
13.64
27.27
36.36
Table A.19: Crop Farms in the Top Quartile of Each Measure, 2003-2007
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
13.33
3.33
13.33
0.00
13.33
56.67
DTA
16.67
0.00
10.00
10.00
0.00
63.33
ATO
13.33
3.33
6.67
16.67
0.00
60.00
ROA
0.00
6.67
16.67
10.00
36.67
30.00
OPMR
3.33
16.67
3.33
13.33
13.33
50.00
NFI
3.33
6.67
16.67
3.33
33.33
36.67
Table A.20: Crop Farms in the Bottom Quartile of Each Measure, 20032007
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
10.00
6.67
13.33
3.33
10.00
56.67
DTA
16.67
6.67
3.33
3.33
6.67
63.33
ATO
16.67
0.00
13.33
3.33
3.33
63.33
ROA
3.33
6.67
13.33
13.33
23.33
40.00
OPMR
0.00
6.67
20.00
16.67
13.33
43.33
NFI

!

0.00

10.00

16.67

90!

13.33

16.67

43.33

Table A.21: Crop Farms in the Top Quartile of Each Measure, 2004-2008
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
15.00
0.00
10.00
10.00
0.00
65.00
DTA
10.00
5.00
15.00
5.00
0.00
65.00
ATO
15.00
5.00
5.00
5.00
5.00
65.00
ROA
0.00
10.00
15.00
5.00
30.00
40.00
OPMR
0.00
15.00
10.00
15.00
5.00
55.00
NFI
0.00
0.00
15.00
25.00
30.00
30.00
Table A.22: Crop Farms in the Bottom Quartile of Each Measure, 20042008
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
5.00
0.00
25.00
10.00
5.00
55.00
DTA
15.00
5.00
5.00
5.00
5.00
65.00
ATO
15.00
10.00
0.00
5.00
0.00
70.00
ROA
5.00
5.00
10.00
5.00
40.00
35.00
OPMR
5.00
5.00
5.00
10.00
45.00
30.00
NFI
0.00
5.00
5.00
20.00
50.00
20.00
Table A.23: Crop Farms in the Top Quartile of Each Measure, 2005-2009

CR
DTA
ATO
ROA
OPMR
NFI

5 years

4 years

3 years

5.88
17.65
11.76
5.88
0.00
0.00

11.76
0
0.00
0.00
0.00
5.88

17.65
11.76
17.65
17.65
29.41
17.65

2 years
(%)
5.88
5.88
17.65
17.65
23.53
17.65

1 year

0 years

5.88
11.76
0.00
29.41
11.76
35.29

52.94
52.94
52.94
29.41
35.29
23.53

Table A.24: Crop Farms in the Bottom Quartile of Each Measure, 20052009
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
23.53
0.00
5.88
5.88
0.00
64.71
DTA
17.65
11.76
0.00
0.00
11.76
58.82
ATO
17.65
5.88
5.88
5.88
5.88
58.82
ROA
0.00
5.88
5.88
35.29
35.29
17.65
OPMR
5.88
5.88
5.88
17.65
41.18
23.53
NFI
5.88
0.00
23.53
11.76
23.53
35.29

!

91!

Table A.25: Crop Farms in the Top Quartile of Each Measure, 2006-2010
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
14.29
14.29
4.76
0.00
0.00
66.67
DTA
9.52
14.29
4.76
9.52
4.76
57.14
ATO
14.29
14.29
0.00
0.00
14.29
57.14
ROA
9.52
0.00
9.52
19.05
28.57
33.33
OPMR
4.76
4.76
9.52
19.05
33.33
28.57
NFI
0.00
4.76
14.29
28.57
23.81
28.57
Table A.26: Crop Farms in the Bottom Quartile of Each Measure, 20062010
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
14.29
4.76
14.29
0.00
9.52
57.14
DTA
19.05
0.00
4.76
4.76
23.81
47.62
ATO
19.05
4.76
0.00
0.00
28.57
47.62
ROA
0.00
4.76
19.05
19.05
28.57
28.57
OPMR
0.00
4.76
14.29
19.05
42.86
19.05
NFI
0.00
4.76
19.05
14.29
38.10
23.81
Table A.27: Crop Farms in the Top Quartile of Each Measure, 2007-2011
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
10.53
10.53
5.26
5.26
10.53
57.89
DTA
10.53
5.26
15.79
0.00
10.53
57.89
ATO
10.53
5.26
15.79
0.00
10.53
57.89
ROA
0.00
5.26
15.79
21.05
21.05
36.84
OPMR
0.00
15.79
0.00
15.79
36.84
31.58
NFI
0.00
5.26
21.05
10.53
26.32
36.84
Table A.28: Crop Farms in the Bottom Quartile of Each Measure, 20072011
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
15.79
0.00
15.79
0.00
5.26
63.16
DTA
15.79
5.26
0.00
15.79
0.00
63.16
ATO
15.79
0.00
5.26
10.53
15.79
52.63
ROA
0.00
10.53
10.53
15.79
26.32
36.84
OPMR
0.00
5.26
10.53
10.53
57.89
15.79
NFI
0.00
15.79
5.26
0.00
52.63
26.32

!

