Risk management by livestock producers : a ranch simulation in the Texas Rolling Plains

Abstract

Uncertain forage production created by variation in climatic conditions and encroachment of undesirable brush species provide much of the business risk facing range livestock producers. This study focused on the evaluation of range improvement techniques which may decrease economic losses occurring from operating in this complex and uncertain environment. The investment alternatives in question were implementation of grazing systems and control of mesquite infestations. Nine scenarios were examined. They included the combination of three grazing strategies (conventional grazing, deferred rotational grazing, and rotational grazing) with three mesquite control alternatives (no treatment, aerial spraying with triclpyr, and aerial spraying followed by maintenance burning). A representative ranch for the eastern portion of the Texas Rolling Plains was used for the study. The model developed for this analysis was stochastic, dynamic, and recursive. Using Monte Carlo techniques, several random variables were simulated over a twenty-year planning horizon for 100 iterations. The random variables included climatic conditions, stocking rates, success of brush control, cattle weights, conception and death rates, supplementation rates, and labor requirements. Stochastic cattle prices were also developed by projecting the cattle cycle via harmonic functions. Stochastic dominance was used to determine efficient sets for ranchers who were risk averse, risk neutral, or risk loving. Two conventional grazing scenarios, aerial spraying and spraying plus burning, were equally preferred by the risk neutral and risk averse categories. The second preference group consisted of a rotational grazing strategy using a aerial spraying practice. The risk lover's most efficient set included only the conventional grazing strategy coupled with aerial spraying. Results showed is was economically pertinent to control mesquite infestations. The grazing strategies studied obtained negative average net present values under no brush control options. Overall farm profitability and solvency were greatest under the conventional grazing strategy controlling mesquite with aerial spraying or spraying followed by maintenance burns. Holding brush control practices constant, it was not profitable to alter cattle production by deviating from conventional grazing. These conclusions must be qualified, though, due to the limitations of the assumptions and data used in this study.