Special Reports

February 24, 2012

Drought dominates agriculture’s outlook

Greg Bunyan planted his wheat last November in the dusty soil of his non-irrigated farm near Fowler in western Kansas and hoped for the best.

Greg Bunyan planted his wheat last November in the dusty soil of his non-irrigated farm near Fowler in western Kansas and hoped for the best.

It was a pretty dry winter until some decent rain and snow in early February. That’s encouraging, but he needs a lot more moisture to produce wheat crop in June.

“I need about 10 inches to produce a crop,” he said. “We’ve been below average for 13 of the last 15 years. We’re in a real drought.”

The drought has become the dominant story in agriculture in southern Kansas and states across the southern tier of the United States, casting a pall over the good news story of continued high demand and high prices worldwide.

The drought cut last year’s corn yields in Kansas to the lowest level since 1983 and sliced the corn harvest by nearly a quarter from 2010. The wheat harvest was also down by nearly a quarter, although that was partly due to some farmers switching to corn.

The impact on the state’s cattle industry has been just as powerful. Ranchers who have seen their pastures shrivel, their farm ponds dry up and the price of alfalfa double, have been culling their herds. As of January, the state’s calf inventory was the smallest since 1938, according to the USDA.

The weather forecast through April for southwest and south-central Kansas isn’t encouraging. A forecast released in early February by the National Oceanic and Atmospheric Administration calls for a continuation or deepening of the extreme drought conditions in the southwestern quarter of Kansas. Lesser drought conditions extend farther north and east.

Drought conditions in the southeast portion of the state are forecast to improve.

The top half of Kansas is officially unaffected by the drought..

Nationwide, the forecast calls for the continuation of extreme drought in most or all of California, Nevada, Arizona, Utah, New Mexico, Colorado, Texas, Oklahoma, Louisiana, Florida, Georgia, South Carolina and North Carolina. Kansas is with a group of states on the edge of the drought that are feeling a significant impact.

For those who lost their much or all of their harvest, there was crop insurance. Farmers say that will carry them for a year, or maybe two, if they lose this one as well, but they are edging closer to financial trouble.

Fortunately, the prices for livestock and crops have been high enough to insulate some farmers with below-average harvests from taking a major hit.

Prices have been at very high levels since mid-2010 as investors and speculators bet on high world demand and shunned low investment returns elsewhere.

But while prices have generally stayed high, as always they are subject to the whims of weather, economics and the price of alternative investments around the world. Corn stocks generally remain tight in the U.S. and the world, while wheat supplies are more plentiful.

For producers, the cost of inputs has risen as fast or faster than the value of their products.

That may not matter too much if 2012 is a good year economically in the developing world and demand stays high, say forecasters. However, some see Europe’s continued troubles and a slowing of the Chinese economy as a threat to prices.

The world economy has become incredibly important to American farmers and ranchers who now export massive amounts of food overseas. One study reported that having export markets has added $200 to $250 to the price of a head of cattle, said Frank Harper, a rancher and farmer in Sedgwick and president of the Kansas Livestock Association.

In fact, high prices are contributing to the troubles in the beef industry by persuading farmers now facing parched ranches and high costs in cattle-heavy Texas, Oklahoma and Kansas to sell off all or part of their herds, Harper said.

But longer term, the prognosis is pretty bright, say forecasters. Both farmers and ranchers are only just beginning to really experience the hunger of the world market, although prices and demand will fluctuate with weather and the success of alternative sources of food.

But for at least the next decade, and possibly longer, the American farmer will dominate world markets, some experts say, because of the powerful combination of quality and cost, the product of high-tech American production and distribution practices and technology.

It’s a message that Harper, the Sedgwick farmer and rancher, embraces.

He keeps about 750 head of cattle on land north of El Dorado. He’s been through the drought. He’s paying high prices for inputs. America’s appetite for beef is flat or declining.

Yet he’s still an optimist. Prices remain up and the long-term outlook remains bright. Despite the problems, he’s still making money.

“How do you pay the highest price for inputs ever and still have profits? It’s crazy,” Harper said.

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