Effects of drought on hay and feed grain prices

Droughts represent a severe and increasing risk for the livestock sector as they can reduce yields of hay and feed grain. Droughts are predicted to increase in frequency and magnitude under climate change. Here we estimate the so far unexplored effect of drought shocks on feed prices. We use an empirical example from Germany and focus on the prices of hay as well as feed wheat and barley. Our results show that regional and national droughts substantially increase hay prices by up to 15%, starting with a delay of about 3 months and lasting for about a year. In contrast, feed grain prices in our sample are not affected by regional or national droughts. These price responses can be linked to market integration, as the hay market is usually regionally organized while feed grains are traded transnationally. It is important to include this knowledge into farm management and policy actions, especially considering climate change.