ECONOMICS FOR BUSINESS

Economics for Business



Economics for Business

Critically discuss the possible implications of the drought on the livestock industry in the US

Introduction

This report summarizes the current situation in key field crops and livestock sectors and how the 2012 drought has impacted these sectors. Particular attention is given to cattle operations as these farms have been especially hard hit during the drought due to poor pasture and hay conditions and increased costs of hay and feed. The focus here is on the current situation and short-term losses experienced on U.S farms. The 2012 drought is widespread across the U.S. and affects other states and sectors in various ways. There are always a variety of impacts in agriculture during a drought and the long-term implications of drought go well beyond the current growing season (Drovers 2012, p.20-29).

This report focuses on the current, short-term impacts of the 2012 drought in sectors that are the hardest hit in U.S. The goal of this report is to assess the current situation in U.S field crop and cattle sectors and examine the economic impacts of the drought in those sectors experiencing losses. The report is laid out as follows: first, an overview of the drought in U.S is given and a summary of the current situation is discussed. Second, summaries of the drought's impact on crop production and the cattle industry are presented including tables and figures summarizing key data. Finally, a series of “Frequently Asked Questions” are presented which address some of the broader impacts associated with drought (Henderson 2012, p.10-25).

Overview

Extended drought and rainfall deficits cause damage to crops and pasture. Crop failures and pasture losses are the two primary drivers of the direct economic impacts of drought in the agricultural sector. Production losses brought on by drought cause negative supply shocks and alter the market for agricultural products. On crop farms, a substantial portion of the costs of producing the crop have been experienced before the drought event. In the livestock sector, reduced pastureland requires farmers to use hay intended for winter feed in the summer or purchase hay from outside the drought stricken area which is more costly due to higher transportation costs and increased prices. If the cost of feed or hay becomes too high, cattle may go to feedlots or to market early which can drive down prices for cattle in the short run as well as reduce cattle breeding stocks. Farmers across the U.S. are fighting one of the worst droughts in U.S. history. U.S has been one of the hardest hit states during the 2012 drought in terms of inadequate rainfall (Henderson 2011, p. 10-40).

Outside of agriculture, losses are also experienced by firms that interact with crop and livestock farms. For exam farms were to experience income losses, they woul d spend less on new equipment ple, if cattle purchases, and those firms manufacturing and selling this equipment would have decreased sales, and so on. In addition, the workers of these related industries would have ...