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Risk Sharing in Custom Cattle Feeding
Author(s) -
Weimar Mark R.,
Hallam Arne
Publication year - 1990
Publication title -
applied economic perspectives and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.4
H-Index - 49
eISSN - 2040-5804
pISSN - 2040-5790
DOI - 10.1093/aepp/12.2.279
Subject(s) - feedlot , incentive , fed cattle , variance (accounting) , feeder cattle , point (geometry) , business , economics , agricultural science , agricultural economics , microeconomics , zoology , mathematics , environmental science , biology , geometry , accounting
A simulation model is used to evaluate the risks and returns to feedlot operators and cattle owners in the upper Midwest that occur with alternative types of custom cattle feeding contracts. Historical price data were combined with seasonal performance data to analyze the seasonal incentives for different risk‐sharing arrangements. Seasonal returns varied significantly both as to mean and variance and point out the need for seasonally varying contract terms. Feedlot owners are significantly better off with yardage fee contracts as opposed to cost‐of‐gain contracts in terms of return variance, whereas cattle owners are only slightly better off with guaranteed cost‐of‐grain contracts.