Expected returns from starting a large scale closed dairy cooperative under price and biological uncertainties

Abstract

<p>The objective of this paper is to determine if it is economically feasible to form a large-scale closed dairy cooperative in the upper Midwest. Simulations were performed for both price and biological variables to calculate the cash flows for a large-scale closed dairy cooperative over the 1st 10 years of operation. The cash flows were calculated using a farm level financial model that was developed to incorporate the biologically driven production process into the cash flow model. The distribution of returns for the cooperative members were estimated and reported for different starting equity levels and different production growth paths. In addition, the probability of the cooperative failing was estimated. A logit regression model was used to estimate the impact of key variables on the probability of failure for the closed dairy cooperative. Based on the results of this research, forming a large-scale closed dairy cooperative in the upper Midwest appears to be a feasible approach for adding value to corn produced by farmers in the upper Midwest.</p>