When to Exit Dairy Farming: The Value of Waiting
Tauer, Loren W.; Dressler, Jonathan B.
Recent low milk prices may cause some dairy farmers to think that now may be the time to exit the industry. Many are not covering variable costs of production, to say nothing about also not meeting their overhead cost of production. But should a farmer exit? That decision depends upon more than the current milk price and the cost of production. Farmers often stay in business and operate at a loss with the expectation that the future will get better. Indeed, if milk prices do increase a farmer may cover costs and make a profit in the future. There is an economic value to wait it out and that value depends upon future conditions in the dairy industry. Thus, expectations of future milk prices are important when deciding whether to exit the industry now.