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About the article
Published Online: 2013-11-02
This is true as long as milk prices cover at least variable costs of production, even if revenue is not sufficient to compensate for capital costs and management efforts.
A listing of producer groups in support of DMSP is available at http://www.nmpf.org/files/Coalition-of-Dairy-Organizations-Supporting-DSA-050813.pdf
$/cwt is price per hundredweight.
All equilibrium mentioned in the text refers to the familiar subgame perfect Nash equilibrium.
Rather than letting each dairy style have a different cost parameter in the feed shock state, we could have allowed the solvency parameter S, , to differ with reflecting the larger cash flow requirements of FB dairies. All results follow through with minor notational differences.
The assumption of risk neutrality is purely made for convenience and ease of exposition. The results presented are robust to the inclusion or risk preferences at the cost of additional notation with no added intuition.
Major dairy feeds include corn silage and soybean meal.
The evidence documented in Merlo (2012) suggests this is the case.