Farm economy strong in the West

Despite rough winter ag looking good in California

Bob Krauter
Capital Press
August 10, 2007

They've been through blistering heat, bitter cold and drought, but California farmers have survived the weather adversity and appear to be on course for a favorable year. A mid-year check of the farm economy reveals that stronger farm prices appear to be the norm across much of the West.

California agriculture began the year with a severe January freeze and a dismal Sierra snowpack that has reduced water availability across many parts of the state. Still, there are hopeful signs for a strong year, according to Ernest Hodges, president of Sacramento Valley Farm Credit in Woodland .

"Typically, farmers in California do better in a dry year as long as they have adequate water, and we have adequate water for this year," Hodges said. "But we sure need to have some good rains this winter, or it could be a different story next year."

Many crops in the Sacramento Valley , including rice and processing tomatoes, have benefited from favorable planting and growing weather.

"Everything is a little bit early, and all of the crops look good from a price standpoint," Hodges said. "The ethanol push on corn and corn prices has had a beneficial, favorable impact on most row crops. If you drive up the Sacramento Valley , you see a lot more corn this year than you would in virtually any other year. I have been here since 1982, and I can never remember having this much corn in the ground."

Due to ethanol's impact on the corn market, more California farmers are double-cropping with sunflowers for seed and oil production rather than farming beans or other field crops.

Almond growers are expected to produce a record 1.3 billion pound crop, which could put pressure on grower returns. Hodges said the prune and walnut crops in his area appear to be lighter, but the economics, especially for walnuts, look favorable.

In January, citrus, strawberry, avocado and some vegetable growers in the southern San Joaquin Valley and in Southern California were hit by one of the state's worst freezes in history.

Tim Leach, senior vice president for Fresno Madera Farm Credit, said farmers have battled through the freeze, which came on the heels of a severe heat wave last July, which took a toll on dairy and poultry farms.

"We finance more than 200 crops, so take your pick," said Leach when asked to assess the economic picture in his area. "But generally speaking, the vast majority are looking at a good year. The freeze did hit our citrus growers, but at the same time, they learned from the early 1990s that they should have crop insurance, and that really helped most of those guys."

A relatively mild summer has helped stretch limited irrigation supplies in many areas of the San Joaquin Valley as most irrigation districts have shut off deliveries for the rest of the season. Favorable growing conditions have put the state's 2007 almond and grape harvests about a week ahead of normal schedule.

Leach said the state's $5 billion dairy industry marked a turnaround last month when milk prices finally reached the desired 3-1 ratio with robust feed prices.

"We finally got that in July, and that tells you that the milk price is up and feed costs have leveled off. That's a good sign," Leach said. "It's now time in our opinion for them to sock some of that cash away. If they're smart, that's what they'll be doing to get their balance sheets right-side up."

In the state's vegetable industry, leafy greens growers are rebounding from last fall's E. coli outbreak that caused sales for spinach, lettuce and other leafy greens to plummet for several months. The industry is operating under a new California Leafy Green Handler Marketing Agreement with a set of standards that growers and handlers must follow to prevent foodborne illness.

The news on the farm economy front is encouraging farther north too. Brent Searle, special assistant to Oregon State Agriculture Director Katy Coba, reported that the outlook is promising in his state.

"In general, commodity prices right now have been as high as they have in a lot of years. Wheat prices are sky-high, over six bucks - I have never seen that in my lifetime," Searle said.

Dairy prices are at historic highs and hay growers, too, are baling better profits than they have for some time.

"If you are on the producing end of things, of course some of that goes into inputs for others who are having to pay those high prices," Searle said. "So that is a two-edged sword, but in general agriculture is as good as it has been in a long time."

Jay Penick, president and chief executive officer for the Northwest Farm Credit Services in Spokane , Wash. , had positive words in assessing agriculture in the Pacific Northwest .

"If you had to grade it, I probably right now would give it an A-minus," Penick said, noting that prices for virtually all of the region's commodities are strong and farmers "have prices that are allowing them to cover their costs and have a return on their investment. That's probably the first time in many years when we have had this number of commodities that have been in that good of shape."

The few exceptions are fresh market onions, which have suffered softer prices and timber, Penick said. Because their fate is closely tied to the housing market, foresters could see tougher times and lower prices. Even though the livestock, dairy and poultry sectors have been hit with higher feed costs associated with the demand for corn for ethanol production, it hasn't dampened farm income prospects.

"Even when you take into account the high grain prices and the impact they have on livestock producers, those livestock production units are getting good enough prices to cover those costs at this point in time," he said.

Bob Krauter is the California editor based in Sacramento . E-mail: bkrauter@capitalpress.com.

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