92!

Table A.29: Crop Farms in the Top Quartile of Each Measure, 2008-2012
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
22.73
0.00
4.55
4.55
0.00
68.18
DTA
9.09
9.09
13.64
4.55
4.55
59.09
ATO
13.64
4.55
9.09
9.09
4.55
59.09
ROA
0.00
0.00
27.27
13.64
27.27
31.82
OPMR
4.55
4.55
9.09
22.73
22.73
36.36
NFI
0.00
9.09
18.18
13.64
18.18
40.91
Table A.30: Crop Farms in the Bottom Quartile of Each Measure, 20082012
5 years 4 years 3 years 2 years 1 year
0 years
(%)
CR
13.64
9.09
4.55
4.55
9.09
59.09
DTA
13.64
0.00
13.64
13.64
0.00
59.09
ATO
9.09
9.09
9.09
9.09
9.09
54.55
ROA
4.55
0.00
13.64
27.27
18.18
36.36
OPMR
0.00
4.55
18.18
22.73
18.18
36.36
NFI
0.00
4.55
13.64
22.73
31.82
27.27
Step Two: Crop and Dairy Farm Results
The results for both the dairy and crop farms were that for each financial performance
measure analyzed there was a statistically significant difference between the farms in the top and
bottom quartiles.

!

93!

Step Three: Dairy Farm Results
Table A.31: Summary Statistics of ROA Quartiles, Dairy Farms, 2001-2005
ROA Quartile
First
Second
Third Fourth
ROA
(%)
9.87
6.18
3.77
0.42
(%)
5.91
4.95
7.05
3.76
CR
(%)
29.73
30.27
27.86
32.58
DTA
(%)
36.12
31.75
31.82
25.15
ATO
(%)
24.88
20.50
10.54
(0.01)
OPMR
NFI
($/cwt)
4.84
4.65
3.26
2.13
Value of Homegrown
($/cwt)
3.43
4.38
5.50
6.31
Feed
($/cwt)
3.62
3.39
3.98
3.83
Purchased Feed Cost
($/cwt)
3.66
4.17
4.69
4.68
Labor Cost
*The first quartile is represented by farms with the highest ROA.
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table A.32: Summary Statistics of ROA Quartiles, Dairy Farms, 2002-2006
ROA Quartile
First
Second
Third Fourth
ROA
(%)
9.72
5.93
3.83
0.95
CR
(%)
10.18
4.32
9.74
3.39
(%)
29.85
32.77
22.33
29.03
DTA
(%)
35.15
32.93
32.48
25.84
ATO
(%)
24.16
16.44
12.81
4.53
OPMR
($/cwt)
4.67
3.98
3.35
2.50
NFI
Value of Homegrown
($/cwt)
3.45
4.78
4.51
6.48
Feed
($/cwt)
3.67
3.47
3.80
3.78
Purchased Feed Cost
Labor Cost
($/cwt)
3.78
3.95
4.33
4.73

!

94!

p-value
0.00
0.44
0.57
0.01
0.00
0.01
0.01
0.51
0.05

p-value
0.00
0.17
0.89
0.01
0.00
0.01
0.00
0.75
0.04

Table A.33: Summary Statistics of ROA Quartiles, Dairy Farms, 2003-2007
ROA Quartile
First
Second
Third Fourth
ROA
(%)
11.84
7.75
5.58
2.13
(%)
4.14
6.80
8.58
5.81
CR
(%)
33.48
25.40
22.14
32.46
DTA
ATO
(%)
40.96
28.92
30.17
30.05
(%)
30.38
26.34
18.28
6.27
OPMR
($/cwt)
5.95
6.42
4.56
2.54
NFI
Value of Homegrown
($/cwt)
3.86
7.63
7.26
6.34
Feed
($/cwt)
3.95
4.01
4.22
4.12
Purchased Feed Cost
($/cwt)
3.67
3.96
4.30
4.76
Labor Cost
Table A.34: Summary Statistics of ROA Quartiles, Dairy Farms, 2004-2008
ROA Quartile
First
Second
Third Fourth
ROA
(%)
12.17
7.74
5.28
1.73
CR
(%)
10.63
5.35
10.34
6.64
(%)
31.72
27.01
22.03
31.50
DTA
(%)
41.23
29.35
27.68
29.05
ATO
(%)
30.81
25.47
19.78
6.17
OPMR
($/cwt)
6.51
6.52
4.92
2.22
NFI
Value of Homegrown
($/cwt)
4.92
9.93
9.58
8.08
Feed
($/cwt)
4.47
4.07
4.49
5.00
Purchased Feed Cost
($/cwt)
3.85
3.98
4.17
5.24
Labor Cost
Table A.35: Summary Statistics of ROA Quartiles, Dairy Farms, 2005-2009
ROA Quartile
First
Second
Third Fourth
ROA
(%)
10.56
5.98
3.86
1.18
(%)
11.15
5.43
3.89
10.34
CR
(%)
27.93
26.68
28.42
28.10
DTA
(%)
35.85
28.11
25.42
28.43
ATO
(%)
30.18
20.31
12.40
2.45
OPMR
($/cwt)
6.46
4.70
3.35
1.62
NFI
Value of Homegrown
($/cwt)
5.81
8.41
8.25
10.75
Feed
Purchased Feed Cost
($/cwt)
4.50
3.92
4.33
5.46
($/cwt)
4.14
3.54
4.26
5.39
Labor Cost

