Masters Theses

Date of Award

12-1989

Degree Type

Thesis

Degree Name

Master of Science

Major

Agricultural Economics

Major Professor

Kimberly L. Jensen

Committee Members

John Brooker, Larry VanTassell

Abstract

Economic survivability of the farm operation continues to be a problem in agricultural. The dairy operation has a large financial strain on beginning resources in order for the farm enterprise to survive and be an economic success. This study used FLIPSIM, a farm level simulation model, to determine the impact of a farmer's beginning ratio of equity to assets and beginning level of annual milk production on the financial success of a beginning dairy enterprise. FLIPSIM, a recursive farm-level model which can be run stochastically, was chosen for the simulation study.

FLIPSIM simulates the production, marketing, and financial management of a farm over a specified planning horizon. The model is stochastic in that crop yields and prices and milk and cow prices were assumed to follow a multivariate empirical distribution.

Data needed for the simulation model were collected from various sources. A 1988 survey of Tennessee beginning dairy farmers was used as the base data. The survey data was supplemented by data from various farm production records, budgets, and state and national statistics. The combination of information from these sources is used for FLIPSIM to simulate conditions faced by a representative farm.

Under the conditions of this study, beginning equity and milk production levels of 35 percent and 10,000 - 12,000 pounds, 50 percent equity and 10,000 - 12,000 pounds, and 20 percent equity and 14,000 - 16,000 pounds proved to be the most economically successful. The two remaining scenarios of 20 percent equity and 10,000 - 12,000 pounds milk production and 20 percent equity and 12,000 - 14,000 pounds milk production represent the beginning farmer, with a low equity ratio and few or no years of dairy experience. Of these two scenarios, the higher milk production level allows the farm a greater probability of survival and economic success.

It appears that under the conditions assumed in this study, a beginning diary farmer has a high probability of survival and being an economic success. Even with the lowest equity level and milk production level assumed, the farm has a better than 60 percent chance it will survive and be an economic success.

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