The 2012 drought was obvious. It was hot and dry this summer. Crops and pastures burned up and the agricultural economy will feel it for years to come. Currently we are worried how livestock producers will fare. We are worried about the seed supply for 2013. And we are worried whether the subsoil will have enough water next spring to keep a crop growing. But what about the rest of the economy? How far down have the roots of the drought grown?
Every community will have a story about the drought. Mine is suffering from a 3 foot drop in the level of the lake that supplies water for 85,000 people and major grain processing plants. So water use restrictions have been in place for weeks because the lake has more mudflats than waves.
Economists David Swenson and Liesel Eathington of Iowa State University have tallied the extent of the drought, but not the total impact, since that may not be seen for years. However, it is possible to determine what parts of the economy and day to day life that it has impacted to some degree. Their analysis is based in Iowa, but could be in any Cornbelt state. After all, 2,341 counties in the US have either been designated by USDA as primary or secondarily impacted from the drought. The economists say, “The initial impact of a drought is a sharp reduction in the state’s water supply, which in turn has immediate impacts on agricultural productivity, commercial activities that require water, and public goods that are water-based.”
The primary impact is on crop yields and reduced forage and pasture which have resulted in higher prices due to shortages of production. They say the higher prices will offset portions of losses, and they calculated prices that were 20% above breakeven prices due to the drought, which they indicated would result in higher, gross revenue consequences. Additionally, they said with 90% of Iowa corn acres and 91% of soybean acres covered by crop insurance the policies covered nearly $14 billion in total liability and will boost farm income.
High grain and hay prices impact the livestock industry negatively, say the economists. With corn and beans being primary components of feed, livestock producer margins will decline as prices rise. But without adequate forage, many other livestock will suffer from herd liquidation where forage is unavailable. The economists say, “One can conclude that Iowa animal production in Iowa will decline, though the magnitude of that decline is still unknown, as will be the overall impacts of those reductions to the state’s gross domestic product.”