!

95!

p-value
0.00
0.62
0.85
0.00
0.00
0.00
0.00
0.64
0.03

p-value
0.00
0.54
0.97
0.00
0.00
0.00
0.01
0.14
0.03

p-value
0.00
0.93
0.97
0.05
0.00
0.00
0.03
0.01
0.05

Table A.36: Summary Statistics of ROA Quartiles, Dairy Farms, 2006-2010
ROA Quartile
First
Second
Third Fourth
(%)
9.35
5.80
3.55
0.86
ROA
(%)
5.52
6.69
10.05
3.62
CR
(%)
29.99
24.69
23.55
30.59
DTA
(%)
34.26
26.35
26.83
24.01
ATO
(%)
27.21
22.28
10.28
6.28
OPMR
NFI
($/cwt)
5.30
4.60
2.96
2.08
Value of Homegrown
($/cwt)
6.00
8.37
9.36
14.38
Feed
($/cwt)
4.47
3.97
4.69
5.26
Purchased Feed Cost
($/cwt)
3.45
3.82
4.19
4.62
Labor Cost
Table A.37: Summary Statistics of ROA Quartiles, Dairy Farms, 2007-2011
ROA Quartile
First
Second
Third Fourth
(%)
10.03
7.04
4.93
1.16
ROA
CR
(%)
7.49
5.63
5.57
4.83
(%)
29.99
26.96
24.82
26.73
DTA
(%)
33.85
28.82
28.79
25.69
ATO
(%)
28.88
25.48
15.11
3.38
OPMR
($/cwt)
6.07
5.73
4.02
1.71
NFI
Value of Homegrown
($/cwt)
9.08
9.53
11.28
13.24
Feed
($/cwt)
4.94
4.70
4.84
5.59
Purchased Feed Cost
Labor Cost
($/cwt)
3.63
4.15
4.29
4.09
Table A.38: Summary Statistics of ROA Quartiles, Dairy Farms, 2008-2012
ROA Quartile
First
Second
Third Fourth
(%)
8.53
6.59
4.17
(0.28)
ROA
CR
(%)
7.55
4.39
7.39
11.44
(%)
25.93
26.42
23.80
31.24
DTA
(%)
31.54
28.29
27.87
24.67
ATO
(%)
28.96
23.59
12.43
(2.16)
OPMR
($/cwt)
6.19
5.02
3.55
0.51
NFI
Value of Homegrown
($/cwt)
10.37
9.46
12.11
14.23
Feed
($/cwt)
4.94
4.94
4.92
6.17
Purchased Feed Cost
Labor Cost
($/cwt)
3.67
4.26
3.78
4.59

!

96!

p-value
0.00
0.39
0.91
0.01
0.00
0.02
0.04
0.13
0.00

p-value
0.00
0.35
0.57
0.01
0.00
0.00
0.12
0.21
0.17

p-value
0.00
0.58
0.30
0.07
0.00
0.00
0.16
0.03
0.06

Step Three: Crop Farm Results
Table A.39: Summary Statistics of ROA Quartiles, Crop Farms, 2002-2006
ROA Quartile
First
Second
Third
Fourth p-value
ROA
(%)
10.16
6.35
3.60
(0.41)
0.00
CR
(%)
3.01
7.68
7.49
6.22
0.44
DTA
(%)
25.77
18.64
22.35
19.44
0.51
ATO
(%)
45.13
16.57
24.51
14.59
0.09
OPMR
(%)
35.20
48.20
16.20 (15.72)
0.02
NFI
($/acre operated)
192.42
196.41
96.20
20.81
0.01
*The first quartile is represented by farms with the highest ROA.
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant
Table A.40: Summary Statistics of ROA Quartiles, Crop Farms, 2003-2007
ROA Quartile
First
Second
Third
Fourth p-value
ROA
(%)
12.80
6.87
3.01
(0.08)
0.00
CR
(%)
3.63
4.93
6.90
11.81
0.17
DTA
(%)
26.07
31.46
22.68
19.67
0.57
ATO
(%)
46.15
24.95
24.85
24.07
0.11
OPMR
(%)
45.31
38.34
14.07 (18.02)
0.00
NFI
($/acre operated)
247.48
174.59
100.58
33.60
0.00
Table A.41: Summary Statistics of ROA Quartiles, Crop Farms, 2004-2008
ROA Quartile
First
Second
Third
Fourth p-value
ROA
(%)
14.20
9.33
6.45
1.86
0.00
CR
(%)
5.02
2.62
6.55
13.46
0.14
DTA
(%)
22.18
25.01
26.91
12.26
0.39
ATO
(%)
48.72
34.01
27.41
22.22
0.16
OPMR
(%)
43.74
39.68
31.60
7.70
0.08
NFI
($/acre operated)
226.89
210.95
186.98 104.97
0.22
Table A.42: Summary Statistics of ROA Quartiles, Crop Farms, 2005-2009
ROA Quartile
First
Second
Third
Fourth p-value
ROA
(%)
11.27
7.41
6.10
1.24
0.00
CR
(%)
5.90
5.22
16.34
9.04
0.46
DTA
(%)
17.47
27.12
18.00
20.04
0.84
ATO
(%)
43.59
26.74
16.22
37.81
0.74
OPMR
(%)
36.35
33.12
43.58
18.87
0.25
NFI
($/acre operated)
219.02
192.64
206.88 115.73
0.23
!

