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Adaptive Planning Over the Cattle Price Cycle

Published online by Cambridge University Press:  28 April 2015

Ernest Bentley  and
C. Richard Shumway
Ernest Bentley
Affiliation:
Virginia Tech
C. Richard Shumway
Affiliation:
Texas A&M University and Visiting Scholar, Department of Economics, Harvard University
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Cycles in beef cattle inventories and prices have been documented as far back as 1880 (Breimyer). The inability to identify optimal herd management strategies in response to fluctuating cattle prices is frequently blamed for the low historical returns received by cattle producers (Farris and Mallett). Cattle producers typically react to rising prices by increasing the size of their breeding herd and liquidating a portion of the herd when prices decline. Long lags between the time a cow is bred and the time her calf is weaned and ready for market make it difficult for cow-calf operators to make optimal long-run production plans. And because a cow has a long productive life, several years are required to evaluate the decision to invest in a larger breeding herd by adding more heifers. During this period, prices may fluctuate drastically, so that with hindsight, the decision to increase the investment in the herd may have been a poor choice. The same problem occurs when the herd is liquidated because of dim prospects of earning an immediate profit from the intact herd. The use of other resources probably does not fluctuate much over the cattle cycle. Bebout discovered that land committed to calf production remains fairly constant even in periods of low profits.

Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 13 , Issue 1 , July 1981 , pp. 139 - 148
Copyright
Copyright © Southern Agricultural Economics Association 1981

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