An Analysis of Dairy Farm Financial Efficiency and Price Expectations in Seedstock Bull Markets

The first thesis chapter employs two single-stage data envelopment analysis (DEA) models under varying returns to scale assumptions to provide technical efficiency estimates for 26 dairy farms in Tennessee, Kentucky, and North Carolina participating in the UT Dairy Gauge program. These analyses reveal how efficiently farms utilize inputs (cows, feed, labor, forage) to generate farm income relative to other sample farms. Under the assumption of constant returns to scale (CRS) 7 farms are estimated to be technically efficient, while 13 farms display comparative efficiency under an assumption of variable returns to scale (VRS). No significant difference existed between dairy farms in Tennessee relative to farms in neighboring states. This study advances the literature on dairy farm efficiency as the first of its kind to utilize DEA in the analysis of Southeast region dairy farms in the US.

The second thesis chapter investigates optimism bias in bull price expectations using incentivized lab-in-the-field experiments with Alabama and Tennessee cattle producers. Price prediction tasks based on past market transactions for 18 bulls from the Angus, Charolais, and Simmental breeds are utilized for this analysis. The tasks provide EPDs to facilitate accurate price expectations and reduce uncertainties stemming from bull characteristics. The results reveal that the EPD information provision prevents optimism bias from contaminating price expectations in the whole sample. However, the study also determines that, unlike buyers, sellers are prone to unrealistic optimistic expectations and show reduced accuracy prediction levels. These results reveal that optimism bias can be moderated by the type of EPD information utilized, breed characteristics, and regional differences in cattle operations. This chapter contributes to the literature by documenting the role of behavioral biases in the formation of cattle price expectations and suggesting potential channels that transmit this effect to real cattle operations.