THE IMPACT OF SELECTED MANAGEMENT PRACTICES ON THE ECONOMIC SURVIVABILITY OF A RANCH UNIT: AN ANALYSIS FOR A SOUTHERN PLAINS RANCH (MONTE CARLO SIMULATION, STOCHASTIC VARIABLES, UNCERTAINTY, TRIANGULAR DISTRIBUTION)

Scope and Method of Study. The objective of the study was to develop a conceptual and methodological framework to evaluate the impact of selected cow-herd management practices on the survivability of ranches in the Southern Plains. Monte Carlo simulation techniques were employed to incorporate risk into a whole-ranch decision model. The simulation model used was a Fortran computer program designed to simulate the effects of alternative management plans on the profitability, solvency, liquidity, and chance of survival of a representative ranch situation for a 10-year planning horizon. A representative Southern Plains ranch was developed based on 1978 census data for the Southern Plains. Management practices included: (1) a hedge-and-hold marketing plan; (2) a deferred-rest rotation/early-intensive grazing system plan, and (3) a combination of the above plans. Prices and production conditions were based on current levels and trended based on future expectations, as indicated by historical data.;Findings and Conclusions. Simulation results indicated that for a constant level of management over time, the profitability and survivability of the representative ranch situation will diminish over time given a 70 percent, or less, beginning equity level. The variability of returns due to stochastic price and production variables was not as detrimental to the survival of the specified ranch situation as was the overall lack of profitability of the simulated ranch. The hedge-and-hold marketing plan reduced the variability of returns but also reduced the profitability and chance of survival of the representative ranch situation. For the grazing system management practices, the survivability of the representative Southern Plains ranch situation was greatly improved as profitability increased and variability of returns decreased. The combined marketing and grazing system plan yielded the lowest overall variability of returns, but reduced profitability of the representative ranch situation. Ranch situations employing efficient management practices can expect to increase net present value and ending net worth, overall profitability, and reduce the risk of variability due to price and production factors.