Dynamic Effects of Drought on the U.S. Livestock Sector
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.
|Date of creation:||Aug 2013|
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