Financial Benefits of Drought Planning
Drought comes with both direct and indirect costs. Whatever actions are taken to mitigate drought, there is always an associated cost, whether it be physical or psychological.
From the economic perspective drought mitigation is managed from two main objectives – demand management and supply management.
Demand management options include decreasing the demand for inputs such as selling livestock, weaning calves early and moving them to a drylot or sale, and decreasing the grazing time in various pasture.
Supply management includes options that increase the supply of forage and/or water by digging a well, trucking water to livestock, renting additional pasture, grazing alternative forages such as crop residue, and trucking livestock further distances to obtain additional pasture.
With rare exception, all of these options incur cost either by increasing expenses or decreasing future revenues. While it may not be possible to incur no cost as the result of drought, it is possible to prepare. The more prepared you are, the more options you will have to mitigate drought, and hopefully, that will lead to a smaller impacts to you, your family and your livelihood and way of life.
Drought and cattle markets
Market prices for cattle and beef fluctuate both seasonally and cyclically. When you combine such phenomenon with local conditions, such as drought, the amount of risk may be amplified.
Using drought management strategies, a producer may be able to exploit the market fluctuations and use them to alleviate heavy financial losses.
For example, it is commonly observed that cull cow prices generally bottom out in late fall, say November. If this seasonality effect is preceded by prolonged drought in your area, you could expect that your local market may see a flood of more cull cows than is normal for the season. This even further dampens local prices, and makes a very poor time and place to sell cull cows.
If, however, you had culled heavily in the spring, you would probably have gotten a better price for your culls, and you would have conserved more pasture or range.
The earlier you can anticipate drought and be prepared to manage it, you are more likely to avoid unfavorable market conditions and decrease your loss. In essence, early drought management provides greater flexibility and enhances your capability to avert unfavorable market conditions and "must sell" situations.