Abstract
In this work, the value of existing operational flexibility is evaluated, its emergence being attributable to the Brazilian livestock alternatives for cattle fattening, i.e. by maintenance in pasture or through confinement. This crucial sector of the Brazilian economy, the second largest in the world, is highly fragmented, features low return margins and is subject to significant uncertainty factors. Confinement increases cattle fattening speed and when compared against maintenance in pasture it maximizes return on investment for farmers. In spite of this, confinement decision making is dependent upon appropriate time management. Confinement also poses risks related to the volatility of feed costs. Through the Real Options management methodology, assessment of financial growth in livestock fattening is directly linked to flexibility of timing in the transfer of cattle from pasture to confinement, with the presence of associated uncertainties. The results indicate that there is a significant increase in financial returns through containment, calculated using the return per head system. They also point to the importance of correct confinement timing to maximize returns.
Highlights
According to USDA (2013) (Department of Agriculture of the United States), Brazil is the world's second largest meat producer since 2009
According to a survey from the Center for Advanced Studies in Applied Economics - (CEPEA / ESALQ, 2014), Gross Domestic Product (GDP) of livestock was R$332.6 billion, representing approximately 30.5 % of total GDP in agribusiness 2013, which shows that livestock has a large representation in the Brazilian economy
According to Silveira (2002), the results presented in the cattle sector are due to the intense structural change in recent years occurring through various activities, i.e. the increased application of technology and more efficient management models, ensuring a prominent position on the international scene
Summary
According to USDA (2013) (Department of Agriculture of the United States), Brazil is the world's second largest meat producer since 2009. In 2012, domestic production was 9.2 million tons, representing approximately 16% of the total world production. The Brazilian domestic market is among the three largest consumers, with 7.9 million tons in 2012 (USDA). According to estimates by Anualpec (2012), domestic consumption of beef per capita nationally is 34.5 kg per person per annum, similar to countries like the United States (35.3 kg) and Australia (36.1 kg). According to a survey from the Center for Advanced Studies in Applied Economics - (CEPEA / ESALQ, 2014), Gross Domestic Product (GDP) of livestock was R$332.6 billion, representing approximately 30.5 % of total GDP in agribusiness 2013, which shows that livestock has a large representation in the Brazilian economy
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