Leonard Bauer

A Comparison of Risk Between Continuous and Fallow Cropping Regimes

The focus of this study is to examine the risk and return trade-offs for various crop rotations and tillage systems. The geographic area represented in this study will be that contained within four soil, and five climatic zones with in the Province of Alberta. The predominant crops grown in these areas (i.e. spring wheat, barley, and canola) were used to derive cost estimates that reflect agronomic processes. The results obtained frome ach of these areas indicate that several generalizations can be made about the interactions of crop rotations, tillage system and farm size. Firstly, the size of predicted net revenue increases and the probability of generating a negative net revenue decreases as one moves north from the Brown soil zone into the Dark Brown and Black soils. Secondly, as one moves from the Brown soil zone through the Black soil zone, less significance can be placed on fallow crop rotations. Lastly, at the current price of the fallow herbicides, conventional tillage systems have a cost advantage over the alternatives tested here.

An analysis of alternative cropping decision rules

Abstract The research reported here measures the effects on the probability distribution of the present value of after-tax income of several different cropping decision systems in Alberta. Dynamic flex-cropping decision rules generate higher levels of returns and less downside risk than all other alternatives considered here. Dynamic decision models which ignore taxes and the stochastic dynamic nature of prices produce suboptimal results relative to models which consider these factors and relative to a fixed rotation decision rule. This suggests that careful attention must be paid to the factors included in these models if they are to generate rules which will improve the risk-return trade-off for farm managers.

An Economic Analysis of Alternative Cropping Decisions Under Uncertainty

This project has examined after tax gross margin net present values accruing to Albertawheatf armers under three fertilizer and crop rotation systems; a fixed rotation traditional fertilizer system, a static economic fertilizer decision system within a fixed rotation, and a static economic fertilizer decision system within a dynamic flex-cropping framework. Decision rules appropriate to each system were developed for case farms in three Alberta agro-climatic regions; Medicine Hat, Lethbridge and Olds. The flex-cropping issue is expressed in a dynamic programming framework and incorporates elements not fully explored in previous studies; income taxation, variable input level decisions and stochastically determined moisture conditions and crop prices. Decisions are compared by simulating net present values of after tax gross margins for each system. The traditional system generatedthe lowest net present value, approximately 5 to 17 per cent below the static economic system. Greater improvements, on the order of 14 to 31 per cent above the static economic system, were observed by following dynamic flex-cropping decision rules. Not only did the dynamic flex-cropping decision rules generate superior decision rules regarding mean net present values, the rules were also risk efficient. The probability of low gross margins was minimized in all cases by following the dynamic flex-cropping decision rules. The results of this and related studies indicate that dynamic flex-cropping models are viable for solving crop scheduling problems. The prescriptive power of the model is limited by available data, limitations which reside primarily in the agronomic components. The relationship between spring soil moisture, soil nutrients, and yield must be more clearly defined. This may be accomplished through extensive and long term field trials or through use of emerging biophysical models. Standardization of soil moisture classifications, including method of sampling and depth of measurement, would make field data more adaptable for making fertilizer and recropping decisions. The production functions defining the relationship between spring soil moisture levels and yields are particularly important. These require continued empirical attention. The model developed lends itself readily to extensions such as additional crops,fertilizer inputs, erosion costs and soil degradation issues, financial structure of the farm, and evaluating the influence of government programs. Modern computers with large computational and storage capabilities make the implementation of stochastic dynamic programming methodology a viable farm management tool.

An Analysis of Risk and Return in Hog Finishing

The objectives of this study were to measure returns and the variation in returns for hog finishers in Alberta. From this base, different strategies were assessed as to their ability to reduce the level of price risk faced by producers. The National Tripartite Stabilization Program was reviewed along with hedging strategies using the Chicago Mercantile Exchange Live Hogs futures. Risk was measured using the Mean Square Error (MSE) and the Capital Asset Pricing Model (CAPM) beta. A twelve month rolling average of nearby basis was used to predict hog prices. All of these strategies studied, the NTSP, a selective investment model, a 100% hedge and an optimal hedge, reduced risk compared to the base model. The 100% hedge reduced risk to the greatest extent. The NTSP alone reduced risk and increased returns. When using the Capital Market Line as a means of measuring the risk return tradeoff, all the strategies provided a viable alternative for risk reduction compared to the base model. The CAPM betas for the various strategies were very low. Hog finishing could provide a diversification opportunity for holders of a market portfolio.