97!

Table A.43: Summary Statistics of ROA Quartiles, Crop Farms, 2006-2010
ROA Quartile
First
Second
Third
Fourth p-value
ROA
(%)
12.35
7.87
5.87
2.56
0.00
CR
(%)
4.70
2.41
3.71
11.71
0.10
DTA
(%)
22.62
38.44
36.52
10.83
0.24
ATO
(%)
41.10
34.37
35.53
31.38
0.57
OPMR
(%)
40.59
24.28
19.91
11.35
0.13
NFI

($/acre operated)

135.47

177.19

168.02

116.30

0.79

Table A.44: Summary Statistics of ROA Quartiles, Crop Farms, 2007-2011
ROA Quartile
First
Second
Third
Fourth p-value
ROA
(%)
11.96
8.91
6.74
1.51
0.00
CR
(%)
5.40
5.81
4.18
13.94
0.17
DTA
(%)
26.78
37.20
31.98
12.33
0.20
ATO
(%)
47.57
45.06
27.64
28.39
0.26
OPMR
(%)
27.78
23.57
24.75
17.94
0.72
NFI

($/acre operated)

207.69

212.34

236.43

22.18

0.15

Table A.45: Summary Statistics of ROA Quartiles, Crop Farms, 2008-2012
ROA Quartile
First
Second
Third
Fourth
p-value
ROA
(%)
11.93
8.59
6.44
2.91
0.00
CR
(%)
10.09
2.21
4.12
9.57
0.92
DTA
(%)
25.07
42.02
31.59
33.06
0.55
ATO
(%)
48.60
39.44
27.81
18.01
0.02
OPMR
(%)
27.41
22.61
22.83
28.33
0.93
NFI
($/acre operated)
275.63
210.83
244.79
51.76
0.12

!

98!

Appendix B
Test of Stability Across Years
Langemeier and Yeager (2009) analyzed OPMR and ATO on crop and livestock farms in
Kansas between 2003 and 2007. The stated goal of the study was to determine how many years
of data were required for accurate benchmarking. They performed t-tests to compare the oneyear average to the two-year average, the two-year average to the three-year average, and so on
up to the five-year average. If the p-value was greater than 0.05, they assumed that the financial
ratio was stable and the additional year of data was not needed. They found that OPMR
stabilized for the group of all farms when comparing the four to five-year averages and
concluded that the fifth year of data was not needed. ATO did not stabilize for the group of all
farms. ATO did stabilize when looking at only crop farms. The conclusion was that OPMR
stabilized more often than ATO.
Their method does not actually estimate the number of years of data a farm needs to use
when ranking its performance relative to other farms. Instead, it answers the question, “is a
particular farm financial performance measure stable across years?” It reveals whether or not the
financial measure converges throughout time. The results will show which financial performance
measures vary the most from year to year and which vary the least. Producers will need to use a
greater number of years to estimate their long-run average for measures that vary a lot from year
to year compared to those that do not vary as much.
The first seven sets of five-year balanced panel data for the dairy farms were used.
Within each set of panel data, for each farm, a one-year, two-year average, three-year average,
four-year average and five-year average for six variables (ROA, ATO, OPMR, purchased feed
cost/cwt, labor cost/cwt, and NFI/cwt) were calculated. For example, for the panel data between

!

99!

2001 and 2005, 2001 was used for the one-year data, 2001 and 2002 were used for the two-year
average, and so on, with 2001-2005 being used as the five-year average.

