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

Research output: Book chapter/Published conference paperConference paper

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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.
Original languageEnglish
Title of host publicationAARES 2019
Place of PublicationMinnesota
PublisherAustralian Agricultural and Resource Economics Society (AARES)
Number of pages21
Publication statusPublished - 15 Feb 2019
Event63rd Annual Conference of the Australasian Agricultural and Resource Economics Society (AARES 2019) - Melbourne Convention and Exhibition Centre , Melbourne, Australia
Duration: 12 Feb 201915 Feb 2019
Conference number: 63rd
https://web.archive.org/web/20190202124642/https://www.aares.org.au/imis_prod/AARES2016/Events/2019_Annual_Conference/AARES2016/Event/2019AC/2019AC_Home_Page.aspx?hkey=6354dd3f-4265-4364-b3cd-fa026db77108 (conference website)
http://www.aares.org.au/imis_prod/documents/2019AC/AARES-2019-FINAL-PROGRAM.pdf (conference program)

Publication series

NameAgEcon Search
PublisherUniversity of Minnesota

Conference

Conference63rd Annual Conference of the Australasian Agricultural and Resource Economics Society (AARES 2019)
Abbreviated titleDynamic change in agriculture and resources
CountryAustralia
CityMelbourne
Period12/02/1915/02/19
Internet address

Fingerprint

risk profile
Merino
ewes
lambs
weather
debt
farms
taxes
profits and margins
pastures
information management
probability distribution
wool
crossbreds
flocks
drought
farmers
industry
wheat
diet

Cite this

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title = "Using GrassGro{\circledR} with @RISK{\circledR}: Merino ewe / first-cross lamb enterprise risk profiles with variable prices and weather",
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.",
author = "Sosheel Godfrey and Tom Nordblom and Ryan Ip and Susan Robertson and Timothy Hutchings",
year = "2019",
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day = "15",
language = "English",
series = "AgEcon Search",
publisher = "Australian Agricultural and Resource Economics Society (AARES)",
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}

Godfrey, S, Nordblom, T, Ip, R, Robertson, S & Hutchings, T 2019, Using GrassGro® with @RISK®: Merino ewe / first-cross lamb enterprise risk profiles with variable prices and weather. in AARES 2019. AgEcon Search, Australian Agricultural and Resource Economics Society (AARES), Minnesota, 63rd Annual Conference of the Australasian Agricultural and Resource Economics Society (AARES 2019), Melbourne, Australia, 12/02/19.

Using GrassGro® with @RISK® : Merino ewe / first-cross lamb enterprise risk profiles with variable prices and weather. / Godfrey, Sosheel; Nordblom, Tom; Ip, Ryan; Robertson, Susan; Hutchings, Timothy.

AARES 2019. Minnesota : Australian Agricultural and Resource Economics Society (AARES), 2019. (AgEcon Search).

Research output: Book chapter/Published conference paperConference paper

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AU - Hutchings, Timothy

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N2 - 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.

AB - 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.

M3 - Conference paper

T3 - AgEcon Search

BT - AARES 2019

PB - Australian Agricultural and Resource Economics Society (AARES)

CY - Minnesota

ER -

Godfrey S, Nordblom T, Ip R, Robertson S, Hutchings T. Using GrassGro® with @RISK®: Merino ewe / first-cross lamb enterprise risk profiles with variable prices and weather. In AARES 2019. Minnesota: Australian Agricultural and Resource Economics Society (AARES). 2019. (AgEcon Search).