The profitability of dairy farms varies considerably from year to year because milk represents the main source of income and milk prices are quite volatile. For existing farms, one could expect an average of 7 or 8 percent return on all assets (investment) in years of above-average milk prices and a return of close to zero in years of below-average prices. These rates of return do not consider any appreciation of land values. However, there is wide variation among farms in any given year, and some farms consistently produce returns that are significantly above these averages.

New dairy farms and farms considering major new investments are advised to develop plans with projected rates of return that are significantly higher than the interest rate on farm loans and to develop detailed cash flow projections for the start-up phase.