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Figure 2B Comparison of Multiyear Averages
The milk price farmers received in 2020 decreased by $0.70 per cwt. compared to the prior year, while the net cost of production increased by $0.30 per cwt. to $18.11, narrowing margins compared to 2019. While producers received lower milk prices, this was partially mitigated by a 0.4% gain in per-cow productivity, on average.
Looking back over a five-year period, average net farm earnings ranged from $15 in 2016, $292 in 2017, -$40 in 2018, $447 in 2019, and $663 in 2020 (not counting nonfarm income). This brings the five-year average earnings to $275 per cow.
In the 41-year history of the DFS, 2020 ranks 4th in terms of profitability in nominal terms, or 5th when adjusted for inflation. While the cumulative return for DFS farms over the life of the study remains positive, the average farm has lost money in 15 out of the 41 years of the DFS. Farms that have shown multiple years of net losses have tended to drop out of the study, often exiting the industry, leaving more profitable farms remaining.
This summary uses three primary measures of profitability, each of which provides a useful perspective on dairy farm financial performance: Net earnings per cow measures sheer dollars of profit earned and includes all farm business sources of income. Return on assets (ROA) measures profit earned relative to the present market value of total farm assets. This indicates the earning power of each dollar invested in the farming operation, regardless of whether it comes from the farm operator or was borrowed from a lender. Return on equity (ROE) measures profit earned relative to the farmer’s equity investment in the operation. This measure is the best indicator of how the dairy producer’s investment is paying off compared to the potential return if the funds were invested another way.
A single year does not provide an accurate picture of the dairy industry’s long-term operating performance, especially given the volatility in recent years. To further illustrate, in the last 12 years we have seen two of the top three years for profitability in DFS history (2014 and 2011) as well as the greatest loss in DFS history (2009). Given these extremes, multi-year averages yield a more accurate picture of the industry. If we look at both shorter- and longer-term averages, we see similar results (Figure 2A). Continued year-to-year volatility confirms the challenges and opportunities that Northeast dairy producers face.
Net Earnings per Cow Return on Assets
Return on Equity
