Optimal decision alternatives for acquiring bred beef heifers by Montana producers

Abstract

Montana cattlemen traditionally replace beef cows culled from the breeding herd with bred heifers produced from within their ranching operations. The purpose of this study is to compare alternative methods commercial cow-calf operators could utilize to acquire bred beef heifers. It is hypothesized that Montana ranchers could decrease the expected present cost of obtaining bred heifers by choosing acquisition alternatives appropriate to the current and lagged state of the cattle and feed market. A behavioral price model for Montana bred beef heifers is theoretically developed and estimated. Time series equations that predict bred heifer price and feeder heifer price are estimated. Montana barley and alfalfa price series are combined in a weighted sum to form a price series used to construct a time series equation that will predict feed ration price per day for beef heifers. These time series equations are combined to form a system of three equations that jointly predict bred heifer, feeder heifer, and feed ration price. Dynamic programming is utilized to compare the expected present cost and determine an optimal decision rule among twelve distinct strategies for acquiring bred beef heifers. Stochastic state variables are current feeder heifer price, lagged feeder heifer price, and current feed ration price. Transition probabilities for the stochastic variables are calculated from the system of three time series equations. Expected immediate costs for producing bred heifers include feeding, breeding, pregnancy testing and marketing costs. The conclusion drawn from the dynamic programming model results is Montana ranchers can decrease the expected present cost of acquiring bred heifers. When feeder heifer price is decreasing the decision to sell heifer calves immediately after weaning and purchase bred heifers prior to calving is optimal. If feeder heifer price is relatively unchanged or slightly increasing retaining heifers over the winter, selling them in the spring, and purchasing bred heifers is the optimal decision policy. Raising bred heifers is optimal only when feeder heifer price is sharply increasing.