Drought: Lessons to learn in agriculture

Abstract Text: Drought impacts vary by commodity and region.  Drought in 2012 was the most widespread since 1934.  Drought has been pervasive in the West and Southern Plains since 2000, while the Midwest has experienced only 3 years of widespread drought in the same period.  Most market participants are adversely affected by drought.  Drought-reduced yields for commodities often result in higher prices, but higher prices may not offset lower yields and higher costs, so producer profit margins can be adversely affected.  Consumers face higher prices for affected commodities and likely higher prices for substitutes for those commodities.  Producers unaffected by drought are the only group who benefit from drought-reduced commodity supplies because they likely produce at least near-normal quantities of products and have access to higher prices for their products, which can boost their profit margins.

Keywords: Drought, water, agriculture