AN ECONOMIC ANALYSIS OF CONTRACTING ARRANGEMENTS USED BY THE MINNESOTA TURKEY INDUSTRY

The objective of this report is to summarize knowledge about contracts used in the turkey industry which may be helpful in initiating contracts in other agricultural enterprises. Characteristics common to all Minnesota contracts are described. Contracts are divided into three main categories and similarities of contracts within those categories are described. Budgets developed at the University of Minnesota were used to calculate the return to labor and management (RLM) for each type of contract. Feed costs were set at six levels to show how risk and return are shared as feed costs change. Historic wholesale prices were used to establish a probability distribution for effective prices paid to growers. The Agricultural Risk Management Simulator (ARMS) program used this price distribution to calculate cumulative distributions of returns to labor and management (RLM) for each level of feed costs. Contracts were evaluated at each level of feed costs using stochastic dominance techniques.