Along with the abnormal volumes of cattle moving through the feedlots and into processing plants was the variability of cattle prices along with the high costs of forages and feeds. The economists say forage prices this spring were $80/metric ton (mt) above expected prices, as a continuing result of drought conditions. And they warn to expect that until late in 2016. Grain prices are expected to peak now in the third quarter of 2013 at $141/mt above expected prices. And they are expecting livestock producers to pay drought premiums for their grain until late in 2016.
Nebraska steer prices were used to define the impact on cattle prices, with early drops of $10-$13/cwt below expected baseline prices, then a $14/cwt premium price in the third quarter of 2012when cattle slaughter declines due to decreased herd sizes. Beginning in 2013, steer prices rise to $16/cwt above baseline prices and slowly declines through 2016 as herds are rebuilt.
The impact of the drought is spread widely:
- Beef processors, for example, benefit from lower steer prices in the first year of the drought.
- The greatest loss to processors occurs two years after the end of the drought.
- By contrast, beef cattle producers are hit the hardest in the first three years of the drought.
- The overall welfare impact for cattle producers compared to the baseline is a loss of $5.9 billion over the eight year period of analysis.
- Hog farmers experience a loss in returns, relative to the baseline, over the first three years due to higher feed costs.
- The poultry and egg sectors follow a similar pattern compared to hog producers; however, these sectors can adjust to higher feed costs at a faster rate.
- With an estimated decline in income and increased costs of $11.3 billion relative to the baseline over eight years, the magnitude of annual loses to the dairy and milk industry is driven by the timing of high forage and grain prices.
- Despite decreases in crop yields and production related to the drought, the gains in returns for grain producers generated by price increases for several crops outweigh the losses in production over the 8 year period of analysis.
When the balance sheet was reconciled, the economists propose a $77 billion dollar benefit from the drought, particularly for forage producers, grain producers and land owners receiving cash rents for pasture. The beef industry and the dairy industry lost money on the drought. The loss to consumers from 2011 to 2018 was quantified at $111 billion in terms of higher prices paid.
The 2012 drought had a substantial impact on producers and consumers of commodities, but in many different ways. While livestock operators and consumers were major losers, winners included grain farm operators, forage sellers, and those owning land and renting it for pasture. The impact of the drought began early and will continue through 2016 as the livestock production cycle slowly returns to normal.
Source: FarmGate blog