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Expected Utility Analysis of Stocker Cattle Ownership Versus Contract Grazing in the Southeast

Author

Listed:
  • Anderson, John D.
  • Lacy, Curt
  • Forrest, Charlie S.
  • Little, Randall D.

Abstract

Stocker cattle ownership is compared to contract grazing using stochastic simulation. Returns are evaluated for both cattle owners and caretakers in contract grazing agreements. For caretakers, contract grazing is significantly less risky than cattle ownership. Slightly to moderately risk-averse caretakers could be expected to prefer some type of contract grazing to direct ownership of cattle. For cattle owners, contracting reduces risk only slightly while significantly reducing expected returns.

Suggested Citation

  • 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, Southern Agricultural Economics Association, vol. 36(03), December.
    • Handle: RePEc:ags:joaaec:43471
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    File URL: http://purl.umn.edu/43471
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    References listed on IDEAS

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    1. McBride, William D. & Key, Nigel D., 2003. "Economic And Structural Relationships In U.S. Hog Production," Agricultural Economics Reports 33971, United States Department of Agriculture, Economic Research Service.
    2. Wes Harrison, R. & 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, Cambridge University Press, vol. 28(02), pages 247-262, December.
    3. Thomas L. Sporleder, 1992. "Managerial Economics of Vertically Coordinated Agricultural Firms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 74(5), pages 1226-1231.
    4. 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), October.
    5. May, Gary & Jones, Rodney D. & Langemeier, Michael R. & Dhuyvetter, Kevin C., 2002. "Influence of Grazing Lease Terms on Economic Optimal Stocking Rates," Staff General Research Papers Archive 10078, Iowa State University, Department of Economics.
    6. Anderson, John D. & Coble, Keith H. & Miller, J. Corey, 2003. "Using Private Risk Management Instruments To Manage Counter-Cyclical Payment Risks Under The New Farm Bill," 2003 Conference, April 21-22, 2003, St. Louis, Missouri 18975, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    7. 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(02), pages 11-19, December.
    8. 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(02), December.
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    Citations

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    Cited by:

    1. Rama, Eric R. & Lacy, Curt, 2014. "An Economic Analysis of Three Stockering Systems in the Southeastern United States," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162476, Southern Agricultural Economics Association.
    2. Ruff, Shane P. & Peck, Dannele E. & Bastian, Christopher T. & Cook, Walter E., 2016. "Economics of Transitioning from a Cow-Calf-Yearling Operation to a Stocker Operation," Journal of the ASFMRA, American Society of Farm Managers and Rural Appraisers.

    More about this item

    Keywords

    contracts; expected utility; grazing; stocker calves; Q0; L1;

    JEL classification:

    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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