Drought damage to California farms, ranches and agricultural businesses will worsen in 2015, according to the cooperative lender CoBank. In a report released in late June, the Denver-based lender said losses in revenue will be concentrated among field crops such as corn, wheat, cotton, rice, hay, pasture and beans—and that California dairy farms will also be hit hard.
The report from the CoBank Knowledge Exchange Division included what its authors called "four key takeaways":
- Damages caused by drought in 2015 will be worse than those in the previous year, but "far from catastrophic."
- Not all commodities will be equally affected, as farmers direct their available water supplies to permanent plantings of trees and vines.
- Growers will again fallow land, principally in field crops.
- Agricultural lenders will experience some deterioration in the credit quality of their California-based borrowers, "but it will be modest in scope."
The report concluded that most California farmers, ranchers and agricultural businesses will remain in the black in 2015, "albeit with a few outliers posting modest losses and slight deteriorations in credit quality." CoBank warned, however, that "financial stress will worsen if the drought persists into 2016."
California farmers are relying more extensively on risk-management tools in response to drought, the report said, noting that crop insurance coverage expanded by 2.2 million acres, to 6.8 million, between 2012 and 2014.
In analyzing how various crops and commodities would be affected by the 2015 drought, CoBank said dairies "will be especially vulnerable."
"While hay costs are down slightly from last year, farmgate milk prices are off nearly 40 percent from a year ago," the report said. "Last year, California dairies’ bottom lines were spared from the ravages of the drought by the nationwide run-up in milk prices. They won’t be so lucky in 2015."
CoBank said losses of locally grown silage, hay and pasture will raise dairy feed costs "substantially." Dairies should have access to sufficient feed in 2015, the report said, "but more of it will travel longer distances and be more expensive, spurring some dairies to shift the composition of their feed rations."
The report said the fallowing of hundreds of thousands of acres of farmland will also affect agricultural support businesses, "with smaller service providers and farm product retailers likely to be hurt the most."