From the University of Arkansas Division of Agriculture

Below are questions and answers with Michael Popp, professor of agricultural economics and agribusiness, and Nathan Kemper, trade adjustment assistance program coordinator for the Southern Risk Management Education Center. Both are with theUniversity of Arkansas Division of Agriculture and are two of the co-authors of a drought-impact study on the state’s cow-calf sector.

What is a cow-calf operation and why does the study focus on that segment?

Popp: “Cow-calf operations are in the business of breeding cows and selling calves, typically at about seven to eight months of age. They do this by grazing pasture and feeding hay and supplements when there is insufficient forage on pastures. For an average herd consisting of 35 cows, you typically expect about 27 calves sold per year.”

What is the total loss to cattle producers in Arkansas?

Popp: “The direct effect is $128 million, or $141 per bred cow. Factors included in that calculation are: Increase in cost of hay; reduced hay sales; decreased revenue in calf sales due to lighter weight calves being sold.

Of those factors, what is the biggest component of losses to ranches?

Popp: “About half was in spending for extra feed and half was that ranchers received less money at sale time for fewer calves sold at lighter weight because less forage was available on pastures and hay meadows. 

“As you would expect with the drought, there was less forage production. A lot of producers had to feed more hay than they would in a typical year. We found that most operations had to buy another $65 of hay per cow. At the same time, because there was less to feed cattle, ranchers had to sell calves earlier and at lower weight, so ranchers received less for their calves.”

How much is the beef cow-calf industry worth in Arkansas?

Popp: “According to the Economic Contribution of Arkansas Agriculture 2012, the production of cattle and calves in Arkansas was valued at $485 million in gross sales in 2011. If you take off $128 million, that’s a big chunk. The loss of $141 dollars per head is a big impact.”

Is there a historical precedent for this kind of loss in Arkansas?

“The last severe drought was in 1988, and according to the Weather Channel, was not as severe as this one. The longer report available at www.uaex.edu details the rainfall deficit over the last 12 months starting in August 2011. For the months when grass grows, there have been nothing but deficits for the last 12 months across five locations.”

How long will it take for the industry to recover?

Popp: “That depends on a variety of factors. A big factor will be the availability of hay and pasture over the coming months and years and what ranchers will do in terms of rebuilding their herds. If we get a lot of rain this fall and pastures recover quickly, we could see less cow slaughter than what producers predicted in early August. However, once a mature cow goes to slaughter (and they may just be moved to another state where more feed is available) it takes a few years before that productive capacity is rebuilt in the state. It takes 15 months before a female calf can be bred plus nine months gestation plus seven months before the calf is ready to go to the feedlot and then another 6 to 8 months before that animal reaches the marketplace in terms of added pounds of beef marketed. If that calf is a heifer and also retained to rebuild the herd it takes even longer. If you can buy cows or replacement heifers affordably from another state, it may be sooner.”

Did the drought’s impact on corn in the Midwest affect Arkansas’ cattle industry?

Popp: “Most producers in Arkansas feed relatively little corn as a supplement. So this effect is small. Further, Arkansas cow calf producers usually buy cheaper protein available in byproduct feeds like distiller dried grains, wheat middlings, which are byproduct of flour milling;  corn gluten, etc. However, some of the corn affected by drought was chopped and made into silage for cattle feed. It is possible that cows and calves sold because of forage shortages in Arkansas would have been shipped to locations where silage was harvested. It is likely that those cows and steers would go to slaughter after being fed to heavier weight. Heifer calves may either go to slaughter or bought back for herd replacements. Shipping costs and prices will weigh in on that decision.”

Taking into account the $128 million in direct effects, what is the total impact of the drought on the state’s economy?

Kemper: “We estimate that an additional $4.4 million has been lost due to decreased spending on personal goods and services by cow-calf farmers and their families and employees. Unlike a row crop farm where in a drought year you can abandon the acreage and forgo some of the production costs, with livestock, if you have cattle on-farm, even in a drought year you have to buy hay, supplemental feed and all of the other supplies it takes to run the farm. So much of the spending on inputs has occurred as in a typical year. However, with a larger portion of income going to keeping the farm ‘alive’ this means there is less for the family to spend in local stores purchasing groceries, clothes, and services like dental and medical care. This is where we see the negative impact of the drought in the short term. Combined with the direct losses in the cow-calf sector, the total income losses are $132.4 million.”

What are induced impacts?

Kemper: “There are two kinds of impacts estimated in this impact analysis; direct and induced impacts. The direct effects are those experienced by the cow-calf farms, the income lost by those farms due to increased hay prices and lower cattle weights and lower prices. The induced effects are the losses to the local community due to cow-calf farmers, family and workers having less personal income to spend on goods and services like groceries, clothes, eating out, doctor visits or going to a movie. In communities where the cow-calf sector makes up an important part of the local economy, the drought-reduced incomes on these farms can have a real negative impact on the ‘Main Street’ economy.”

What are examples of induced impacts in the five industries listed in the study?

Kemper: “Because IMPLAN, the software used for the impact analysis, has 440 sectors, we used an aggregation scheme to summarize results. Examples of the kinds of reduced spending in these sectors would include 1) real estate and rental -- fewer land leasing and rentals of equipment, 2) health and social services -- fewer visits to the dentist and doctor, 3) retail trade -- less money spent on eating out, no new smartphone, and putting off that new truck purchase, 4) finance and insurance -- putting less money into a retirement or college fund and 5) wholesale trade -- with fewer purchases of clothes at the retail location, there are fewer orders placed by retail stores for the wholesalers to fill.”

What is “value added?”

Kemper: “Value added is a broader measure of wealth than income as it represents the sum of wage and proprietor income and corporate profit generated, or lost, by an economic sector. Value added is comparable to GDP which is the monetary value of all the finished goods and services produced and includes all private and public consumption, government outlays, investments and exports. Value added is generally considered the best measure of economic impact.”

The studies are available online here and here.

For more information about agricultural economics, visit www.uaex.edu or contact your county Extension office.