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Optimal Marketing Decisions for Feeder Cattle under Price and Production Risk

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  • Wang, Xuecai
  • Dorfman, Jeffrey H.
  • McKissick, John
  • Turner, Steven C.

Abstract

In many parts of the U.S., beef cattle production is a large sector of the agricultural economy, yet few of the cattle are stockered; instead the production is focused on cow-calf operations only. Restricting their Operation to only the first phase of beef production may be limiting the cattle owners’ profit potential. This paper examines the opportunities for Operators to earn additional profit from stockering cattle. Using a representative risk-averse producer, a decision set with seven possible marketing strategies is evaluated for the optimal decision in a Bayesian framework which allows for price and production risk. We find that in many instances retaining the cattle for stockering is a superior decision when done in conjunction with specific hedging strategies utilizing options and futures contracts.

Suggested Citation

  • Wang, Xuecai & Dorfman, Jeffrey H. & McKissick, John & Turner, Steven C., 2001. "Optimal Marketing Decisions for Feeder Cattle under Price and Production Risk," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 33(3), pages 431-443, December.
    • Handle: RePEc:cup:jagaec:v:33:y:2001:i:03:p:431-443_03
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    References listed on IDEAS

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    1. Ethridge, Don E. & Zhang, Ping & Dahl, Bill E. & Ervin, R. Terry & Rushemeza, Justin, 1990. "Cattle Ranching Production And Marketing Strategies Under Combined Price And Weather Risks," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 15(2), pages 1-11, December.
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    1. Vassalos, Michael & Dillon, Carl R. & Coolong, Timothy, 2013. "Optimal Land Allocation and Production Timing for Fresh Vegetable Growers under Price and Production Uncertainty," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 45(4), pages 1-16, November.
    2. Blank, Steven C. & Saitone, Tina L. & Sexton, Richard J., 2014. "Seller-Offered Forward Contracts: An Additional Benefit to Cattle Producers from Satellite Video Auctions," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162323, Southern Agricultural Economics Association.

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