To contract or not to contract? A decision theory and portfolio analysis of cattle contract grazing
Teegerstrom, T.; D' Souza, G.; Osborne, P.; Jones, K.
Agricultural and Resource Economics Review 26(2): 205-215
1997
ISSN/ISBN: 1068-2805 Document Number: 266837
An analysis is conducted of contract grazing in comparison with retained ownership of cattle using two frameworks, namely, decision theory and portfolio analysis. The contractual arrangement depicted is the contract grazing of feeder cattle, an arrangement whereby cattle owned by one party (the cattle owner) utilize the pasture resources of another party (the landowner) in exchange for a previously negotiated price per pound of gain. The analysis employs data from a 1993 survey of West Virginia contract grazers together with price and cattle weight data for the period 1989-92. Contracting is found to be optimal under a wide range of price and weather scenarios and decision criteria. It also dominates other alternatives based on labour efficiency measures. The optimal portfolio consists of contract grazing and pasture rental, with the results insensitive to small changes in contract grazing returns. The decision theory and portfolio analyses are complementary; together, the two sets of results provide a comprehensive view of the optimal production alternative.