Range / Livestock Economics George FrisvoldDepartment of Agricultural & Resource EconomicsUniversity of Arizona
Cattle Cycle …
… shockshave long-lived impacts
USDA Baseline
Beef Export Picture Trade restrictions
Rebound depends on opening Asian markets
Exports to Japan?
NAFTA Markets More Integrated …
Livestock Marketing Information Center
CATTLE IMPORTS FROM CANADA AND MEXICO
Annual
0
500
1000
1500
2000
1979 1982 1985 1988 1991 1994 1997 2000 2003
Thou. Head
Mexico
Canada
I-N-1312/16/05
. . . But what about safety, inspection, and trade institutions?
www.RightRisk.org
Strategic Risk Management Process
General InformationCrop Enterprise: Hay
Crop acres: 50 acres Normal annual yield per acre: 2.5 tonsProduction costs per acre: $60 Initial market price: $80.00 per ton
Initial inventory: 125 tons Annual government payment: $0
Livestock: Background Feeder SteersInitial inventory: 150 head Output unit:
Initial w eight: 650 lbs. Output date:Percent death loss: 1.5% Output w eight: 850 lbs.
Production costs per head: $140 Initial output market price: $84.55 per cw t.
Livestock Enterprise: CowsQuantity: 650 head Output unit:
Nonfeed production costs per unit: $230 Weaning percentage:Annual Hay Consumption per unit: 0.18 tons Output w eight per unit: 550 lbs.
Replacement percentage: 20% Initial output market price: $95.00 per cw t.Sale w eight per cull unit: 1100 lbs. Cull market price: $45.00 per cw t.
Public Grazing base: 4770 AUMs Private Grazing base: 2725 AUMs
Expected Revenues: Expected Expenses:Sales Revenue Expense
Weaned Calf 468 head $244,530 Hay 50 acres $3,000Cow s 130 head $64,350 Cow s 650 head $149,500
Yearlings 148 head $106,184 Background Feeder Steers 150 head $21,000Government payment: $0 Grazing expenses 7495 AUMs $119,929
Annual total: $415,064 Annual total: $293,429
EXPECTED ANNUAL RANCH CASH INCOME: $121,635EXPECTED 2-YEAR TOTAL NET INCOME: $158,086
Public Lands
Units
YearlingsApril 1
Units
The John Q. Public Ranch is a cow /calf/hay operation near the Arizona/Utah border. It is December 1st and they have 650 head of cow s that have been preg checked and are assumed to be pregnant. The cow s run predominantly on public grazing land. Calves a
Weaned Calf92%
Start
Exit
RightRisk: Public Lands Scenario
Decision-making & uncertainty“ When we want something, we always have to reckon with probabilities.”
- Jean – Paul Sartre, Existentialism, 1947
Period 1 Year 1: Dec. 1 - Apr. 1 Scenario: Public Lands
Cash Contract Current Expected Expected Contracted AveragePrice Price Inventory Harvest Feed Use Quantity Contract
$95.00 468 -$293,429$80.00 125 117$84.55 $88.11 148
4,7702,725 2,600
Risk 1Winter precip conditions Probability Price Yield Price Weaning % Weight Hay Use Public AUM s Private AUM s
5% +$20.00 -50 -$15.00 View +182 -477 -12515% +$10.00 -25 -$5.00 +65 -239 -12565% -$5.0015% -$20.00 +50 +$5.00 -1.0% +25 -117 +477 +273
Risk 2Corn planting intentions Probability Price Yield Price Weaning % Weight Hay Use Public AUM s Private AUM s
20% -$5.00 +$15.0065% +$5.00 +$5.0015% +$10.00 -$10.00
Feed Impacts
Feed Impacts
Weaned CalfHay
Bank balance:
Decision 2:
Commodity
Decision 1:De c is io ns
