California’s epic drought - its rainless skies and snow covered-less mountains - continues to block a rainbow from appearing over agriculture’s horizon.
Growers continue to fallow prime farm land - possibly up to 800,000 acres this year - and make very difficult decisions for their businesses.
Growers of permanent crops – tree nuts, vines, and others - are feeling the heat from the lack of surface water. Some tree nut growers in especially water-short areas are focused primarily on keeping orchards alive; much less producing a crop.
And with water as shy as finding a fictional bird during a snipe hunt, the lack of moisture is putting the kibosh on some new permanent crop plantings which further illustrates the increasing severity of the drought.
“The expanded growth of California’s permanent crop industries is on hold for some new investors at least for the short term due to the lack of available water in agriculture,” says Vernon Crowder, senior food and agriculture analyst with Rabobank, N.A., Fresno, Calif.
Agriculture comprises more than half of Rabobank’s banking business in California.
Crowder discussed the California drought and its growing impact on agriculture during an interview at World Ag Expo in February.
“Some (existing) farmers are very concerned that new (tree nut orchard) developers have been planting and sucking up groundwater which they need during the drought,” Crowder said.
That said, some existing tree nut growers are advocating groundwater management (control) rule language to use available water for existing plantings versus new plantings.
This represents a monumental slowdown for the huge permanent crop industries in the Golden State. The growth rate for the California almond industry alone has traveled at warp speed with about 810,000 bearing acres and another 40,000 non-bearing acres today.
Combined, there are more than 1.2 million bearing acres of almonds, walnuts, and pistachios in California with a farm gate value of more than $6.7 billion, according to the California Department of Food and Agriculture (2012 statistics).
Rapid growth in the tree nut industry is nothing less than remarkable. The world has learned through tree nut marketers aand nutritionists that nuts are part of a healthy diet. More people in fast-growing countries, including China and India, are entering the middle class and have more disposable income. They want a better diet including nuts, meat, and other foods.
The mantra by the big three nut industries is to build market demand ahead of supply. This marketing ploy has successfully built global demand while elevating grower prices.
“Permanent crop farmers have expanded production for good reason - to gain more value from the acreage,” Crowder said.
Drought changes agriculture's landscape
Some of the California ground planted in vines and nuts in recent years is acreage previously planted in cotton. Cotton prices reached record highs several years ago prices but have fallen since.
“If it wasn’t for the drought and less competitive prices, cotton production in California could be profitable again,” Crowder said.
He expects California cotton acreage to decline further this year.
International competition is also to blame for cotton’s challenges. Bale stockpiling by China - where almost half of the world’s cotton reserves are stored in Chinese warehouses – has provided China an economic edge against its global competitors, including the U.S.
Turning to the California processing tomato crop, Crowder expects acreage will remain steady this year despite the drought. California tomato processors need the fruit to meet manufacturer demand. California-grown tomatoes are in hot demand since imports are not priced competitively.
Normally in a drought situation, California alfalfa prices would drop but not this year. In fact, alfalfa prices are at near-record or record prices.
“The demand for California alfalfa hay for export and the dairy industry is very strong,” Crowder said. “The drought is causing some growers to reduce alfalfa acreage which could result in even higher alfalfa hay prices.”
Drought - agriculture's biggest challenge?
Looking at California agriculture as a whole, Crowder believes this year’s drought is the “industry’s greatest challenge” as the lack of water continues to increase production costs. Last year, drought impacted mainly producers in the San Joaquin Valley but this year the drought is a statewide problem.
Bids to purchase water in February – the beginning of the water season - topped $1,200 per acre foot. Zero state and federal water allocations are forcing growers to rely on groundwater which generally is lesser quality water than surface water.
In summary, Crowder said, “The general feeling is farmers will get through this year though it may significantly hurt the profitability of some people. The drought will cost every farmer more money.”
He noted, “The big worry is what will happen if the drought continues in 2015.”
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