Analyzing ranch profitability from varying cow sales and heifer replacement rates for beef cow-calf production using system dynamics
Ranching involves complex systems and management decisions, which play an important role in financial profits and herd dynamics. A simulation model was built to evaluate the dynamics of a cow-calf ranch under various marketing scenarios. The main objective of this project was to evaluate the impact of three different total cow sales scenarios (low=10%, medium=20% and high=30% of the total cowherd) on ranch Net Income (NI) and Return on Investment (ROI). The system dynamics methodology was used to develop the model and data from a ranch over the period 1996 to 2007 was used to calibrate the model and to perform sensitivity analysis. The data analysis indicated the ranch retained as much as 95% of their annual weaned heifer calves (Bos taurus) to be used in their heifer development program because a large portion of the cowherd was marketed every year. Furthermore, management was rewarded based on performance related to NI and this incentive system has caused an increase in the sales rate of older cows as bred cow replacements. The primary research question was whether the same marketing decisions would have been made if rewards were based on ROI compared to NI. Identifying profit leverage points and understanding what the impact in decreasing heifer replacement rate on NI were secondary interests. Profit leverage points were identified by changing selected variables ±10% from the observed values for the 12-year period while all other variables were held constant. The NI was sensitive to cow pregnancy rate, but it was not sensitive to heifer pregnancy rate or decreasing heifer retention rate prior to the development phase. The model predicted that as cow culling rate increased (i.e. from low to high), NI and ROI also increased. Over the simulated timeframe (i.e. 12years), the high cull rate scenario returned the highest average NI (44% and 19% greater than low and medium, respectively), the greatest average net investments (1.19% and 0.66% greater than low and medium, respectively) and the highest average ROI at 20.55% (versus 14.64% and 17.27% for low and medium, respectively). These results suggested the same marketing decisions would have been made regardless of the bonus incentive structure. The SD model built for this project can be used to develop a web-based, distance education flight simulator that cattle producers and academic researchers can use to model specific production scenarios for their own operation or geographic region.
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