Range / Livestock Economics George FrisvoldDepartment of Agricultural & Resource EconomicsUniversity of Arizona

Cattle Cycle …

… shockshave long-lived impacts

USDA Baseline

Beef Export Picture Trade restrictions

Rebound depends on opening Asian markets

Exports to Japan?

NAFTA Markets More Integrated …

Livestock Marketing Information Center

CATTLE IMPORTS FROM CANADA AND MEXICO

Annual

0

500

1000

1500

2000

1979 1982 1985 1988 1991 1994 1997 2000 2003

Thou. Head

Mexico

Canada

I-N-1312/16/05

. . . But what about safety, inspection, and trade institutions?

www.RightRisk.org

Strategic Risk Management Process

General InformationCrop Enterprise: Hay

Crop acres: 50 acres Normal annual yield per acre: 2.5 tonsProduction costs per acre: $60 Initial market price: $80.00 per ton

Initial inventory: 125 tons Annual government payment: $0

Livestock: Background Feeder SteersInitial inventory: 150 head Output unit:

Initial w eight: 650 lbs. Output date:Percent death loss: 1.5% Output w eight: 850 lbs.

Production costs per head: $140 Initial output market price: $84.55 per cw t.

Livestock Enterprise: CowsQuantity: 650 head Output unit:

Nonfeed production costs per unit: $230 Weaning percentage:Annual Hay Consumption per unit: 0.18 tons Output w eight per unit: 550 lbs.

Replacement percentage: 20% Initial output market price: $95.00 per cw t.Sale w eight per cull unit: 1100 lbs. Cull market price: $45.00 per cw t.

Public Grazing base: 4770 AUMs Private Grazing base: 2725 AUMs

Expected Revenues: Expected Expenses:Sales Revenue Expense

Weaned Calf 468 head $244,530 Hay 50 acres $3,000Cow s 130 head $64,350 Cow s 650 head $149,500

Yearlings 148 head $106,184 Background Feeder Steers 150 head $21,000Government payment: $0 Grazing expenses 7495 AUMs $119,929

Annual total: $415,064 Annual total: $293,429

EXPECTED ANNUAL RANCH CASH INCOME: $121,635EXPECTED 2-YEAR TOTAL NET INCOME: $158,086

Public Lands

Units

YearlingsApril 1

Units

The John Q. Public Ranch is a cow /calf/hay operation near the Arizona/Utah border. It is December 1st and they have 650 head of cow s that have been preg checked and are assumed to be pregnant. The cow s run predominantly on public grazing land. Calves a

Weaned Calf92%

Start

Exit

RightRisk: Public Lands Scenario

Decision-making & uncertainty“ When we want something, we always have to reckon with probabilities.”

- Jean – Paul Sartre, Existentialism, 1947

Period 1 Year 1: Dec. 1 - Apr. 1 Scenario: Public Lands

Cash Contract Current Expected Expected Contracted AveragePrice Price Inventory Harvest Feed Use Quantity Contract

$95.00 468 -$293,429$80.00 125 117$84.55 $88.11 148

4,7702,725 2,600

Risk 1Winter precip conditions Probability Price Yield Price Weaning % Weight Hay Use Public AUM s Private AUM s

5% +$20.00 -50 -$15.00 View +182 -477 -12515% +$10.00 -25 -$5.00 +65 -239 -12565% -$5.0015% -$20.00 +50 +$5.00 -1.0% +25 -117 +477 +273

Risk 2Corn planting intentions Probability Price Yield Price Weaning % Weight Hay Use Public AUM s Private AUM s

20% -$5.00 +$15.0065% +$5.00 +$5.0015% +$10.00 -$10.00

Feed Impacts

Feed Impacts

Weaned CalfHay

Bank balance:

Decision 2:

