Date of Award:

5-2010

Document Type:

Thesis

Degree Name:

Master of Business Administration (MBA)

Department:

Applied Economics

Advisor/Chair:

Dr. Dillon M. Feuz

Abstract

This was a study on the Utah cattle industry which compared five different feeding enterprises. These feeding enterprises included feeding cull cows, finishing beef yearling steers, finishing Holstein yearling steers, backgrounding beef steer calves, and backgrounding Holstein steer calves. The main purpose of this study was to determine which feeding enterprise was the most profitable for Utah cattle producers. Another objective of the study was to determine if LRP insurance lowered the volatility in the returns to these feeding enterprises. In order to answer these two questions of interest, a historical analysis of Utah cattle and feed prices was conducted from 1990 through 2009. Weekly sales data were used, and seasonality and price trends were determined. Next, enterprise budgets were created for each feeding enterprise to establish historical returns. Then, using the historical data as a foundation, a simulation analysis was run to forecast future returns and determine the risk associated with each feeding enterprise. LRP insurance was also added to the model to simulate the effects it had on lowering risk. After completing a simulation analysis and comparing means and standard deviations of the expected returns, portfolio theory was used to put the feeding enterprises into different portfolios to attempt to lower risk. Then stochastic dominance was used to conclude which feeding enterprise was the most preferred for Utah cattle producers. The results of the study depend upon the producer's level of risk. The majority of producers have an ARAC value between -0.0002 and 0.0012. With that knowledge, the results suggested that the majority of Utah cattle producers should finish Holstein yearling steers. If a producer was highly risk seeking, then he or she was better off to feed cull cows. If the producer was highly risk averse, then he or she preferred a portfolio of cull cows and backgrounding both Holstein and beef steers with LRP insurance. The results of the study also indicated that LRP insurance was an effective tool for lowering the variability in expected returns. However, the results suggested that the most preferred option for Utah cattle producers was to feed either cull cows or Holstein yearling steers without LRP insurance.

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