Quantifying Sources of Dairy Farm Business Risk and Implications for Risk Management Strategies

Major sources of variability in net farm income on New York dairy farms over the past 10 years are identified using variance decomposition methods. The most important source of income variability is the fluctuation in milk prices, followed closely by year-to-year variation in the quantity of purchased feeds. The degree of success in engaging in activities that increase diversification and lead to variance reductions in farm income are higher for older farmers and for those that utilize milking parlors, use recombinant bovine somatotropin, have greater assets per cow, and have engaged in activities to earn income from off-farm sources.