Commodity

Decision 1:De c is io ns

Buy(+) or Sell(-) Hay

DecideForward Price (800-900 lb.) Yearlings

Decide

Th e Bo o ks

Weaned Calf Impacts

Weaned Calf ImpactsHay Impacts

Yearlings

< 70 million acres70-80 million acres

Hay Impacts

> 80 million acres

Extremely Dry Winter

Public GrazingPrivate Grazing

Dry w interNormal w interWet w inter

Probabilities enter into decisions

Period 1 Scenario: Public Lands

Risk 1Winter precip conditions Probability Price Yield Price Weaning % Weight H ay Use Pub lic A U M s Privat e A U M s

5% +$20.00 -50 -$15.00 -50 +182 -477 -12515% +$10.00 -25 -$5.00 +65 -239 -12565% -$5.0015% -$20.00 +50 +$5.00 -1.00% +25 -117 +477 +273

Risk 2Corn planting intentions Probability Price Yield Price Weaning % Weight Hay Use Public AUM s Private AUM s

20% -$5.00 +$15.0065% +$5.00 +$5.0015% +$10.00 -$10.00

Cash Contract Current Contracted AveragePrice Price Inventory Harvest Feed Use Quantity Contract

$85.00 468 -$311,699$105.00 299$75.65 148 148

4,2932,600

Weaned Calf Information Hay Information92% 75500850

Feed Impacts

Feed Impacts

Th e Bo o ks

Normal w interWet w inter

Private GrazingBalance Inventory Inventory

< 70 million acres

> 80 million acres70-80 million acres

Dec. 1 - Apr. 1

Hay

CommodityWeaned Calf Bank balance:

Dry w inter

Hay Impacts

Results

Weaned Calf Impacts

Weaned Calf Impacts

Inventory-2,600

Harvest +148Feed Usage -182

Required purchase -$595.00 +7Contract Delivery +$37,446.75 -50

Expected Weaning Pct.Expected Weaning Wt.

Expected Hay Harvest

Yearling Weight

Hay Impacts

Extremely Dry Winter

Yearlings

Private GrazingPublic Grazing

Bank Hay Yearlings

Next

Period 2 Year 1: Scenario: Public Lands

Cash Contract Current Expected Expected Contracted AveragePrice Price Inventory Harvest Feed Use Quantity Contract

$85.00 468 -$216,531$105.00$73.95 $73.21

4,293 1,950

Risk 1 YearlingCorn crop condition report Probability Price Yield Price Weight Wt. Gain Hay Use Public AUM s Private AUM S

20% -$10.00 +$5.0065% -$2.0015% +$5.00 -$10.00

Risk 2 YearlingSpring precipitation conditions Probability Price Yield Price Weight Wt. Gain Hay Use Public AUM s Private AUM S

20% -$7.00 +25 +$5.00 +5 +140 +47750% -$2.00 +$1.00 +13023% +$5.00 -10 -$5.00 -5 +125 -2397% +$10.00 -25 -$10.00 -10 +120 -477

Excellent

Hay Impacts

Hay Impacts

Decide Decide

Hay

Excellent crop conditionsNormal crop conditionsPoor crop conditions

Normal

CommodityWeaned Calf

PoorVery poor

Th e Bo o ksBank balance:

Decide

Weaned Calf Impacts

Weaned Calf Impacts

Feed Impacts

Feed Impacts

Apr. 1 - Jul. 1De c is io ns

Buy(+) or Sell(-) Cow/Calf pairs Leasing additional private range Forward Price (900-1000 lb.) YearlingsDecision 1: Decision 2: Decision 3:

Public GrazingYearlings

Private Grazing

Maximum 313567.76 Median 143912.55Mean 145174.12 Standard deviation 76947.31Minimum -33655.10 10th percentile 35072.09

Distribution Analysis

Profit Distribution from 100 Repeated Plays

02468

10121416

Profit Category ($)

Perc

enta

ge

New Game

Compare Second Option

Climate change as draws from a different distribution

Cattle Cycle … USDA Baseline Beef Export Picture Exports to Japan? NAFTA Markets More Integrated … www.RightRisk.orgStrategic Risk Management ProcessDecision-making & uncertainty