Stochastic simulation of the economic viability of feedlot steers fed with different proportions of concentrate

Rodrigo Medeiros Da Silva,Fabiano Nunes Vaz,Paulo Santana Pacheco,Rodrigo Zaiden Taveira,Angelina Camera,Josiane Rodrigues Miollo,Edom De Avila Fabricio

doi:10.14393/bj-v33n1a2017-33608

Abstract

The economic viability of feedlot zebu bulls, slaughtered at 450 kg after 90 days of feeding with diets consisting of different proportions of concentrate in dry matter (40, 60 or 80%), was estimated using Monte Carlo simulations, with or without the inclusion of Spearman rank correlations among random input variables, stochastic dominance (DOM) and sensitivity analysis (SENS). The roughage used was chopped sugar cane. Cash flow with indicators of performance, and probability distributions of all items of cost and revenue (from 2003 to 2014), were used to stimulate net present value (NPV), the financial indicator. Latin hypercube sampling and a Mersenne Twister random number generator were employed for the simulation with 2000 interactions. The risk was found to be more accurately estimated when correlations between random input variables were included (probability of NPV ≥ 0 ± standard deviation was 35 ± 166.05% and 31 ± 139.75% for the simulation without and with correlation, respectively). Considering this result, DOM and SENS were only carried out including these correlations. The expected value for NPV was similar between the different levels of concentrate (average USD -62/animal and NPV ≥ 0 of 33%) according to DOM analysis of simulations including correlations. From the SENS analysis, the final weight, finished cattle price, feeder cattle price and initial weight were the items with the greatest influence on NPV, regardless of the level of concentrate used, followed by intake and the cost-related items of diet and minimum rate of attractiveness. Based on the results obtained by simulation, the direct benefit of feedlot could be classified as high risk, suggesting the increased use of Monte Carlo simulation for decision-making.

Highlights

According to estimates by Anualpec (2015), between 2006 and 2014 there was a 102% increase in feedlot-finished cattle in Brazil, with this technology applied to approximately 10% of total cattle slaughtered
Minimum and maximum values were greater in the simulation without correlation between input variables when compared to simulation with the correlation included, indicating a higher risk
The values of standard deviation (SD) differed between simulations with and without correlation, in which the estimated risk to economic viability from the different levels of concentrate was underestimated by 19% when correlations between the random input variables were not included

Summary

Introduction

According to estimates by Anualpec (2015), between 2006 and 2014 there was a 102% increase in feedlot-finished cattle in Brazil, with this technology applied to approximately 10% of total cattle slaughtered. Many states in Brazil have adopted feedlot technology, aimed at determining their direct benefit These are mainly localized in the southeast and midwest regions, where there are large investment projects of finishing cattle, exploring business models including custom feeding feedyard, partnerships, and the purchase of lean animals. In each of these situations, decisionmaking between whether or not to invest requires knowledge of several relevant factors, such as the season of year for fattening, slaughter weight (PACHECO et al, 2014a), category for confinement (PACHECO et al, 2014b) and concentrate level (MISSIO et al, 2009). Studies in the literature have suggested that random variables (inputs) do not always show independent variation among themselves (TOURAN; WISER, 1992; ALBRIGHT et al, 2010). Pacheco et al (2014b) estimated a 51% reduction in risk associated with feedlot-finished steers when simulation was combined with correlation among random input variables

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