Quantifying the Contributions to Dairy Farm Business Risk: Implications for Producer’s Risk Management Strategies

The major sources of variability in net farm income on New York dairy farms over the past 10 years are identified using Dairy Farm Business Summary records. The most important source of income variability is the fluctuation in milk prices, followed closely by year-to-year variation in the quantity of purchased feeds. These results suggest that forward pricing of milk and feed purchases may be effective risk reduction strategies. Since a few farms have large cull cow sales, probably due to disease or other production problems, new insurance products to insure against disease may be useful to dairy farmers. It appears that older farmers are more successful in engaging in activities that increase diversification and reduce the variability in reductions in farm income. The same is true for farmers who utilize milking parlors, use recombinant bovine somatotropin, have greater assets per cow, and have engaged in activities to earn income from off-farm sources.