Dairy farmers in Virginia are confronted with the problem of continually re-organizing and adjusting their farming operations in an effort to maintain or improve their competitive position. Increasing competition in dairying within the state, as well as potential competition developing in areas outside of the state, makes it essential that dairymen operate efficiently. In particular, they must give careful consideration to various ways of reducing their production costs. Feed costs make up 50 to 60 percent of the total cost of producing milk. Consequently, the feeding program on any dairy farm greatly affects the cost of producing milk and, ultimately, the net return to the farmer. This study had four objectives: (1) to determine the available resources and their restrictions on the farms included in this study; (2) to determine an optimum forage and grain production system and forage to grain feeding ratio for three levels of milk production per cow with milk sales at the blend price not to exceed the present total base sales; (3) to determine which of the three levels of milk production is the most profitable at the present blend price of $5.73 per 100 pounds; (4) to study the effect of changes in the price of milk on the relative profitability of the three levels of production per cow and the forage-to-grain feeding ratios when the amount of profitable milk production is less than the present base. / Master of Science

Dairy farming in Virginia could be more profitable if price and yield risks affecting the cost and availability of feed inputs such as corngrain, corn silage, alfalfa and ryelage are reduced. Price and yield risk facing dairy farmers in Virginia can be reduced through a marketing strategy like hedging and government commodity program participation. The overall objective of this study is to evaluate how the variability of price and yields of particular feed crops affect the variability of expected returns in dairy farming. Specific objectives include: 1) to evaluate the relationship between feed production risk and the level and variability of net returns for a representative dairy farm in Virginia; 2) to evaluate the relationship between price risks of purchased feed inputs and the variability of net returns; 3) to draw implications from the results that can be used to help dairy farmers better manage feed production risk. To accomplish these objectives, the target MOTAD risk analysis technique is used. The empirical model is developed in four steps. First, the model activities such as milking and feeding of cows, heifer and calf activities, crop production, harvesting, labor, and buying and selling activities were created. Second, variable yields based on probability elicitation from dairy farmers were generated. Third, variable prices based on commodity options were generated; and fourth a target income constraint was derived. Results from the analysis indicated that the target income constraint was exceeded in every state of nature for the representative farm resulting in an efficiency frontier of a single point. Increasing the assumed debt-asset ratio and annual debt service requirement, resulted in a risk-return tradeoff with lower levels of risk (measured as mean deviation below target or MDBT) being obtained at the expense of lower levels of expected returns. At a higher debt asset-ratio, when the mean deviation below target (MDBT) was varied over a range of values, the quantity of crops harvested also varied. The average harvested acres of alfalfa and corn silage increased as the MDBT increased while the harvested acres of corn grain and ryelage decreased. Alfalfa harvest is increased because less forage in terms of ryelage is harvested and the average quantity of corn grain decreases as the MDBT increases because more com silage is grown in place of the costlier but less risky ryelage. The results show that hedging and participation in the government feed grain program could lead to effective risk reduction and increases in expected returns for the dairy farmer. Government program participation increased expected returns at all debt-asset ratios. Both government programs and hedging reduced risks at higher debt-asset ratios. Government program participation led to larger gains in expected returns as the availability of land increased. / Master of Science