Master of Science / Department of Agricultural Economics / Kevin C. Dhuyvetter / Risk is an inevitable part of production agriculture. Price risk is especially a concern for
cattle producers in the Midwest. Producers can curtail profit volatility, to an extent, through the
utilization of price risk management strategies such as forward contracting, hedging, using put
and call options, Livestock Risk Protection Insurance (LRP), as well as Livestock Gross
Insurance (LGM) for feedlot cattle.
Learning about such price risk management tools can be a daunting task. Kansas State
University Extension created a computer based simulation workshop to assist them in teaching
cattle producers about price risk management strategies. The simulation paralleled a lecture
where participants learned of the price risk management strategies that are available. The
simulation allowed the workshop participants to practice using the management strategies as they
assumed the role of a feedlot or ranch manager in charge of marketing the operation's calves. In
a cooperative effort with Iowa State University, Kansas State University presented the Cattle
Risk Management Workshops across the state of Iowa. Participants were given pre-and posttests
to measure the effectiveness of the workshop. The overall post-test scores were 25
percentage points higher than the pre-test scores.
This research also discusses the interest and perceptions of cattle producers regarding
price risk management strategies. The effectiveness of simulations as a teaching tool in helping
producers learn about price risk management strategies is also reviewed. In addition, the various
price risk management strategies available to producers, as well as seasonality of prices and basis
are analyzed.
This research also explains and estimates the LRP Feeder Cattle Basis Model. The LRP
Feeder Cattle Basis Model was developed with the objective of assisting producers in forecasting
LRP basis. The model was developed using similar methodology applied in the creation of a
CME basis forecasting model developed by Kansas State University Extension and Custom Ag
Solutions, Inc. The LRP Feeder Cattle Basis Model automatically adjusts for the LRP price
adjustment factor applied to beef steer calves weighing less than 600 pounds, and beef heifers
weighing 600-900 pounds. The LRP Feeder Cattle Basis Model explains 71.37 percent of the
variation of LRP basis.
| Identifer | oai:union.ndltd.org:KSU/oai:krex.k-state.edu:2097/759 |
| Date | January 1900 |
| Creators | Wray, Vicki Lorraine |
| Publisher | Kansas State University |
| Source Sets | K-State Research Exchange |
| Language | en_US |
| Detected Language | English |
| Type | Thesis |
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