Optimal Returns and Risk Avoidance for a Small Part-Time Forage Livestock Farm

Abstract

This paper analyzes the trade-off between maximum expected net return, price risk, and yield risk, using a set of optimum farm plans for a representative limited resource forage-livestock farm. Optimum farm plans are derived from mathematical programming models which incorporate different risk avoidance objectives. Results from the analysis indicate that the maximum annual returns over variable costs vary only slightly across optimum farm plans. The minimum net returns received in bad years vary more significantly, however. Optimum farm plans for the limited resource farm turn out to be diversified plans that include the production and sale of beef, sheep, and corn or hay. The plans indicate that farmers who accept more risk would find it advantageous to produce more lambs. Farmers who accept less risk would sell some of their calf production at a 750 lb market weight instead of a 450 lb market weight. They would also stop selling corn and would decrease the number of lambs sold. Land and labor are the key resources limiting production on the representative farm, and the matching of feed requirements to on-farm feed production is the key determinant of the plans.