!!,!,! = Average for an individual farm for a given financial measure, f, where a=1 for the oneyear average, 2 for the two-year average, 3 for the three-year average, 4 for the four-year average,
or 5 for the five-year average.
For each set of panel data, a t-test was conducted using Excel to determine if there was a
statistical difference between the one-year and two-year average data, the two-year and threeyear average data, the three-year and four-year average data, and the four-year and five-year
average data. The measure was considered stable when there was no statistical difference at the
10% level.
For example, when comparing the one-year to two-year average data:
V!,! = Average of all farms for a given financial measure, f
H! :!V!,! = V!,! !
H! :!V!,! ≠ V!,!
α = 0.10
!!,! !!!,!

t=!

!!,! !!!,!

, where s!!,! !!!,! =

s2f,1
!f,1

s2f,2

+ N !.
f,2

The average difference between the one-year and two-year average data, the two-year and threeyear average data, the three-year and four-year average data, and the four-year and five-year
average data was also calculated.
For example:
V!,! − V!,! = Average difference between the one-year and two-year average

!

100!

The farms were then organized into quartiles and the same process was followed to
determine how many years of data were needed before the top and bottom quartiles became
stable.
Organize !!,!,! across farms into quartiles
W!,! = Average for all of the farms in the top quartile for a given f and a
M!,! = Average for all of the farms in the bottom quartile for a given f and a
A t-test was conducted to compare the top quartile of the one-year average to the top
quartile of the two-year average.
H! :!W!,! = W!,! !
H! :!W!,! ≠ W!,!
α = 0.10

t=

!!,! !!!,!
!!

!,! !!!,!

, where s!!,! !!!,! =

s2f,1
!f,1

+

s2f,2
Nf,2

!.

The same process was repeated to compare the top quartile of the two-year average to the
top quartile of the three-year average, and so on to the five-year average. The same process was
repeated for the bottom quartile.
3.2.1 Model 2: Test of Stability Across Years-Results
It is evident that this method does not arrive at the number of years of data needed for
benchmarking. As seen in tables 3.46 - 3.52, many of the financial measures appear to have no
statistical difference even when comparing the one-year to two-year average data. Thus, using
this method it would be estimated that only one year of data is needed for accurate benchmarking.
However, this method is flawed as sometimes a measure will be stable and then with the addition
of subsequent years become unstable. For example in table 3.50, ROA and purchased feed
!

101!

cost/cwt have no statistical difference when comparing one-year to two-year average, but then
with the addition of a third year of data, the comparison of the two-year to three -year average is
statistically different. In Model 2: Stability Across Years, the data appeared to have no statistical
difference until 2009 was included. Then many of the measures became statistically significant at
the 10% level.
The results do show the variation in a financial performance measure across years. Labor
cost and purchased feed cost vary the least, whereas ROA and NFI vary the most. If p>0.10, the
variable did not vary significantly between the years according to this test. If p<0.10, the variable
was changing significantly from year to year according to this test. This implies that producers
can use a lower number of years of data to understand their long-run labor and purchased feed
costs whereas they will need data over a longer period of time to determine their long run ROA
and NFI. It is important that farm mangers do not use one year of data to obtain their relative
ranking as financial performance measures vary from year to year. A farm’s performance in a
given year may not accurately represent their long-run average. It might be detrimental for a
producer to form a strategy for the future based on their performance compared to other farms
over only the past year.

!

102!

TableB.1: P-values and Average Differences for Dairy Farms, 2001-2005
OPMR
ATO
ROA
Labor Cost/cwt
All Farms
p-value
Diff.
p-value
Diff. p-value Diff. p-value Diff.
1 to 2 year
0.36
4.36
0.26
2.29
0.59
0.61
0.56
0.62
average
2 to 3 year
0.60
2.20
0.85
0.36
0.43
0.66
0.59
0.50
average
3 to 4 year
0.82
-0.71
0.74 -0.66
0.63 -0.32
0.89 -0.10
average
4 to 5 year
0.98
0.07
0.97 -0.08
0.98
0.02
0.92 -0.06
average
Top Quartile
1 to 2 year
0.99
6.96
0.29
3.23
0.19
6.67
0.74 -0.07
average
2 to 3 year
0.68 10.84
0.83
0.87
0.06
3.25
0.53
0.00
average
3 to 4 year
0.99
4.16
0.82 -0.47
0.41
0.24
0.79
0.02
average
4 to 5 year
0.85
2.27
0.76
0.71
0.80
0.32
0.80
0.03
average
Bottom Quartile
1 to 2 year
0.82
-3.72
0.14
0.64
0.31 -4.14
0.71
0.25
average
2 to 3 year
0.57
-6.31
0.46
0.22
0.72 -1.06
0.78
0.17
average
3 to 4 year
0.83
-3.64
0.71 -0.44
0.27 -0.72
0.83 -0.07
average
4 to 5 year
1.00
-1.63
0.90 -0.17
0.41 -0.41
0.85 -0.09
average
*Diff.=difference
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

!

103!

NFI/cwt
p-value
Diff.

Purchased Feed
Cost/cwt
p-value Diff.

