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Dynamic Effects of Drought on the U.S. Livestock Sector

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  • Leister, Amanda M.
  • Lee, John G.
  • Paarlberg, Philip L.

Abstract

This study investigates the long term adjustments to drought by crop and livestock sectors using a dynamic partial equilibrium quarterly modeling framework of the U.S. agricultural economy. By employing a model that links crop production with highly disaggregated livestock production sectors in tandem with observed and projected quarterly data on U.S. drought conditions and producer responses to drought, this work assesses the long term economic implications for producers and consumers. Results show short term drought effects including increases in crop and forage prices in tandem with decreased live cattle prices resulting from increases in slaughter due to drought induced beef cattle herd liquidation. Long run drought impacts result in model predicted crop price increases that cause livestock inventory reductions due to reduced expected future returns. As herd sizes decrease, there are fewer animals moving through the U.S. meat supply chain, which leads to decreases in animal slaughter and increased livestock prices in the long run. Longer term market adjustments cause a significant decrease in consumer surplus, while prolonged drought in 2013 amplifies the model predicted price changes and extends the time needed for key variables to return to baseline levels.

Suggested Citation

  • Leister, Amanda M. & Lee, John G. & Paarlberg, Philip L., 2013. "Dynamic Effects of Drought on the U.S. Livestock Sector," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149946, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:149946
    DOI: 10.22004/ag.econ.149946
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    References listed on IDEAS

    as
    1. Tian Yu & Bruce A. Babcock, 2010. "Are U.S. Corn and Soybeans Becoming More Drought Tolerant?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(5), pages 1310-1323.
    2. Benjamin M. Gramig & Richard D. Horan, 2011. "Jointly determined livestock disease dynamics and decentralised economic behaviour," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 55(3), pages 393-410, July.
    3. Jeffrey H. Dorfman & William D. Lastrapes, 1996. "The Dynamic Responses of Crop and Livestock Prices to Money-Supply Shocks: A Bayesian Analysis Using Long-Run Identifying Restrictions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 530-541.
    4. Paarlberg, Philip L. & Hillberg, Ann & Lee, John G. & Mathews, Kenneth H., Jr., 2008. "Economic Impacts of Foreign Animal Disease," Economic Research Report 56453, United States Department of Agriculture, Economic Research Service.
    5. Wallander, Steven & Aillery, Marcel & Hellerstein, Daniel & Hand, Michael S., 2013. "The Role of Conservation Programs in Drought Risk Adaptation," Economic Research Report 262224, United States Department of Agriculture, Economic Research Service.
    6. Anderson, David P. & Welch, J. Mark & Robinson, John R.C., 2012. "Agricultural Impacts of Texas’s Driest Year on Record," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 27(3), pages 1-3.
    7. Jason Henderson & Nathan Kauffman, 2012. "Initial impacts of the 2012 drought," Main Street Economist, Federal Reserve Bank of Kansas City, issue 3.
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    Cited by:

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    Keywords

    Agribusiness; Crop Production/Industries; Demand and Price Analysis; Farm Management; Production Economics;
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