Posted by: Josh Lehner | June 3, 2021

This Desert Life (Drought)

It would have been nice if we could have dealt with the global pandemic, then moved on to the drought and ensuring water issues before fire season started back up. Alas we are not in that alternative timeline. As we’re all aware, the western U.S. is in an extreme/exceptional drought. All of Oregon is in some form of worsening drought or another. What follows is first a map of the current drought status as of this week, followed by a few maps I have been using lately in presentations when discussing the issue.

These maps show where in Oregon agriculture matters the most. The total market value of products is shown on the left, based on the latest Census of Agriculture. The map on the right shows where farm earnings account for the largest share of all local income. The numbers listed in individual counties is what share of income farm earnings account for relative to the U.S. overall.

When it comes to the types of ag most impacted by drought, we tend to see the bigger impacts on grains and hay/alfalfa more than on nuts and berries, and on beef cattle and grazing lands more than dairy. Just how much of this is due to the resiliency of the type of product produced versus what is grown where the drought is most severe, can be a bit hard to disentangle. Even so, regional economies on the eastern side of the state, where ag takes on a larger importance, are more likely to suffer the direct impacts of the drought given the types of products grown and produced there.

Now, keep in mind that farm earnings are really more of a net number (income minus expenses). The full economic impact from agriculture is larger. Production costs in terms of machinery and the like are roughly twice that of the net farm earnings. Farm equipment costs a lot of money, and equipment sales really are business revenue for local suppliers. Including the cost of other farm inputs like buying feed, seed, fertilizer, and hired labor, doubles the broader impact again. Combined all of these production costs, which are an indicator of the broader economic importance, are 4-5 times as large as the farm earnings in recent years.

On one level, drought has a direct impact due to lost crops and reduced farm income. However the impacts could be seen across the entire supply chain, from reduced sales to those input suppliers, and reduced product heading to food processors and the like. Depending upon the severity, and how widespread the drought is, it can have price impacts even in global commodity markets, ultimately pushing consumer prices higher. The little bit of a silver lining is farmers will get better prices on the product they are able to harvest and sell.

Finally, just a quick update on ag exports which are doing quite well recently due to strong demand and higher commodity prices. The total values in recent quarters are now back to where they were prior to the trade war.

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