INSIGHT-US farmers hit paydirt with irrigation in arid spring
BY Reuters— 7:00 AM ET 06/22/2012
* Irrigation equipment sales hit record highs
* Farmers scramble to get wells dug amid drought fears
* Economics of crop irrigation pay off for some growers
By P.J. Huffstutter
MILL CREEK, Indiana, June 22 (Reuters) - Bouncing down a county back road, squinting as a blazing sun intensifies one of the hottest, driest Midwest springs ever, farmer Dale Tuholski steers his pick-up truck between fortune and failure.
To his left, new irrigation machinery sprays a fine mist across his corn field in northern Indiana, where emerald green plants sway in the breeze. To his right is a neighbor's land: the soil dry and dusty, the corn leaves curled.
Amid the warmest first five months of the year since 1894 in the U.S. heartland, a rapidly expanding minority of farmers like the Tuholskis and Kyle Clute - who manages 25,000 acres (1 0,000 hectares) 100 miles (16 0 km) sou thwest of Tuholski's farm - are taking out an expensive hedge against increasingly volatile weather: buying new irrigation equipment for their corn or soybean fields.
"We don't want Mother Nature to control our destiny anymore," said Clute, who farms corn and soybean fields in Warren County, Indiana.
The potent mix of ever-warmer weather and expectations of near-record farm income of $92 billion for 2012 is fueling all-time-high sales of such equipment, with revenues up a third or more at leading firms. Center-pivot irrigators are particularly popular with farmers in water-strapped areas because the machinery can extend the reach of limited natural resources.
While many farmers are merely upgrading aging equipment, manufacturers say that a sizeable share is now being sold to growers who have never before irrigated. In Indiana, the number of registered new wells is growing at the fastest rate in two decades; drilling firms are struggling to keep up with demand.
As the trend grows, the implications will spread.
In a year like this one, for instance, even small shifts in the amount of acreage that is mechanically irrigated could help mitigate yield losses. For analysts and grain traders, such shifts could complicate efforts to forecast production outcomes based on weather conditions.
It may also intensify the growing friction over water use as expanding populations, bumper crop harvests, ethanol production and even the boom in hydraulic fracturing consume ever-larger volumes of the country's finite water supply.
While the amount of water needed for traditional dryland crop fields is likely to remain small, environmentalists caution that a new, and potentially large, consumer group tapping into the nation's groundwater supply could have untold consequences.
CORN BELT EYES WATER
About 94 percent of the nation's four major commodity crops - corn, soybeans, wheat and cotton - is grown on farmland that relies on rain for moisture, according to the most recent federal data from 2008. About 61 percent of that land is in the western half of the country, in states including Nebraska, California, Idaho and Kansas.
To the east, the land's fertility and natural weather patterns have typically been enough to produce a crop using only rain. In other cases, running a mechanized irrigation system simply didn't make economic sense.
For many farmers like Clute, increasingly efficient technology not only helps their operations, it also offers a tax deduction on farm income after several years of near-record grain prices and healthy profits.
The boom in agricultural land values and rents also has them looking to such machinery as a way to boost revenues - through bigger yields - from the soil they already own.
Farmers in the wheat-growing Plains states understand this dynamic well: The value of irrigated land has surged far faster than non-irrigated land since last summer, when a drought gripped much of the region.
In the first quarter of this year, the value of irrigated Plains farmland jumped 31.8 percent, outpacing rain-dependent farms, which rose by 24.7 percent from a year earlier, according to the Federal Reserve Bank of Kansas City. It was by far the widest disparity in growth rates since at least 1980.
NEW CUSTOMERS FUEL BOOMING BUSINESS
The mounting global anxiety over strained water resources is well known, as is the impact of increasingly erratic and extreme weather conditions.
Earlier this month, Israeli scientist Daniel Hillel - who pioneered a new way to apply water in small, steady amounts directly to plant roots in arid regions - was named the winner of the 2012 World Food Prize and honored at the U.S. State Department.
But the response to these trends by U.S. commodity farmers - responsible for producing about a third of the world's corn and soybeans - is only now becoming apparent. While biotechnology companies race to develop more drought-resistant strains, farmers are investing capital.
Valmont Industries Inc (VMI), a leading U.S. manufacturer of center-pivot and linear irrigation equipment, reported a 30 percent jump in global sales of irrigation equipment and parts to $196.3 million in the first quarter. Rival Lindsay Corp (LNN) said U.S. irrigation revenues surged 39 percent in the six months to Feb. 29.
At T-L Irrigation Co in Hastings, Nebraska, a privately held farm irrigation equipment maker, sales last year were the highest in its 57-year history.
The company is recruiting new dealers to meet rising demand in the central and eastern portions of the Corn Belt, a region that made up only about 5 percent of its sales a decade ago, said David Thom, T-L Irrigation's vice president of sales. Now, dryland farms in the area are about 15 percent.
"They're family farmers who might have 1,000 acres," Thom said. "They'll start with one or two and that's good, because they like to walk before they run. Then, they'll buy more."
The Tuholskis fit this mold. The family bought their first irrigation equipment in 1980, during the last agricultural boom. Slowly, the family expanded: The seven center-pivot irrigation machines they bought this past year bring their total to 40.
"We can farm less acreage and have more income potential," said Tuholski, whose family farms corn, soybeans, seed corn and other specialty crops. "And we don't have to worry quite so much about the weather."
WISHING MORE WELLS
As farmer demand grows, so does the waiting list for well-drillers in drought-prone areas.
In Indiana, the fifth-largest corn-producing state, the number of new irrigation wells was up 6.2 percent from the end of 2009 through May 2012, according to data compiled by the Indiana Department of Natural Resources' water division. That increase, the sharpest jump since the early 1990s, was driven in part by farmers rushing to plant more corn acres as U.S. prices hit record highs, state agency officials say.
In Taylor, Missouri, the staff of Landmark Irrigation Corp has been booked solid since last fall with orders for new irrigation wells to be dug on farms in Illinois, Missouri and Iowa. Many of Landmark's clients are buying equipment for farms that have never been irrigated, co-owner Deb Sutter said.
Most of the calls have been from producers who farm at least 1,000 acres, she said. But as the rains have waned, smaller operators have started to call too. For most of Illinois, much of Missouri and large stretches of central and east-central Iowa, the rainfall of the past three months is 25 to 50 percent below normal.
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