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Determining the Optimal Selling Time of Cattle: A Stochastic Dynamic Programming Approach

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  • Susana Mejía

    ()

  • Andrés Ramírez Hassan

    ()

Abstract

The world meat market demands competitiveness and optimal livestock replacement decisions can help to achieve this goal. We introduce a novel discrete stochastic dynamic programming framework to support a manager’s decision-making process of whether to sell or keep fattening animals in the beef sector. In particular, our proposal uses a non-convex value function, combining both economic and biological variables, and involving uncertainty with regard to price fluctuations. Our methodology is very general, so practitioners can apply it in different regions around the world. We illustrate the model’s convenience with an empirical application, finding that our methodology generates better results than actions based on empirical experience.

Suggested Citation

  • Susana Mejía & Andrés Ramírez Hassan, 2015. "Determining the Optimal Selling Time of Cattle: A Stochastic Dynamic Programming Approach," DOCUMENTOS DE TRABAJO CIEF 013679, UNIVERSIDAD EAFIT.
  • Handle: RePEc:col:000122:013679
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    File URL: https://repository.eafit.edu.co/handle/10784/7349#.VetHmJ1Vikp
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    Keywords

    Decision Analysis; Farm Management; Simulation.;

    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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