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Continuing drought threatens Southwest Texas farm outlook

A recent CD from Bruce Springsteen includes a song about an Oklahoma homesteader who settled along the Cimarron River only to have his farm and all his belongings blow away. “You can't make any grain when don't get any rain,” the Boss sings.

Southwest Texas farmers and ranchers can appreciate the sentiment.

With grain prices unusually high, cotton following suit and livestock also looking good, farmers across the country face the best agricultural economic outlook they've seen in 50 years, based on USDA figures for net farm income from 2007 and projections for 2008, says Jose Pena, professor and Extension economist with the Texas AgriLife Extension in Uvalde.

“But the continuing drought in a large portion of Texas, especially Southwest Texas, may make it difficult to capture some market opportunities unless significantly above average rainfall is received soon,” Pena says.

The soil profile is dry and forecasts hold little hope for a change anytime soon.

“It's going to be difficult to plant crops, especially under dryland conditions,” he says. “Forage availability is below average.”

Ranchers face extreme difficulty in sustaining stocking rates. “A continued drought also will have a serious effect on wildlife, which has become the economic lifeline for many ranching operations.”

Southwest Texas agriculture faces a double-whammy as farmers prepare the 2008 crop. Drought could limit production. Increased production costs will make the 2008 crop one of the most expensive most have ever planted.

“While the rise in commodity prices is boosting gross farm income, the USDA-ERS Feb. 12 forecast report indicated U.S. production expenses in 2008 at $279.2 billion, up $22.2 billion (8.6 percent) from 2007 and exceeding the 10-year average by $63.9 billion,” Pena says.

“The USDA production estimate of costs for 2008 is up $56.7 billion — 25 percent — from 2005, the year prior to the recent increase in energy costs.”

Pena says direct government payments likely will total $13.4 billion in 2008. That's up $1.4 billion over 2007, but is about 30 percent below a ten-year (1998-2007) average of $17.4 billion.

He says farmers might consider drought tolerant crops, such as grain sorghum, to minimize production risks under drought conditions. “And include crop insurance in risk management plans.”

Government subsidized crop insurance indemnity prices for some policies (Crop Revenue Coverage) are established by futures prices. “Since futures price bids are at or near record highs, estimates indicate crop insurance indemnity price coverage will increase about 30 percent over last year,” Pena says. “Crop insurance may provide good financial risk management coverage.”

He says premiums likely will be higher, too, so producers might want to consider covering a lower percentage of the crop. “With higher indemnity prices, they may get the same level of financial risk coverage as last year at a lower percentage converge and a lower premium.”

Pena says Southwest Texas continues to suffer from a long-term drought that had only a brief respite with last summer's rain. “As measured in Uvalde, the last six months (Sept. 6, 2007 to March 9, 2008) were the driest period on record with only 1.16 inches of total rainfall, compared to a long-term average of about 10.3 inches for the same period.

“While above average rainfall was received during spring and summer of 2007, keep in mind that a lot of rainfall was concentrated over short periods and a substantial amount was lost to run-off. But even with higher spring/summer 2007 rainfall, the Southwest Texas region, which probably reflects the relative rainfall condition of a large portion of the state, entered into drought conditions in late January 2008.”

He says the current drought follows a longer dry period, 2005 through 2006. “The 17-month period from November, 2005 to March 27, 2007 was the driest period on record, with cumulative rainfall at about 45 percent of the long-term average.

“The moisture situation is critical and will require special plans to cope with the continuing drought.”

Pena says ranchers should consider reducing stocking rates and give forage time to recover. Even with reduced livestock numbers, however, recovery will depend on above average rainfall for an extended period.

“This appears unlikely, and even with above average rainfall it may be difficult to recover.”

Pena says recent USDA figures show U.S. net farm income for 2007 at $88.7 billion, a record high. Forecast for 2008 is $92.3 billion, which will be a new record, up $3.6 billion from 2007 and more than $30 billion more than the average of the last ten years.

Those records result primarily from improved commodity prices. But Pena says to capture the benefit of higher prices, farmers have to get adequate rain to produce the crops and livestock. Without it, hope for a banner year will simply blow away.

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