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Using GrassGro® with @RISK®Merino ewe / first-cross lamb enterprise risk profiles with variable prices and weather

Sosheel Godfrey, Tom Nordblom, Ryan Ip, Susan Robertson and Tim Hutchings

No 285063, 2019 Conference (63rd), February 12-15, 2019, Melbourne, Australia from Australian Agricultural and Resource Economics Society (AARES)

Abstract: The present study integrates multivariate distributions of risk posed by weather and price variation over time with the decision support tool GrassGro, defining financial risk profiles showing the probabilities of losses and gains for given management plans. A farm in Tarcutta, NSW, with 1000 ha of pasture and a merino ewe flock stocked at 5 ewes/ha, was simulated as producing crossbred lambs and 20-micron wool, with purchased replacement ewes. Ewe diets were supplemented with purchased wheat grain when pastures were inadequate. GrassGro simulations provided the production base upon which we could build whole-farm financial profiles including all other costs, calculated by application of the Monte Carlo facility in @RISK. The probability distribution of gross margins over the 2002-2017 period was negative 26% of the time, owing to the unusual number of drought years in that sequence. Assuming an opening debt of zero and an overdraft facility with a bank, the risk profile after 10 years indicates farm net profit after taxes (NPAT) or growth in equity was negative 48% of the time. The same farm, but with opening debts of $0.7m, shows NPAT would have been negative 55% of the time. The 10-year median changes in equity for the farm with opening debts of zero and $0.7m were +$0.09 million and -$1.1 million, respectively. The GrassGro model alone, assumes constant prices to calculate gross margins and offers no financial risk information. The methods described in this paper allow extending the usefulness of the industry-standard GrassGro by illuminating the likely financial risk profile with the farmer’s own management information.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 22
Date: 2019-02
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare19:285063

DOI: 10.22004/ag.econ.285063

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