Dairy Profitability’s Ups and Downs

Dairy net farm income has been positive 16 out of the past 21 years, or 76% of the time, with profits ranging as high as $4.85 in 2014 to losses as low as $6.23/cwt in 2009. “That is a pretty good record and why many have found the dairy industry to be a good option,” says Lane Ely, a dairy specialist with the University of Georgia.

“The second observation is that for the first 10 years, the variation was much smaller than the last five years,” he says. From 1995 to 1999, the largest gain in net farm income was $2.80 and the largest loss was 62¢. But from 2011 to 2015, the largest gain was $4.85 and the largest loss was $1.92.

Ely went one step further, accumulating the gains and losses over consecutive years to see what happens to accumulated net farm income. When he totaled up the gains and losses from 1995 through 2015, he found the cumulative net farm income totaled $23.13/cwt. When he did the same from 2000 to 2015, the NFI came to $17.04. From 2005 through 2015, the total came to $12.95, and when he did it from 2010 through 2015, it was $13.32.

“This example shows how important timing may be and how the long-term results can be cumulative,” he says. “The lesson from this should be that ‘saving for a rainy day’ or using some profits to be prepared for the down turns will be successful in the long run. It takes very good financial records and planning to keep ahead of the game.”