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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 P.
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    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.

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    File URL: http://purl.umn.edu/149946
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    Bibliographic Info

    Paper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 149946.

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    Date of creation: Aug 2013
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    Handle: RePEc:ags:aaea13:149946

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    Related research

    Keywords: Drought; Livestock; Crops; Dynamic Partial Equilibrium Model; Agribusiness; Crop Production/Industries; Demand and Price Analysis; Farm Management; Production Economics;

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    1. Gramig, Benjamin M. & Horan, Richard D., 2009. "Jointly-Determined Livestock Disease Dynamics and Decentralized Economic Behavior," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49260, Agricultural and Applied Economics Association.
    2. 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.
    3. Anderson, David P. & Welch, J. Mark & Robinson, John R.C., 2012. "Agricultural Impacts of Texas’s Driest Year on Record," Choices, Agricultural and Applied Economics Association, vol. 27(3).
    4. Guidry, Kurt M. & Pruitt, J. Ross, 2012. "Damages to Louisiana Agriculture from Natural Disasters," Choices, Agricultural and Applied Economics Association, vol. 27(3).
    5. Jason Henderson & Nathan Kauffman, 2012. "Initial impacts of the 2012 drought," Main Street Economist, Federal Reserve Bank of Kansas City, issue 3.
    6. 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.
    7. 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.
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