Project 3: Problem Set 1

Brandon Dodd and Ryleigh Travers

How does the presence and severity of drought increase or decrease cattle prices over time?

It is well known that when drought conditions become of issue, there is a natural, predisposed relationship with cattle production. Every major feed input for cattle requires rain and the same can ultimately be said about pastureland. In times of drought we often observe producers selling their cattle because they cannot afford supplemental nutrition content that may be needed based on a lack of viable pastureland or from what other feeds are available. When cattle producers sell more cattle, this can have a few effects, but we often see prices decrease for cattle and this is not only because there will be more supply on the market on but because we may over saturate the market with goods when there may not always be abundant demand for it. On occasions, like this year, we can also see prices increase for cattle and depending on what the supply picture looks like, this often comes as a biproduct of decreased cattle inventories which causes reduced beef supplies in further months. Nevertheless, drought has a substantial role to play in cattle production and what has even more impact on cattle and beef supplies are prices. This question seeks to find answers to those relationships. 

To analyze this issue we will be taking a look at market prices for the 5 major cattle regions of the United States, those being Colorado, Nebraska, Kansas, Texas/Oklahoma/New Mexico, and Iowa/Minnesota. Prices for cattle specifically are very hard sometimes to troubleshoot and visualize spatially due variations in the market and their access to particular resources. Prices are collected from various points in the supply chain, those including but not limited to feed yards, packers, and auction sales; and are aggregated into an average across the region. These regions are used in primary because, as mentioned, differences in resource bases and the saturation of cattle in those areas. For commodities like corn, it is all too common to see prices fluctuate based off of the location of where they were produced in proximity to where they can be made deliverable, and similar practices hold within the cattle market. 

Data for cattle prices will be pulled from the Livestock Marketing Information Center where they take in these market prices from places all over the country and populate them into datasets for analysis. Some of the data comes directly from USDA market reports while some comes from posts made out by auction centers and other various market players. 

In addition to prices, we will be looking at a drought index from the U.S. Drought Monitor (ran by the University of Nebraska - Lincoln) over these regions. Drought will serve as the treatment on our cattle prices. As mentioned, in periods of severe drought we expect to see a reaction in cattle prices. This is felt differently amongst different parts of the cattle industry. For example, fed cattle may react different than feeder cattle which may react different than cull cows and replacement heifers. The objective here will be to observe that under different thresholds of drought severity, what influence in prices do we witness and in what fashion, bullish or bearish reactions? 

Monthly drought data can be found here. (Data in this text file will be read into R and manipulated for analysis with prices)

https://docs.google.com/spreadsheets/d/e/2PACX-1vTiUxu5sGZWk12tWLCgL0hGtXsyyt3YyQM7pty2fijPmlNeAMI_TLZNHBT_g7ncYq2qlVFPwGfhX_jn/pubhtml

*Data is compiled in excel for use in R.