Feedlot finishing of beef cattle in Southern Alberta involves income risk due to the variability of prices of feeders, feed and finished cattle. Several strategies are available to reduce this risk, including hedging of cattle on feed, participation in a Federal- Provincial government and producer established income stabilization program for finished cattle (National Tripartite Stabilization Plan) and diversification of production plans. This study evaluated the efficacy and interaction effects of these strategies in reducing net income variability in cattle feeding in Southern Alberta. Concerns that were addressed included: (1) whether participation in hedging or Stabilization would increase firm-level slaughter cattle output, (2) whether portfolio effects exist between production and marketing alternatives, (3) whether participation in Stabilization would reduce participation in hedging (4) whether hedging performance could be increased by hedging the Canadian dollar, and (5) whether privately supplied hedging versus publicly supplied Stabilization is better able to handle income risk in cattle feeding. The theory of decision making under uncertainty was reviewed to determine how to best incorporate the risk aspects of the feedlot , management problem. Expected Value-Variance (EV)and safety-first risk analyses were identified as frameworks for formulation of the feedlot management problem in a mathematical programming context. Using data from 1976-87, linear risk programming (MOTAD and Target MOTAD) models of the feedlot process were constructed to analyze the alternatives for reducing income risk. Results for the 1986-87 feeding year suggested that, at moderate levels of risk aversion, feedlot managers should maintain high levels of hedging of both live cattle and the Canadian dollar with moderate participation (25 percent of cattle on feed) in the Stabilization plan. Significant portfolio effects were present. Hedging, but not Stabilization, was found to increase firm-level output by increasing the average weight to which a group of cattle would be finished. Participation in Stabilization was found to reduce hedging participation by an average of 10 percent. Hedging of the Canadian dollar improved the performance of live cattle hedging. Whether hedging was better at reducing risk and maintaining income than Stabilization depended on the definition of risk. / Graduation date: 1989

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Backgrounding cattle is risky. Large amounts of short-term capital are required to buy feeders and feedstuffs, and a ten month cost-revenue gap makes financial planning difficult. In addition, finished cattle prices are volatile and, frankly, unknown at the time the management places its feeders. Income risk and financial risk must be addressed by the management. Several strategies are available to reduce return risk, including anticipatory hedging with cattle futures contracts, placing custom feeders, placing feeders at different months and investing off-farm. This study developed a shot-term decision making model for a backgrounding operation that addresses the interaction between feeder ownership options, the feeder placement month, cash flow requirements, hedging alternatives, off-farm investments, the line of credit and the management's degree of risk-aversity. The following backgrounding issues were examined: (1) whether participation in a classical hedging program with Feeder and Live Cattle contracts would result in lower farm return variability and would increase owned feeder placements, (2) whether managements would be deterred from using hedging strategies if a gradually increasing downward BIAS was introduced, (3) whether managements would be deterred from using hedging strategies if margin calls had to be deposited during the hedging period and (4) to what extent cash flow constraints would affect the management's decision set. The literature of decision making under uncertainty was reviewed to determine the approach which would best accommodate the backgrounding management's risk concerns. The Expected Value-Variance analysis was identified to formulate these management concerns in a mathematical programming context. A quadratic programming model was chosen to derive the expected return and return standard deviation frontiers (risk-efficient frontiers). The participation in an anticipatory hedging program provided a compelling risk management tool for reducing the backgrounding operation's return variability. Compared to the no-hedging case, the standard deviation of returns was almost cut by half for the hedging case. The introduction of a downward BIAS reduced hedging ratios drastically, whereas margin calls hardly effected the use of hedging. Custom feeders proved themselves essential in closing the typical cost-revenue gap in backgrounding and, despite offering the lowest returns, enabled the backgrounder to engage in more risky activities.

Backgrounding cattle is risky. Large amounts of short-term capital are required to buy feeders and feedstuffs, and a ten month cost-revenue gap makes financial planning difficult. In addition, finished cattle prices are volatile and, frankly, unknown at the time the management places its feeders. Income risk and financial risk must be addressed by the management. Several strategies are available to reduce return risk, including anticipatory hedging with cattle futures contracts, placing custom feeders, placing feeders at different months and investing off-farm. This study developed a shot-term decision making model for a backgrounding operation that addresses the interaction between feeder ownership options, the feeder placement month, cash flow requirements, hedging alternatives, off-farm investments, the line of credit and the management's degree of risk-aversity. The following backgrounding issues were examined: (1) whether participation in a classical hedging program with Feeder and Live Cattle contracts would result in lower farm return variability and would increase owned feeder placements, (2) whether managements would be deterred from using hedging strategies if a gradually increasing downward BIAS was introduced, (3) whether managements would be deterred from using hedging strategies if margin calls had to be deposited during the hedging period and (4) to what extent cash flow constraints would affect the management's decision set. The literature of decision making under uncertainty was reviewed to determine the approach which would best accommodate the backgrounding management's risk concerns. The Expected Value-Variance analysis was identified to formulate these management concerns in a mathematical programming context. A quadratic programming model was chosen to derive the expected return and return standard deviation frontiers (risk-efficient frontiers). The participation in an anticipatory hedging program provided a compelling risk management tool for reducing the backgrounding operation's return variability. Compared to the no-hedging case, the standard deviation of returns was almost cut by half for the hedging case. The introduction of a downward BIAS reduced hedging ratios drastically, whereas margin calls hardly effected the use of hedging. Custom feeders proved themselves essential in closing the typical cost-revenue gap in backgrounding and, despite offering the lowest returns, enabled the backgrounder to engage in more risky activities. / Land and Food Systems, Faculty of / Graduate