0.98

0.01

0.38

-0.02

0.61

0.11

0.88

-0.02

0.85

-0.04

0.19

-0.20

0.93

-0.02

0.65

-0.07

0.73

1.83

0.29

-0.05

0.52

2.17

0.55

-0.13

0.76

0.73

0.35

-0.12

0.92

0.33

0.33

-0.14

0.76

-0.55

0.44

0.12

0.56

-0.56

0.74

0.11

0.09

-0.47

0.06

-0.24

0.68

-0.14

0.84

-0.02

Table B.2: P-values and Average Differences for Dairy Farms, 2002-2006
OPMR
ATO
ROA
Labor Cost/cwt
All Farms
p-value
Diff. p-value
Diff. p-value Diff.
p-value Diff.
1 to 2 year
0.63
-1.90
0.77
-0.57
0.81
0.34
0.31
0.18
average
2 to 3 year
0.29
-2.97
0.46
-1.40
0.31
-0.86
0.84 -0.04
average
3 to 4 year
0.65
-1.12
0.85
-0.35
0.83
-0.16
0.77 -0.05
average
4 to 5 year
0.97
0.09
0.71
0.64
0.72
0.23
0.86 -0.03
average
Top Quartile
1 to 2 year
0.13
11.85
0.89
0.95
0.07
6.52
0.43
0.01
average
2 to 3 year
0.93
1.25
0.71
-0.61
0.96
0.70
0.88 -0.01
average
3 to 4 year
0.82
1.17
0.92
0.28
0.66
0.66
0.81
0.02
average
4 to 5 year
0.37
2.81
0.49
1.30
0.59
0.79
0.83 -0.04
average
Bottom Quartile
1 to 2 year
0.14 -13.63
0.54
-1.26
0.04
-3.82
0.19
0.36
average
2 to 3 year
0.19
-5.49
0.09
-1.36
0.03
-1.69
0.90 -0.05
average
3 to 4 year
0.39
-3.35
0.38
-0.84
0.14
-1.18
0.57 -0.13
average
4 to 5 year
0.75
-2.20
0.83
0.14
0.96
0.01
0.82 -0.05
average
*Diff.=difference
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

!

104!

NFI/cwt
p-value Diff.

Purchased Feed
Cost/cwt
p-value Diff.

0.86

-0.09

0.59

-0.10

0.20

-0.54

0.11

3.44

0.48

-0.29

0.75

-0.06

0.93

0.04

0.79

0.04

0.17

1.77

0.30

-0.28

0.48

-0.26

0.10

2.25

0.56

-0.30

0.26

-0.16

0.71

0.27

0.94

0.00

0.04

-2.13

0.90

0.09

0.22

-0.59

0.02

4.70

0.62

-0.35

0.90

0.04

0.93

-0.00

0.48

0.13

Table B.3: P-values and Average Differences for Dairy Farms, 2003-2007
OPMR
ATO
ROA
Labor Cost/cwt
All Farms
p-value
Diff. p-value
Diff. p-value
Diff. p-value
Diff.
1 to 2 year
0.18 -5.11
0.37 -1.79
0.06 -1.66
0.43 -0.17
average
2 to 3 year
0.94 -0.29
0.97 -0.07
0.94 -0.06
0.60 -0.12
average
3 to 4 year
0.70
1.14
0.59
0.97
0.54
0.42
0.80 -0.06
average
4 to 5 year
0.39 -2.09
0.69 -0.70
0.14 -0.95
0.96 -0.01
average
Top Quartile
1 to 2 year
0.64 -2.63
0.91
0.86
0.06 -0.65
0.27 -0.30
average
2 to 3 year
0.91
3.57
0.63
0.94
0.53
0.95
0.76 -0.12
average
3 to 4 year
0.50
5.09
0.36
1.87
0.11
1.58
0.63 -0.11
average
4 to 5 year
0.94 -0.18
0.87 -0.30
0.11 -0.50
0.97 -0.01
average
Bottom Quartile
1 to 2 year
0.10 -11.14
0.03 -2.72
0.03 -3.09
0.59 -0.06
average
2 to 3 year
0.39 -3.79
0.59 -0.54
0.27 -1.20
0.52 -0.16
average
3 to 4 year
0.86 -1.94
0.84
0.20
0.90 -0.15
0.86 -0.06
average
4 to 5 year
0.19 -3.08
0.53 -0.85
0.08 -0.99
0.85 -0.01
average
*Diff.=difference
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

!

105!

NFI/cwt
p-value
Diff.

Purchased Feed
Cost/cwt
p-value
Diff.