Buy(+) or Sell(-) Hay
DecideForward Price (800-900 lb.) Yearlings
Decide
Th e Bo o ks
Weaned Calf Impacts
Weaned Calf ImpactsHay Impacts
Yearlings
< 70 million acres70-80 million acres
Hay Impacts
> 80 million acres
Extremely Dry Winter
Public GrazingPrivate Grazing
Dry w interNormal w interWet w inter
Probabilities enter into decisions
Period 1 Scenario: Public Lands
Risk 1Winter precip conditions Probability Price Yield Price Weaning % Weight H ay Use Pub lic A U M s Privat e A U M s
5% +$20.00 -50 -$15.00 -50 +182 -477 -12515% +$10.00 -25 -$5.00 +65 -239 -12565% -$5.0015% -$20.00 +50 +$5.00 -1.00% +25 -117 +477 +273
Risk 2Corn planting intentions Probability Price Yield Price Weaning % Weight Hay Use Public AUM s Private AUM s
20% -$5.00 +$15.0065% +$5.00 +$5.0015% +$10.00 -$10.00
Cash Contract Current Contracted AveragePrice Price Inventory Harvest Feed Use Quantity Contract
$85.00 468 -$311,699$105.00 299$75.65 148 148
4,2932,600
Weaned Calf Information Hay Information92% 75500850
Feed Impacts
Feed Impacts
Th e Bo o ks
Normal w interWet w inter
Private GrazingBalance Inventory Inventory
< 70 million acres
> 80 million acres70-80 million acres
Dec. 1 - Apr. 1
Hay
CommodityWeaned Calf Bank balance:
Dry w inter
Hay Impacts
Results
Weaned Calf Impacts
Weaned Calf Impacts
Inventory-2,600
Harvest +148Feed Usage -182
Required purchase -$595.00 +7Contract Delivery +$37,446.75 -50
Expected Weaning Pct.Expected Weaning Wt.
Expected Hay Harvest
Yearling Weight
Hay Impacts
Extremely Dry Winter
Yearlings
Private GrazingPublic Grazing
Bank Hay Yearlings
Next
Period 2 Year 1: Scenario: Public Lands
Cash Contract Current Expected Expected Contracted AveragePrice Price Inventory Harvest Feed Use Quantity Contract
$85.00 468 -$216,531$105.00$73.95 $73.21
4,293 1,950
Risk 1 YearlingCorn crop condition report Probability Price Yield Price Weight Wt. Gain Hay Use Public AUM s Private AUM S
20% -$10.00 +$5.0065% -$2.0015% +$5.00 -$10.00
Risk 2 YearlingSpring precipitation conditions Probability Price Yield Price Weight Wt. Gain Hay Use Public AUM s Private AUM S
20% -$7.00 +25 +$5.00 +5 +140 +47750% -$2.00 +$1.00 +13023% +$5.00 -10 -$5.00 -5 +125 -2397% +$10.00 -25 -$10.00 -10 +120 -477
Excellent
Hay Impacts
Hay Impacts
Decide Decide
Hay
Excellent crop conditionsNormal crop conditionsPoor crop conditions
Normal
CommodityWeaned Calf
PoorVery poor
Th e Bo o ksBank balance:
Decide
Weaned Calf Impacts
Weaned Calf Impacts
Feed Impacts
Feed Impacts
Apr. 1 - Jul. 1De c is io ns
Buy(+) or Sell(-) Cow/Calf pairs Leasing additional private range Forward Price (900-1000 lb.) YearlingsDecision 1: Decision 2: Decision 3:
Public GrazingYearlings
Private Grazing
Maximum 313567.76 Median 143912.55Mean 145174.12 Standard deviation 76947.31Minimum -33655.10 10th percentile 35072.09
Distribution Analysis
Profit Distribution from 100 Repeated Plays
02468
10121416
Profit Category ($)
Perc
enta
ge
New Game
Compare Second Option
Climate change as draws from a different distribution
Cattle Cycle … USDA Baseline Beef Export Picture Exports to Japan? NAFTA Markets More Integrated … www.RightRisk.orgStrategic Risk Management ProcessDecision-making & uncertainty