What Financial Characteristics Are Associated With Farms That Do Well During Cyclical Lows?

Production agriculture is a cyclical business, the primary driver often being prices.  During times of low prices and profitability, capital asset values often moderate or even decrease below trends, thus providing opportunities.  The question posed in this research is what financial characteristics appear to be associated with those farms that do well during cyclical lows.  That is, where are these farms significantly different coming out of a cyclical high that may be associated with their ability to do well during the cyclical low and thus potentially take advantage of opportunities?

Data from 178 Wisconsin dairy farms from 2014 to 2018 were used.  The year 2014 was the last of a cyclical high in profitability and 2018 was the last year of a cyclical low.  The farms were split into two groups, high and low profit farms, by their Return on Assets at the end of 2018.  Financial characteristics were then compared for the same two groups at the conclusion of 2014.  

Significant differences resulted for costs of production per sales unit, operating profit margin ratio, production, and herd size.  The level of debt and working capital was not significantly different, but there was evidence of differing uses of debt.