Drought Conditions Dampen Financial Picture

Currently, the driest conditions cover the Texas and Oklahoma panhandles and the four-corner region of Arizona, Colorado, New Mexico and Utah. ( U.S. Drought Monitor )

“Drought conditions continue to be the driving factor in planning and budgeting this year. If conditions persist, there will be fewer producers next year.” 

This comment from a banker in the Texas Panhandle paints a stark picture of how this year’s expanding drought is limiting business opportunities for farmers in the Southern Plains and Southwest. 

The persistent dry weather is bruising the area’s winter wheat crop and limiting grazing opportunities, according to banker responses to the 2018 First Quarter Agricultural Credit Conditions Survey in the Eleventh Federal Reserve District—an area that includes Texas, the southern half of New Mexico and the northern half of Louisiana.

The latest U.S. Drought Monitor shows 44.4% of the continental U.S. is covered in drought. This is an improvement, as three months ago drought conditions plagued nearly 67% of the country.

 

5-8-18 U.S. Drought Monitor

However, pockets of severe drought have expanded. Currently, the driest conditions cover the Texas and Oklahoma panhandles and the four-corner region of Arizona, Colorado, New Mexico and Utah. These levels of exceptional drought cover 2.3% of the continental U.S., while extreme drought covers 9.3%.

According to the May 7 USDA Texas Crop Progress and Condition report, winter wheat in the north-central Plains remained in poor condition. Temperatures were above normal across most of the region, with maximum daily temperatures reached the mid-90s in western Oklahoma and the Texas Panhandle.

In north-central Arizona, precipitation for the current Water Year (October to present) is the driest on record. Overall, Arizona experienced its third driest October-through-April period on record while New Mexico had its 10th driest, according to the May 10 U.S. Drought Monitor. Luckily, meteorologists don't believe this year's drought matches 2011 in the Southern Plains.

'We need rain.'

Other bankers in the Texas Panhandle can summarize the current situation succinctly: We need rain.

“Drought is hurting our ag customers, and we are approaching the critical stage,” reports a banker in the Southern High Plains of Texas. “Good, slow, soaking rain would help tremendously.”

Another banker in the area reports the lack of measurable rainfall for well over 100 days has cut short winter cattle grazing opportunities and depleted hay inventories—forcing ranchers to sell their cattle or transfer them to grow yards. 

“This is extremely expensive and not cost effective at this point. All farm operating renewals have been extremely tight with some producers having a carryover balance from the 2017 crop year,” the banker says.

As a result, ag loan renewals and extensions accelerated in the first quarter of 2018, while the rate of loan repayment declined after stabilizing last quarter. While the majority—84.5%—of bankers surveyed say credit standards for agricultural loans have remained stable over the past three months compared to a year earlier, 15.5% say they have tightened.

Data were collected March 13–21, and 118 bankers responded to the Federal Reserve Bank of Dallas’ first quarter survey.
 

Will the Drought Continue? 

A weather pattern known as La Nina that has worsened drought conditions across the U.S. Great Plains has faded, according to the U.S. Climate Prediction Center. But it could be replaced late this year by one called El Nino.

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