Herd Size Management using Cattle Cycle Price Signals and Weather Uncertainty

The third most consumed meat around the world is beef. Despite global demand side growth, cattle markets experience price cycles related to biological production lags causing variability in cashflow and profitability for producers. Price-driven herd size management strategies thus have received attention. This study adds to that literature by analyzing both price and production risk using three herd size management strategies: i) constant size – holding herd size constant; ii) dollar cost averaging – keeping reinvestment constant by varying the number of replacement heifers retained at a constant long run average dollar total; and iii) moving average – using an uptrend/downtrend price signal to lower/increase production in anticipation of future price declines/increases. These strategies are evaluated with and without weather induced forage availability changes that impact the relative profitability and risk of these strategies over the most recent 2004-2014 cattle cycle. This analysis is useful for decision makers of medium- to large-scale cow-calf operations. Results suggest that price signal-based strategies can enhance profitability but the managerial cost required for this type of herd size management is deemed larger than its benefit. Weather risk did not impact this conclusion.