AG-ECO NEWS
Jose G. Peña
Vol. 22, Issue 17
Professor and Ext. Economist-Management
May 31, 2006
2006 Will be a Difficult Year for Agriculture Even with Improved Markets
Start Planning to Cope with Drought and High Energy Costs
Jose G. Peña, Professor and Extension Economist-Management
While livestock and grain markets have improved significantly and the outlook
appears good, the continuing drought and high energy costs indicate that 2006 will be a
difficult year for agriculture.
USDA’s initial forecast of
net farm income for 2006 at $56.2
Figure 1: U.S. Net Farm Income and
Direct Government Payments
1996-2006F
billion is down $16.4 billion
$90
(22.6%) from $72.6 billion in net
income in 2005, but slightly
above the ten year average of
Billions
82.5
$80
13.3
$70
$60
$50
Direct Government Payments
59.5
55.5
7.0
56.2
50.5
7.5
$40
$55.7 billion. (See Figure 1).
Both farmers and
ranchers face major crop failures
this year as a result of the
$30
45.6
46.8
47.9
51.5
20.7
21.5
22.9
15.7
36.6
42.3
11.2
43.0
$20
55.7
18.5
17.2
69.2
12.4
48.5
72.6
23.0
33.2
30.8
25.3
49.6
40.0
37.7
25.4
25.0
Net Farm Income from Production
$10
$0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005F
2006F
19962005
Average
F = Forecast
Source: USDA-ERS Farm Income and Costs: Farm Sector Income Report, May 30, 2006
continuing drought. For
example, while wheat and cattle prices reached 2-3 year highs, the wheat harvest in South
Central Texas was down about 80 percent from last year and ranchers had to liquidate a
large portion of their herds due to the drought. Crop agriculture is experiencing increased
irrigation requirements at a critical time of record high energy costs.
While light to heavy thunderstorms deposited about one-half to over six inches of
much needed rainfall last week in a narrow belt through the Hill Country to the upper coast
of Texas, most of Texas,
especially the south and
Figure 2: Rainfall by Month November ‘05-May ‘06
Uvalde Research and Extension Center
Inches of Rain
southwest regions remain very
Figure 2a: Comparing November '05-May '06 to
Long Term Average Rainfall
4
Rainfall
Long term avg.
3.5
3.12
dry. May ‘06 ended with rainfall
3
2.5
2.34
in a large portion of southwest
2
1.48
1.5
Texas, down 60 percent from the
1.24
1.13
1.30
1
1.25
1.34
1.26
0.5
long term average. The
0.04
0.07
Nov-05
Dec-05
southwest Texas region, which
Inches of Rain
probably mirrors the moisture
12
situation in over 50 percent of
0.12
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Figure 2b: Comparing November '05-May '06 Cumulative Rainfall to
Average Long Term Cumulative Rainfall
14
Cummulative
Long term Cummulative
11.96
10
8.84
L.T. Cummulative
8
state, has only received about 2.8
0.06
0.02
0
6.51
6
5.17
inches of scattered rainfall in 229
days, since the last economically
2.78
2
2.80
1.48
1.49
0.04
0
significant rainfall of over one
3.91
4
0.11
Nov-05
Percent
25%
Dec-05
0.23
Jan-06
1.55
0.25
Feb-06
Mar-06
Apr-06
May-06
Figure 2c: Percent of Cumulative Rainfall November '05-May '06
23.4%
22.9%
inch on October 13, 2005. This
20%
17.5%
229 day period will go down in
15%
history as the driest on record.
(See Figure 2). Unseasonably
10%
5.9%
4.8%
5%
2.7%
hot temperatures are
4.0%
0%
Nov-05
Dec-05
Jan-06
Feb-06
M ar-06
Apr-06
May-06
aggravating the dry spell.
The drought really started in June ‘05 when cumulative rainfall dropped to 73 percent
of the long term average. Weathermen define a true drought as a period when 75% or less
of the long term average yearly rainfall has been received. And, weather forecasts indicate
that the drought will persist in the South Central portion of the U.S. through the summer.
The current drought has entered into a severe classification. Agricultural producers
should prepare in-depth financial plans which cover short and long term goals and
objectives and take into account the effects of a potential continuing drought over the next
few years.
In terms of forage production for livestock, historically about 70 percent of the annual
forage production occurs in the spring. With spring almost behind us, sufficient forage will
not be produced this year to sustain even a minimal level of livestock. Current conditions
may extend through next spring. Hay is scarce and expensive. Adequate levels of
supplemental feeding to sustain livestock through the hot, dry, summer dormant season will
be expensive. If livestock remain, stock densities should be reduced to match forage
availability. In the case of expensive breeding stock, ranchers may want to consider moving
the livestock to leased pastures with adequate forage or to feedlots to be maintained.
Appreciation is expressed to Dr. Hagen Lippke for his contribution to and review of this article.