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To Contract Or Not To Contract? A Decision Theory And Portfolio Analysis Of Cattle Contract Grazing

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  • Teegerstrom, Trent
  • D'Souza, Gerard E.
  • Osborne, Phillip
  • Jones, Kezelee Q.

Abstract

Contract grazing is compared with retained ownership of cattle using two frameworks-decision theory and portfolio analysis. The study area is West Virginia. Contracting is optimal under a wide range of price and weather scenarios and decision criteria. It also dominates other alternatives based on labor efficiency measures. The optimal portfolio consists of contract grazing and pasture rental, with the results insensitive to small changes in contract grazing returns. The decision theory and portfolio analyses are complementary; together, the two sets of results provide a comprehensive view of the optimal production alternative. Because different agents employ different decision criteria, this approach can increase the utility of results to decision makers and contribute to better decisions.

Suggested Citation

  • Teegerstrom, Trent & D'Souza, Gerard E. & Osborne, Phillip & Jones, Kezelee Q., 1997. "To Contract Or Not To Contract? A Decision Theory And Portfolio Analysis Of Cattle Contract Grazing," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 26(2), pages 1-11, October.
    • Handle: RePEc:ags:arerjl:31566
    DOI: 10.22004/ag.econ.31566
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    References listed on IDEAS

    as
    1. Heifner, Richard G. & Wright, Bruce H. & Plato, Gerald E., 1993. "Using Cash, Futures, and Options Contracts in the Farm Business," Agricultural Information Bulletins 309680, United States Department of Agriculture, Economic Research Service.
    2. repec:ags:agsaem:288652 is not listed on IDEAS
    3. Johnson, Frank & Spreen, Thomas H. & Hewitt, Timothy, 1987. "A Stochastic Dominance Analysis of Contract Grazing Feeder Cattle," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 19(2), pages 11-19, December.
    4. Harrison, R. Wes & Bobst, Barry W. & Benson, Fred J. & Meyer, Lee, 1996. "Analysis Of The Risk Management Properties Of Grazing Contracts Versus Futures And Option Contracts," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 28(2), pages 1-16, December.
    5. Porter, R Burr & Gaumnitz, Jabk E, 1972. "Stochastic Dominance vs. Mean-Variance Portfolio Analysis: An Empirical Evaluation," American Economic Review, American Economic Association, vol. 62(3), pages 438-446, June.
    6. Musser, Wesley N. & Martin, Neil R., Jr. & Wise, James O., 1975. "The Beef Cow-Calf Enterprise In The Georgia Piedmont: A Case Study In Conspicuous Production," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 7(01), pages 1-7, July.
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    Cited by:

    1. Anderson, John D. & Lacy, Curt & Forrest, Charlie S. & Little, Randall D., 2004. "Expected Utility Analysis of Stocker Cattle Ownership Versus Contract Grazing in the Southeast," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 36(3), pages 719-730, December.
    2. Anderson, John D. & Lacy, Curt & Forrest, Charlie S. & Little, Randall D., 2003. "Stocker Cattle Ownership Vs. Contract Grazing: A Comparison Of Risk-Adjusted Returns," 2003 Annual Meeting, February 1-5, 2003, Mobile, Alabama 35055, Southern Agricultural Economics Association.

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