A computer modeling experiment showed that grouping dairy cattle based on requirements of crude protein and net energy per kilogram expected dry matter intake (Grouper) had unique characteristics relative to other grouping systems. The objective of this study was to adapt the computerized Grouper system for practical use by implementing a field trial in commercial dairy herds to determine its managerial benefits and economic merit. Ten cooperating dairy herds participated in the one year trial. Herds were grouped monthly using test day information obtained from the Dairy Records Processing Center, Raleigh, NC and reports mailed to the cooperators. Feed consumption data and a record of cows not placed according to Grouper recommendations were collected during monthly herd visits or by mail. One set of analyses examined trends in Dairy Herd Improvement (DHI) variables through trial duration while another set compared Grouper to a comparable milk production grouping program with all herd test day information grouped with both systems. No significant changes in DHI variables could be attributed to the Grouper system. Grouper retained younger, smaller cows and those with higher fat test in the high group longer and moved older, larger cows and cows with lower fat test into the low group sooner than grouping by milk production. Grouper produced higher intraclass correlations among cows in groups for percent Total Digestible Nutrients (0.59 versus 0.41) and percent crude protein (0.65 versus 0.57) than milk production grouping. Economically, Grouper was significantly more expensive when comparing systems based on average feed cost per cow per day. However, this did not consider increased income or decreased costs associated with the system or account for possible benefits such as better health and higher production resulting from feeding more precisely each individual's nutrient requirements. The Grouper program has been automated to be used through either a dairy records processing center or an individual microcomputer and can be considered a practical management tool to help the dairy manager group cows more efficiently and feed more accurately. / Master of Science

The production of forage in British Columbia plays and integral role in sustaining livestock herds within the province. Forage is an important component in the daily feed requirements of horses, sheep, and cattle. Fluctuations in the availability of forage due to drought or bad weather conditions can impose considerable costs on farmers who raise livestock. Wide—spread drought conditions can significantly limit the availability of forage crops within certain regions, causing prices within those regions to become inflated. Under standard insurance in British Columbia, farmers are only insured against shortfalls in production; there is no compensation provided against increases in the price of forage. For those purchasing forage, a Wide—Spread Drought (WSD) insurance scheme would provide insurance against the price—risk associated with drastic weather conditions. However, since forage prices are required to operate such a policy and are non—observable, a mechanism is needed in order to estimate them. A regional spatial price—equilibrium model which relates regional prices to regional production is developed in this thesis. The model will eventually be used to predict prices and hence determine whether a particular region is eligible for a payout under the WSD insurance scheme. A key assumption behind the model is that according to the ‘Law of One Price’; prices are perfectly arbitraged. In a competitive setting, in which agents maximize individual welfare, total welfare is maximized and prices between regions will not differ by more than the transportation costs. This spatial price—equilibrium model is applied to British Columbia forage production. The regions incorporated in the study include the Peace River, Central Interior, Cariboo—Chilcotin, Thompson—Okanagan, and Kootenay Regions. The Lower Mainland/Fraser Valley and Vancouver Island are excluded as they do not typically fall under the forage crop insurance plan in British Columbia.

The production of forage in British Columbia plays and integral role in sustaining livestock herds within the province. Forage is an important component in the daily feed requirements of horses, sheep, and cattle. Fluctuations in the availability of forage due to drought or bad weather conditions can impose considerable costs on farmers who raise livestock. Wide—spread drought conditions can significantly limit the availability of forage crops within certain regions, causing prices within those regions to become inflated. Under standard insurance in British Columbia, farmers are only insured against shortfalls in production; there is no compensation provided against increases in the price of forage. For those purchasing forage, a Wide—Spread Drought (WSD) insurance scheme would provide insurance against the price—risk associated with drastic weather conditions. However, since forage prices are required to operate such a policy and are non—observable, a mechanism is needed in order to estimate them. A regional spatial price—equilibrium model which relates regional prices to regional production is developed in this thesis. The model will eventually be used to predict prices and hence determine whether a particular region is eligible for a payout under the WSD insurance scheme. A key assumption behind the model is that according to the ‘Law of One Price’; prices are perfectly arbitraged. In a competitive setting, in which agents maximize individual welfare, total welfare is maximized and prices between regions will not differ by more than the transportation costs. This spatial price—equilibrium model is applied to British Columbia forage production. The regions incorporated in the study include the Peace River, Central Interior, Cariboo—Chilcotin, Thompson—Okanagan, and Kootenay Regions. The Lower Mainland/Fraser Valley and Vancouver Island are excluded as they do not typically fall under the forage crop insurance plan in British Columbia. / Land and Food Systems, Faculty of / Graduate

Call number: LD2668 .T4 1986 N44 / Master of Science / Agricultural Economics