0.08

-1.06

0.05

-0.39

0.71

-0.23

0.85

-0.04

0.69

0.22

0.63

0.09

0.27

-0.55

0.23

-0.21

0.38

-0.72

0.03

-0.56

0.88

-0.05

0.38

-0.16

0.55

0.82

0.95

0.00

0.49

-0.44

0.00

-0.23

0.04

-1.69

0.12

-0.20

0.41

-0.54

0.68

0.14

0.89

-0.15

0.35

0.18

0.18

-0.63

0.00

-0.26

Table B.4: P-values and Average Differences for Dairy Farms, 2004-2008
OPMR
ATO
ROA
Labor Cost/cwt
All Farms
p-value
Diff. p-value
Diff. p-value
Diff. p-value Diff.
1 to 2 year
0.75
1.54
0.59
1.06
0.53
0.55
0.77 -0.07
average
2 to 3 year
0.45
2.69
0.34
1.79
0.24
0.89
0.88 -0.04
average
3 to 4 year
0.46 -2.10
0.72
-0.66
0.15
-0.98
0.94
0.02
average
4 to 5 year
0.29
5.33
0.79
0.50
0.58
0.38
0.84 -0.06
average
Top Quartile
1 to 2 year
0.90
9.06
0.56
2.76
0.47
2.17
0.99 -0.04
average
2 to 3 year
0.46
9.57
0.32
3.00
0.09
2.88
0.61 -0.14
average
3 to 4 year
0.99
0.42
0.86
-0.49
0.44
-0.06
1.00 -0.03
average
4 to 5 year
0.58
3.28
0.95
0.20
0.70
0.52
0.99 -0.03
average
Bottom Quartile
1 to 2 year
0.76 -6.36
0.88
-0.05
0.15
-1.80
0.74 -0.12
average
2 to 3 year
0.28
0.88
0.53
0.89
0.33
0.18
0.82
0.01
average
3 to 4 year
0.30 -3.92
0.74
-0.51
0.11
-1.17
0.97 -0.01
average
4 to 5 year
0.29 16.91
0.73
0.48
0.33
0.41
0.81 -0.16
average
*Diff.=difference
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

!

106!

NFI/cwt
p-value
Diff.

Purchased Feed
Cost/cwt
p-value
Diff.

0.85

0.16

0.56

0.12

0.40

0.55

0.37

0.17

0.29

-0.59

0.22

-0.23

0.65

0.26

0.21

0.24

0.77

1.37

0.89

-0.01

0.42

1.74

0.84

0.00

0.43

-0.68

0.32

-0.23

0.85

0.38

0.34

-0.22

0.68

-1.07

0.11

0.41

0.32

0.05

0.16

0.32

0.19

-0.65

0.22

-0.21

0.25

0.29

0.09

-0.38

Table B.5: P-values and Average Differences for Dairy Farms, 2005-2009
OPMR
ATO
ROA
Labor Cost/cwt
All Farms
p-value
Diff. p-value
Diff. p-value
Diff. p-value Diff.
1 to 2 year
0.25
4.05
0.26
2.08
0.16
1.31
0.94 -0.02
average
2 to 3 year
0.24 -3.12
0.45
-1.32
0.05
-1.44
0.95 -0.02
average
3 to 4 year
0.37
5.48
0.86
0.30
0.62
0.35
0.71 -0.11
average
4 to 5 year
0.61
3.83
0.25
1.95
0.03
1.41
0.90 -0.04
average
Top Quartile
1 to 2 year
0.05 16.81
0.13
3.86
0.00
5.50
0.29 -0.36
average
2 to 3 year
0.79
2.38
0.58
-1.14
0.09
-0.64
0.96
0.01
average
3 to 4 year
0.48
4.95
0.99
0.01
0.37
0.91
0.94 -0.02
average
4 to 5 year
0.37
4.10
0.16
2.93
0.04
1.67
0.28 -0.25
average
Bottom Quartile
1 to 2 year
0.90 -3.12
0.41
1.16
0.33
-1.22
0.98
0.16
average
2 to 3 year
0.19 -6.32
0.51
-1.45
0.01
-2.05
0.99
0.06
average
3 to 4 year
0.40 16.61
0.79
0.24
0.96
-0.46
0.70 -0.29
average
4 to 5 year
0.94
0.03
0.55
0.95
0.11
1.04
0.66
0.41
average
*Diff.=difference
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

!

107!

NFI/cwt
p-value
Diff.

Purchased Feed
Cost/cwt
p-value
Diff.

