AFPC AGRICULTURAL & FOOD POLICY CENTER TEXAS A&M UNIVERSITY SYSTEM

Transcription

1 IMPACT OF DROUGHT ON TEXAS AGRICULTURE AFPC Policy Briefing Series 98-4 July 1998 AFPC AGRICULTURAL & FOOD POLICY CENTER TEXAS A&M UNIVERSITY SYSTEM Agricultural and Food Policy Center Department of Agricultural Economics Texas Agricultural Experiment Station Texas Agricultural Extension Service Texas A&M University Web Site:

2 IMPACT OF DROUGHT ON TEXAS AGRICULTURE AFPC Policy Briefing Series 98-4 Ronald D. Knutson Edward G. Smith Roland D. Smith Agricultural and Food Policy Center Department of Agricultural Economics Texas Agricultural Experiment Station Texas Agricultural Extension Service Texas A&M University July 1998 Web Site:

3 AFPC Briefing Series The briefing series is designed to facilitate presentation by AFPC related to requests for specific policy impact analyses. The materials included in this package are intended only as visual support for an oral presentation. The user is cautioned against drawing extraneous conclusions from the material. In most instances, the briefing series will be followed by an AFPC Working Paper. AFPC welcomes comments and discussions of these results and their implications. Address such comments to: Agricultural and Food Policy Center Department of Agricultural Economics Texas A&M University College Station, TX or call

4 Impact of Drought on Texas Agriculture Briefing for Secretary of Agriculture College Station, Texas July 29, 1998 Ronald D. Knutson Edward G. Smith Roland D. Smith AFPC AGRICULTURAL & FOOD POLICY CENTER TEXAS A&M UNIVERSITY SYSTEM

5 Status of Federal Farm Policy Lump sum payments Higher than would have been under target price through 1998 Indeterminate through 22 Increased diversification resulting from flexibility provisions Crop Insurance Most common coverage is approximately 5% yield (CAT or limited additional) 1998 situation particularly unfavorable for Texas Reduced yield Depressed prices Compounded by 1996 adversities

6 Impact of 1998 Weather Adversities: Assumptions BASELINE TASS 1996 production conditions FAPRI Weather Alternative Extension Service 1998 estimates of drought

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9 Texas Southern Plains Moderate Cotton Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 99% 8% 8% 99% 98% 92% 9% 88% 67% 59% 62% 63% 61% Drought 1998 Drought

10 Texas Southern Plains Moderate Cotton Farm Probability of Losing Real Net Worth (%) Drought

11 Texas Rolling Plains Cotton Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 8% 49% 49% 47% 47% 5% 48% 48% 71% 69% 7% 54% 55% Drought 1998 Drought

12 Texas Rolling Plains Cotton Farm Probability of Losing Real Net Worth (%) Drought

13 Texas Coastal Bend Cotton Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 99% 86% 86% 98% 95% 94% 97% 98% 79% 78% 8% 81% 86% Drought 1998 Drought

14 Texas Coastal Bend Cotton Farm Probability of Losing Real Net Worth (%) Drought

15 Texas Northern Plains Moderate Grain Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 6% 6% 1% 4% 4% 6% 5% 4% 9% 3% 7% 5% 8% Drought 1998 Drought

16 Texas Northern Plains Moderate Grain Farm Probability of Losing Real Net Worth (%) Drought

17 Central Texas Moderate Dairy Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 43% 35% 37% 27% 16% %

18 Central Texas Moderate Dairy Probability of Losing Real Net Worth (%)

19 Dairy 1998 vs Drought Feed prices much more expensive in 1996 Milk production normally declines during summer heat Erath County Representative Dairies Moderate size dairy (4 cows) must change structure to survive over baseline period Large dairy (825 cows) is profitable under the baseline Hopkins County Representative Dairies Hopkins County Representative Dairies Area lost more than 3% of producers in last 4 years Moderate size dairy (21 cows) is profitable under baseline but only most efficient producers remain 21 cow dairy not profitable enough to move to next generation ---> continued change will occur Large dairy (65 cows) is profitable under baseline

20 Cattle and Sheep Cycle Inventory liquidation phase of cycle Texas producers caught trying to rebuild herd from 1996 drought Tx producers relatively less ability to begin to respond to higher anticipated cattle prices as supplies contract due to drought Other issues Reduced weaning weights Reduced conception rates Lower feed prices relative to 1996 Sheep 1996 drought factor in 1996 inventory decline Reduced lambing rates and weights Drought on top of adjustments to program changes

21 FARM Assist Pilot Program A whole farm strategic planning tool designed to provide farmers and ranchers the flexibility to proforma analyze their operation under risk employing a wide array of risk management tools.

