Risk Preferences Impact on Cattle Producers’ Use of Price Risk Management

The first chapter of the thesis delves into the adoption of price risk management tolls among beef cattle producers in the United States (US), namely options contracts, futures contracts, and livestock risk protection (LRP). However, use of price risk management tools among beef cattle producers has historically been limited despite price risk being one of the primary sources of risk to the United States (US) cattle industry. The purpose of this research is to determine factors associated with the use of options contracts, futures contracts, and LRP insurance. We conducted a survey of US cattle producers and estimated a multivariate probit model to understand what drives the likelihood of use. We find most producers never used any price risk management tools, but LRP was the most used (12.5%), followed by futures contracts (6%) and option contracts (5.5%). Producer age, herd size, risk preferences, perceived effectiveness, and other factors were found to impact adoption. Findings inform industry stakeholders, educators, and policymakers in developing interventions to encourage wider utilization of these tools. The second chapter employs a two-stage data envelopment analysis (DEA) to assess the impact of price risk management tools on the operational efficiency of beef cattle productions. By evaluating income and input metrics, followed by efficiency scores in relation to the use of options contracts, futures contracts, and LRP, this research sheds light on the efficiency dynamics within the sector. The findings indicate that options contracts are associated with the highest level of efficiency, closely followed by LRP and future contracts. A regression analysis underscores the positive influence of price risk management tools on operational efficiency, with experience also playing a crucial role. This chapter offers valuable perspectives on how risk management tools contribute to the efficiency of beef cattle production, providing a foundation for further investigation into optimizing firm performance in the face of price volatility.