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Application of Portfolio Theory to Dairy Sire Selection¹

Departments of Animal Science and Economics, Iowa State University, Ames 50011

ABSTRACT

Data for 285 Holstein sires from eight studs were used to determine the efficient set of portfolios or the expected income versus variance frontier, that is, the combination of sires that gave the smallest variance of income was found for each expected income. Expected income was measured by an index combining the sire's genetic superiority (in dollars) transmitted to his offspring and semen price. Variance of income increased with increasing expected income, and fewer bulls remained in the efficient set of portfolios as expected income and variance increased. The optimum solution was computed by an estimated utility function for dairymen. Because of the small negative weight for variance of income, three top-income sires were selected; if the weight for variance of income would have been larger, more bulls would have been in the optimum solution. For practical application, the expected income versus variance frontier can be determined with all sires available for artificial insemination, and dairymen can make their selections according to their individual weightings of expected income and variance of income.

¹ Journal Paper No. J-9941 of the Iowa Agriculture and Home Economics Experiment Station, Ames. Project 1053, contributing to North Central Regional Project, NC-2, Improvement of Dairy Cattle through Breeding.

² Institute of Animal Production, Swiss Federal Institute of Technology, 8092 Zurich, Switzerland. Present address: Herdbook Office for Braunvieh, Chamerstr. 56, 6300 Zug, Switzerland.

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