22 How will it work? FARM Assist Pilot Regions One-on-one assistance Risk Management Specialist Professional Report Specifically tailored to each subscriber Delivered and explained Fee based Database Subscriptions start September 1,

23 Implications Dryland farmers in big trouble Affects whole agriculture community Relative benefits of 1996 Farm Bill indeterminate over full life of bill Need strong export demand to fulfill objectives Producers must be able to assess risk management alternatives

24 Appendix

25 Texas Southern Plains Large Cotton Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 69% 34% 34% 32% 8% 66% 57% 61% 51% 26% 26% 24% 23% Drought 1998 Drought

26 Texas Southern Plains Large Cotton Farm Probability of Losing Real Net Worth (%) Drought

27 Texas Blackland Cotton Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 99% 99% 99% 99% 99% 94% 99% 98% 99% 98% 92% 94% 92% Drought 1998 Drought

28 Texas Blackland Cotton Farm Probability of Losing Real Net Worth (%) Drought

29 Texas Northern Plains Large Grain Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 9% 9% 6% 6% 5% 4% 9% 1% 6% 1% 1% 1% 3% Drought 1998 Drought

30 Texas Northern Plains Large Grain Farm Probability of Losing Real Net Worth (%) Drought

31 Texas Moderate Rice Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 4% 1% 1% 1% 1% 1%

32 Texas Moderate Rice Farm Probability of Losing Real Net Worth (%)

33 Texas Large Rice Farm Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 5% 6% 2% 1% 1% 2%

34 Texas Large Rice Farm Probability of Losing Real Net Worth (%)

35 Central Texas Large Dairy Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 1% 1% 1% 1% 1% 1%

36 Central Texas Large Dairy Probability of Losing Real Net Worth (%)

37 East Texas Moderate Dairy Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 3% 1% 1% 1% 1% 1%

38 East Texas Moderate Dairy Probability of Losing Real Net Worth (%)

39 East Texas Large Dairy Net Cash Farm Income ($1,) Probability of Refinancing Deficits (%) % 3% 2% 1% 1% 1% 1%

40 East Texas Large Dairy Probability of Losing Real Net Worth (%)

41 Table 1. FINANCIAL IMPACTS OF THE 1998 DROUGHT ON REPRESENTATIVE TEXAS SOUTHERN PLAINS (TXSP1682, TXSP3697) COTTON FARMS. TXSPI682 TXSPI682 TXSP3697 TXSP3697 BASELINE 98 DROUGHT BASELINE 98 DROUGHT Average Annual % Change in Real Net Worth Cost to Receipts Ratio (%) Average Total Cash Receipts ($1) Average Total Govt Payments ($1) Average Net Cash Farm Income ($1) Average Prob. of a Cash Flow Deficit (%) Ending Cash Reserves (1,) AAverage Prob. of Refinancing Deficits (%) Prob. of Losing Real Net Worth (%) Processed 7/27/98 9:12 File D:\rollup\OUTPUT\FLIPSSTA.OUT

42 Table 2. FINANCIAL IMPACTS OF THE 1998 DROUGHT ON REPRESENTATIVE TEXAS ROLLING PLAINS (TXRP265), BLACKLAND(TXBL12), AND COASTAL BEND(TXCB17) COTTON FARMS. TXRP265 TXRP265 TXBL12 TXBL12 TXCB17 TXCB17 BASELINE 98 DROUGHT BASELINE 98 DROUGHT BASELINE 98 DROUGHT Average Annual % Change in Real Net Worth Cost to Receipts Ratio (%) Average Total Cash Receipts ($1) Average Total Govt Payments ($1) Average Net Cash Farm Income ($1) Average Prob. of a Cash Flow Deficit (%) Ending Cash Reserves (1,) Average Prob. of Refinancing Deficit (%) Prob. of Losing Real Net Worth (%) Processed 7/27/98 9:12 File D:\rollup\OUTPUT\FLIPSSTA.OUT

43 Table 3. FINANCIAL IMPACTS OF THE 1998 DROUGHT ON REPRESENTATIVE TEXAS NORTHERN HIGH PLAINS(TXNP16), (TXNP55) GRAIN FARMS. TXNP16 TXNP16 TXNP55 TXNP55 BASELINE 98 DROUGHT BASELINE 98 DROUGHT Average Annual % Change in Real Net Worth Cost to Receipts Ratio (%) Average Total Cash Receipts ($1) Average Total Govt Payments ($1) Average Net Cash Farm Income ($1) Average Prob. of a Cash Flow Deficit (%) Ending Cash Reserves ($1) Average Prob. of Refinancing Deficits (%) Prob. of Losing Real Net Worth (%) Processed 7/27/98 9:12 File D:\rollup\OUTPUT\FLIPSSTA.OUT

44 Table 4. FINANCIAL IMPACTS THE 1998 DROUGHT ON REPRESENTATIVE TEXAS RICE (TXR2118, TXR375) FARMS AND CENTRAL AND EAST TEXAS(TXCD, TXED) DAIRIES TXR2118 TXR375 TXCD4 TXCD825 TXED21 TXED65 BASELINE BASELINE BASELINE BASELINE BASELINE BASELINE Average Annual % change in Real Net Worth Cost to Receipts Ratio (%) Average Total Cash Receipts ($1) Average Net Cash Farm Income ($1) Average Prob. of a Cash Flow Deficit (%) Ending Cash Reserves ($1) Average Prob. of Refinancing Deficits (%) Nominal Net Worth ($1) Average Prob. of Losing Real Net Worth (%)

45 Copies of this publication have been deposited with the Texas State Library in compliance with the State Depository Law. Mention of a trademark or a proprietary product does not constitute a guarantee or a warranty of the product by The Texas Agricultural Experiment Station or The Texas Agricultural Extension Service and does not imply its approval to the exclusion of other products that also may be suitable. All programs and information of The Texas Agricultural Experiment Station or The Texas Agricultural Extension Service are available to everyone without regard to race, color, religion, sex, age, handicap, or national origin.