When to Get In and Out of Dairy Farming: A Real Option Analysis

The Dixit entry/exit real option model, modified to accommodate a milk price support regime, was applied to the entry/exit decisions of New York dairy farmers. Results varied by farm size, but for the 500-cow farm the entry milk price is $19.09 and the exit milk price is$11.66 when farmers were allowed to continuously enter and exit the industry. With no option to ever return to dairy farming, the exit milk price falls to $10.00.

When to Get In and Out of Dairy Farming: A Real Option Analysis

The Dixit entry/exit real option model was applied to the entry/exit decisions of New York dairy farmers. For the cost structure of a 500-cow farm, the entry milk price is $17.52 per hundredweight (cwt) and the exit milk price is$10.84. For the 50-cow farm cost structure, the entry price is higher at $23.71 per cwt, and the exit price is also higher at$13.48. If infinite numbers of representative farms enter and exit at these prices, the price of milk should range between $13.48 and$17.52 per cwt.dairy farming, entry-exit, investment, real options, Farm Management,

Estimation of Treatment Effects of recombinant Bovine Somatotropin using Matching Samples

The production and profit impacts of recombinant Bovine Somatotropin (rbST) on select New York dairy farms were estimated using data over the years 1994 through 2004, by comparing matching farms which use and do not use rbST. The use of rbST increases milk production per cow and decreases the cost of production per hundredweight of milk. The cost penalty (cost reduction) is $0.39 per hundredweight for those currently using rbST to stop using rbST, while the average treatment effect is$0.73.Bovine Somatotropin, BST, Dairy, Matching Samples, Treatments, Agribusiness, Farm Management, Food Consumption/Nutrition/Food Safety,

The economic impact of future biological nitrogen fixation technologies

The economic impact of some future biological nitrogen fixation technologies are estimated using AGSIM, a dynamic, partial equilibrium, econometric model of the U.S. agricultural sector. Five separate scenarios were modeled: (1) legumes fix more nitrogen, (2) legumes fix more nitrogen with an increase in legumes yields of 10 percent, (3) nitrogen fertilization requirements on all crops are reduced 50 percent with no yield changes, (4) total elimination of nitrogen fertilization and (5) total elimination of nitrogen fertilization and non-legume yields decrease 10 percent. Results indicate that biological nitrogen fixation technologies have a high value to society. Increasing the efficiency of legumes to fix nitrogen may have an annual benefit of $1,067 million while decreasing nitrogen fertilization by 1,706 thousand tons. Total elimination of nitrogen fertilization of the crops has an annual benefit of$4,484 million.Crop Production/Industries,

ESTIMATES OF INDIVIDUAL DAIRY FARM SUPPLY ELASTICITIES

Milk supply elasticities were estimated for 70 farms who participated in the New York Dairy Farm Business Summary Program from 1985 through 1993. Technology was modeled as a single output, single composite input Cobb-Douglas function. The resultant supply function is the natural log of milk quantity as a function of the log of milk price to prices paid for all inputs, with a time trend added. Since random output shocks to each farm may have occurred in any of the nine data years, a dummy year variable was modeled sequentially for each year for each farm. Ignoring 12 negative estimates, elasticities averaged .65. Pooling the data with a fixed effects model produced an elasticity estimate of .47. A geometric lag pooled model produced a short-run elasticity of .2 and a long-run supply elasticity of 1.00 using instrumental variables, but an OLS short-run elasticity of .25 and long-run elasticity of .64.Livestock Production/Industries,

Life Insurance Funding of Buy-Sell Arrangements in Small Businesses

Buy-sell arrangements for the death of a co-owner may be funded with life insurance. The mechanisms and details of buy-sell arrangements were discussed. The decision whether to use life insurance was modeled using the expected utility theorem. State dependent utility was used since a surviving partner may become more (or less) risk averse upon the death of a co-owner. Life insurance funding is preferred at relatively low amounts of risk aversion, especially if the surviving partner becomes more risk averse after the co-owner's death. A lower percentage of life insurance would be used if insurance premiums are significantly above actuarially fair premiums. Given currently available insurance rates, most closely held small businesses probably should fund their buy-sell arrangements with life insurance.Risk and Uncertainty,

When to Get In and Out of Dairy Farming: A Real Option Analysis

The Dixit entry/exit real option model was applied to the entry/exit decisions of New York dairy farmers. For the cost structure of a 500-cow farm the entry milk price is $17.52 per hundredweight (cwt.) and the exit milk price is$10.84. For the 50-cow farm cost structure the entry price is higher at $23.71 per cwt., and the exit price is also higher at$13.48. If infinite numbers of representative farms enter and exit at these prices, the price of milk should range between $13.48 and$17.52 per cwt.Dairy farming, entry-exit, investment, real options, Farm Management,

DETERMINING THE OPTIMAL AMOUNT OF NITROGEN TO APPLY TO CORN USING THE BOX-COX FUNCTIONAL FORM

A Box-Cox functional form was estimated from corn-nitrogen data previously used to report optimal nitrogen use from a quadratic production function. Results suggest that less nitrogen should be app1ie.d than recommended using the quadratic function, but with more nitrogen being applied if poor growing conditions are expected.Crop Production/Industries,

SHORT-RUN AND LONG-RUN EFFICIENCIES OF NEW YORK DAIRY FARMS

Short-run and long-run technical and allocative efficiencies were computed for 395 New York dairy farms using data envelopment or nonparametric procedures on 1990 Dairy Farm Business Summary data. The farms were, on average, more allocatively efficient in the short run than in the long run, but were more technically efficient in the long run than in the short run. Stanchion barns were as efficient as milking parlors, and milking more than two times per day did not increase efficiency.Productivity Analysis,

THE IMPACT OF RECOMBINANT BOVINE SOMATOTROPIN ON DAIRY FARM PROFITS: A SWITCHING REGRESSION ANALYSIS

Production and profit impacts from the use of recombinant Bovine Somatotropin (rbST) on dairy farms were estimated using switching regression, with separate regressions for rbST-using farms and non-rbST-using farms. To correct for potential self-selection bias, a probit adoption function was estimated and used to correct the error term in each regression equation. Farmers who use rbST were found to have more formal education and have larger dairy herds, but age was not a significant determining factor in adoption. RbST was estimated to increase milk production per cow even when correcting for the fact that rbST users would have higher milk production per cow without the use of rbST. However, that greater production per cow from rbST use did not translate into an estimated impact on profits per cow.Farm Management,