AN ANALYSIS OF THE EFFECTS OF FEED INGREDIENT PRICE RISK ON THE SELECTION OF MINIMUM COST BACKGROUNDING FEED RATIONS

The traditional minimum cost feed ration linear programming model is expanded to permit risk management responses to price variability associated with feeding a particular ration across time. The cost minimizing objective function also considers feed cost in a mean-variance (E-V) framework. The model is specified using NRC nutrient requirements and an historic Feedstuffs price series. A decision-maker can choose his/her optimal ration by making tradeoffs between price risk and net income. The results should provide a basis for decision tools that allow livestock producers to manage the net income risk involved in the selection of a feed ration.