May 19, 2009

Drought continues to weaken both the agricultural production and farm credit environments, according to a first-quarter 2009 survey of agricultural credit conditions released Monday (May 18) by the Federal Reserve Bank of Dallas.

Poor production, volatile commodity prices and high feed costs are affecting lending activity in the 11th district, which includes all of Texas and parts of New Mexico and Louisiana, the bank said.

In its report, the Dallas Fed said almost a quarter of respondents said loan extension requests increased from last year, and a third said loan demand was decreasing, with some naming the poor economic climate and inadequate agricultural conditions as factors. Land sales have also slowed, but land values are stable. Lease rates for irrigated land have increased as a consequence of the drought.

Ranchers make up a sizable part of the district's agricultural community and bankers said many ranchers were unable to reach a break-even point, leading to herd liquidations. High input costs and low milk prices are hurting the dairy industry in the region as well.

Recent spring rains have done little to improve soil conditions and the entire region remains in a drought. The dryness has affected farmers who planted crops later than usual due to poor soil moisture levels, and those crops that did come up are thin and unhealthy due to lack of rainfall and high winds. The Northern High Plains region reports anticipated wheat yields of 40 percent to 50 percent, operating in "survival mode at best," according to the report.