0.17

0.87

0.27

0.22

0.14

-0.82

0.05

-0.37

0.77

0.17

0.12

-0.32

0.10

0.97

0.93

0.02

0.02

3.18

0.90

-0.07

0.45

-0.63

0.14

-0.39

0.86

0.53

0.15

-0.29

0.49

1.04

0.89

-0.03

0.31

-0.65

0.04

0.66

0.00

-1.17

0.04

-0.39

0.44

0.09

0.06

-0.37

0.13

0.72

0.91

0.04

Table B.6: P-values and Average Differences for Dairy Farms, 2006-2010
OPMR
ATO
ROA
Labor Cost/cwt
All Farms
p-value
Diff. p-value
Diff. p-value
Diff. p-value Diff.
1 to 2 year
0.14
-5.15
0.12
-2.94
0.00
-2.62
0.91
0.03
average
2 to 3 year
0.56
1.54
0.89
0.26
0.47
0.54
0.98
0.01
average
3 to 4 year
0.02
5.56
0.21
2.30
0.01
1.92
0.56 -0.11
average
4 to 5 year
0.96
0.13
1.00
0.00
0.97
0.02
0.61
0.09
average
Top Quartile
1 to 2 year
0.87
1.05
0.17
0.17
0.02
-1.66
0.85 -0.13
average
2 to 3 year
0.35
7.64
0.97
0.97
0.24
1.67
0.79 -0.08
average
3 to 4 year
0.45
3.90
0.10
0.10
0.02
2.41
0.04 -0.37
average
4 to 5 year
0.58
2.07
0.80
0.80
0.60
0.41
0.41
0.12
average
Bottom Quartile
1 to 2 year
0.02 -13.07
0.16
0.16
0.00
-4.16
0.76
0.17
average
2 to 3 year
0.35
-4.35
0.89
0.89
0.30
-0.94
0.45
0.30
average
3 to 4 year
0.00
3.74
0.50
0.50
0.00
1.25
0.25
0.32
average
4 to 5 year
0.61
-1.79
0.91
0.91
0.67
-0.29
0.48
0.15
average
*Diff.=difference
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

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108!

NFI/cwt
p-value
Diff.

Purchased Feed
Cost/cwt
p-value
Diff.

0.07

-1.72

0.00

-0.68

0.57

0.52

0.09

-0.40

0.02

1.48

0.81

0.06

0.95

0.03

0.93

0.02

0.26

-2.33

0.03

-0.58

0.44

2.41

0.19

-0.31

0.14

2.57

0.98

-0.03

0.75

0.44

0.89

-0.05

0.02

-2.04

0.00

-0.49

0.49

-0.98

0.01

-0.56

0.00

1.06

0.87

0.09

0.53

-0.31

0.95

0.04

Table B.7: P-values and Average Differences for Dairy Farms, 2007-2011
OPMR
ATO
ROA
Labor Cost/cwt
All Farms
p-value
Diff. p-value
Diff. p-value
Diff. p-value Diff.
1 to 2 year
0.05
5.27
0.33
1.92
0.03
2.14
0.97
0.01
average
2 to 3 year
0.00
8.44
0.06
3.32
0.00
2.82
0.65 -0.10
average
3 to 4 year
0.98
0.06
0.95
-0.11
0.97
0.02
0.46
0.14
average
4 to 5 year
0.25 -2.77
0.50
-1.09
0.15
-0.93
1.00
0.00
average
Top Quartile
1 to 2 year
0.03 16.63
0.46
2.83
0.03
5.41
0.45 -0.14
average
2 to 3 year
0.06
7.61
0.03
5.26
0.01
3.62
0.05 -0.48
average
3 to 4 year
0.35
3.14
0.78
0.60
0.38
1.01
0.38
0.13
average
4 to 5 year
0.24 -0.99
0.37
-1.85
0.23
-0.48
0.79
0.03
average
Bottom Quartile
1 to 2 year
0.47 -6.33
0.51
0.56
0.95
-1.65
0.70
0.28
average
2 to 3 year
0.00
8.46
0.51
1.03
0.00
2.17
0.14
0.51
average
3 to 4 year
0.52 -3.50
0.88
-0.73
0.48
-0.73
0.32
0.25
average
4 to 5 year
0.19 -3.98
0.64
-0.77
0.26
-0.97
0.96
0.02
average
*Diff.=difference
*If p<0.10 there is a statistical difference, if p>0.10 the difference is not significant

!

109!

NFI/cwt
p-value
Diff.

Purchased Feed
Cost/cwt
p-value
Diff.

0.11

1.49

0.34

-0.27

0.00

1.94

0.30

0.28

0.91

0.07

0.69

0.10

0.19

-0.74

0.40

-0.21

0.13

4.46

0.10

-0.50

0.07

2.88

0.71

0.05

0.63

0.53

0.99

-0.04

0.22

-0.69

0.47

-0.17

0.40

-0.75

0.21

-0.15

0.00

1.18

0.10

0.52

0.46

-0.34

0.60

0.19

0.04

-0.78

0.31

-0.25

REFERENCES

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110!

REFERENCES

Barney, J. B., & Clark, D. N. (2007). Resource-Based Theory: Creating and Sustaining
Competitive Advantage. New York: Oxford University Press.
El-Osta, H. S., & Johnson, J. (1998). Determinants of financial performance of commercial dairy
farms. US Department of Agriculture, Economic Research Service.
Langemeier, M. (2010). Persistence in financial performance. Journal of International Farm
Management, 5(2), 1-15.
Rougoor, C. W., Trip, G., Huirne, R., & Renkema, J. A. (1998). How to define and study
farmers' management capacity: theory and use in agricultural economics. Agricultural
Economics, 18(3), 261-272.
Yeager, E., & Langemeier, M. (2009). Benchmarking Recommendations Using a Sample of
Kansas Farms.

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