Risk management in the design of a feeding ration: a portfolio theory approach

Three types of risk usually present in the design of minimum cost diet specifications are described, namely nutritional quality risk, market risk and volatility risk. The diet specification problem is formulated as a problem where the nutrition content variance and costs are simultaneously minimized, subject to constraints; on maximum market risk and the usual nutrition requirement constraints. Market risk is valued through the Capital Asset Pricing Model while volatility risk is included by considering the possibility of buying the ingredients used in the ration through futures contracts. The ration obtained from this model is compared to rations obtained from stochastic formulations. Comparisons show small differences among major ingredients content and total ration cost. The model is useful under conditions of high ingredient's DI icr variation.