Risk Management

Variability in the profit (or loss) stream results from variation in weather, forage production, livestock performance, and prices; that is, these factors all contribute to economic risk. In managing risk, variation in profit derived from the production system is reduced, albeit with a simultaneous reduction in average profit over time. Thus, minimizing risk is inconsistent with maximizing profit. However, managing risk may ensure the long run economic sustainability of extensive beef production systems. Commonly used risk management strategies include: scaling production systems conservatively; stockpiling feed for later use; choosing animal genetic resources that have energy demands consistent with the nutritional and climatic environment; and employing marketing strategies that capture the value of products produced.

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