Economic Impacts of Increasing Seasonal Precipitation Variation on Southeast Wyoming Cow-Calf Enterprises

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Abstract

Knowledge regarding the economic impacts of predicted increases in seasonal precipitation variability on cow-calf enterprises, through influences of precipitation on both forage and cattle productivity, is needed by land managers for developing risk management strategies. Here we use existing forage production and cattle performance data from the northern mixed-grass prairie, coupled with spring precipitation and economic data, in a ranch-level mathematical programming model. We estimate economic impacts across a 35-yr planning period with 100 iterations of different price cycles including five levels of increasing spring precipitation variation (10%, 20%, 30%, 40%, and 50% increases), examining the impact of resulting forage production and calf gain. Annual expected profit variability increases largely due to the increase in herd number variability rather than variability in calf gains. Overall, as seasonal precipitation variation increases, higher annual expected profit variability results in greater risk of negative returns from cattle. An important implication from our results is that the positive benefits of wet years do not overcome the negative impacts of the dry years given relationships among precipitation, forage production, and calf gains used in our model. Results indicate greater profitability in generally maintaining lower herd numbers as seasonal precipitation becomes more variable. The results also illustrate the need for producers to diversify their operation and/or income sources if they are to cope with increased precipitation variability even if mean annual precipitation remains constant.

Introduction

Given the dependence of forage and cattle production on precipitation (Derner and Hart, 2007, Derner et al., 2008, Reeves et al., 2013a, Reeves et al., 2013b), economic stability of the livestock industry could be negatively impacted by predicted increases in precipitation variability (National Research Council, 2010, Hatfield et al., 2014). Increases in precipitation variability, coupled with cattle cycle dynamics, create complexity for livestock producers trying to manage risk given positive and negative impacts on location, timing, and productivity of cattle production systems (Walsh et al., 2014). These impacts include destocking (reducing herd numbers) to accommodate lower levels of forage production in drought years (Bastian et al., 2009, Kachergis et al., 2014) and deliberately slow restocking through heifer retention or purchase of breeding stock during favorable weather years (Torell et al., 2010). These stocking and liquidation (or destocking) decisions before and during drought periods greatly impact long-term economic outcomes for cow-calf operations (Thomas et al., 2015). Increasing precipitation variability would increase the frequency and severity of drought and lead to greater occurrence of destocking decisions often made during unfavorable price levels, thereby directly reducing the economic viability of cow-calf operations (Bastian et al., 2009, Ritten et al., 2010a).

Changes in weather and climate can translate into direct and indirect effects on cattle performance (Ojima et al., 2013). Direct effects resulting from changes in precipitation on cattle include changes in the forage quantity and quality of rangeland vegetation that influence animal growth (Hatfield et al., 2008, Calvosa et al., 2009, Mader and Gaughan, 2010, Miller, 2011) through feed intake (Craine et al., 2010). Indirect effects resulting from changes in precipitation, unfortunately, are not well understood as the feedbacks from the influence of precipitation on forage production to cattle performance are often nonlinear with more pronounced effects in dry compared with wet years (Reeves et al. in review), as forage limitations in dry years negatively impact weight gains, whereas extra forage production in wet years does not translate to greater animal performance. Enhancing the knowledge of seasonal-weather-related decision making for land managers is necessary for adaptive management (Reeves et al., 2015).

The major objective of this study is to show the ranch-level impacts of, and optimal response to, increasing variation in growing season precipitation. We hope this knowledge will improve decision making by land managers and increase the resilience of cow-calf operations to improve economic sustainability given predicted increases in precipitation variability associated with altered climate. Specifically, we use existing forage production and cattle performance data from the northern mixed-grass prairie, coupled with precipitation and economic data, in a ranch-level mathematical programming model to estimate economic impacts for three scenarios across a 35-yr planning period. We include 100 iterations of different price cycles, as well as five levels of increasing spring precipitation variation (10%, 20%, 30%, 40%, and 50% increases). Although it is impossible to separate the impacts of climate on forage and calf performance, we also aim to determine the economic importance of these impacts separately to better understand potential management priorities in the face of altered precipitation patterns. Therefore, initially, we examine separately the impact of resulting forage production from precipitation variability (scenario 1) and the impact of precipitation variability on calf gains (scenario 2) as it relates to the likelihood of negative returns. For the remainder of the manuscript we examine the impacts of these two factors combined (scenario 3).

Section snippets

Representative Ranch Characteristics

Our data regarding precipitation, forage production, and cattle production are based on research conducted at the US Department of Agriculture (USDA)-Agricultural Research Service (ARS), High Plains Grasslands Research Station (HPGRS) station located in Laramie County in southeastern Wyoming (Derner and Hart, 2007, Derner et al., 2008, Reeves et al., 2013b, Reeves et al., 2015).

Land composition for a case ranch was modeled from a six-county region (Albany, Converse, Goshen, Laramie, Niobrara,

Annual Forage Production Given Precipitation Variation

Weather variation impacts on cattle production in southeast Wyoming were analyzed through the impacts of spring precipitation variation on forage production, using spring (April-June) precipitation, to estimate peak standing forage production through a hyperbolic function for moderate stocking. The functional format is the same as Derner and Hart (2007) but includes more recent data. Spring precipitation influences not only forage availability but also economic outcomes in Wyoming (Smith et

Forage Production

The hyperbolic relationship between forage production and growing season precipitation results in forage production estimates that are negatively skewed with increasing forage variation. Increases in variation of precipitation levels cause increases in forage production variation (Table 3). Mean forage production does not statistically significantly change while the minimum decreases by a larger amount than the maximum increases, implying that as precipitation variation increases, the

Discussion

Results indicate that increases in spring precipitation variation negatively impact cow/calf operations in southeastern Wyoming when considering changes in forage production and calf performance. Negative impacts of dry years are ultimately greater than the positive impacts of wet years for the ranch given the nonlinear production relationships among precipitation, forage production, and calf gains. Positive economic impacts for cow-calf enterprises associated with increased forage production

Implications

Cow-calf producers in southeastern Wyoming are expected to be more negatively impacted economically by increased precipitation variation with effects driven primarily through resultant forage production responses to precipitation rather than calf performance. Adaptive management will become increasingly important regarding flexibility in herd numbers to mitigate negative impacts associated with more frequent and severe droughts. Furthermore, producers will need to evaluate the applicability of

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    This material is based on work supported by the National Institute of Food and Agriculture, US Department of Agriculture (USDA), under award 4120-15634-12MSGAEJR-2012 received via the University of Wyoming Agricultural Experiment Station Competitive Grants program. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the authors and do not necessarily reflect the view of the USDA. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper.

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