AUSTIN - A drought stretching from the Rio Grande Valley to the top of the Panhandle is frying Texas' cotton, and with about 30% of the crop already lost, experts expect the yield to drop by about half this year.
Industry watchers said insurance already has helped farmers pay some bank debt, and they are expecting more claims to be processed. Bankers say that they also expect farmers to have to tap the equity they built during the record years of 2004 and 2005 to pay back loans.
Banks are now checking with farmers to see how crops are doing and make plans for repayment options.
The Texas Department of Agriculture reported Monday that halfway through the cotton-growing season, the drought has already claimed 1.5 million to 2 million acres and has contributed to total agricultural losses of about $1.5 billion.
On top of that, farmers are dealing with rising fuel costs, interest rates, and seed costs.
Texas is the top cotton producer in the United States, with 2.8 billion bales ginned last year, or about 22% of the nation's production, the U.S. Department of Agriculture reported.
Rain has fallen in isolated spots, even causing floods in El Paso and Houston, but most of the state has not had much relief from the drought, which began in October and has been compounded by record-high temperatures, the National Weather Service reported.
The news is not expected to get better. The weather service's Climate Prediction Center released a forecast July 20 showing the drought is expected to persist or intensify in most of the state through October.
John Senter, an extension agent for Mitchell County, said this month and next month are the most important months for cotton plants in west Texas.
"It's pretty serious," Mr. Senter said. "This could have a pretty dramatic effect on crop producers. These guys were working on three or four bad years prior to 2004 and 2005."
In his area, just over 100 miles southeast of Lubbock, 52,000 acres are normally planted for cotton, but the soil was so dry during this year's sowing season that only 49,000 were planted, Mr. Senter said. Of that, 1,500 acres already have been plowed because of the drought, and unless rain arrives this month or next month, another 75% of the dry-land cotton crop will be lost.
However, John Robinson, an associate professor and extension specialist in cotton marketing at Texas A&M University's Department of Agriculture, said rain now could lower the yield for growers in south and central Texas, because cotton there is at a stage where water will destroy it.
He estimates that half of the 6 million acres planted statewide this year will be lost.
Security State Bank, a $75 million-asset Littlefield subsidiary of Xit Bancshares Inc., does a significant amount of lending to cotton farmers. Gary Green, a senior vice president at Security State, said the drought is hardly their only worry.
"Basically, what's killing us more than the drought is high energy costs and fuel," he said. "All fertilizer and petroleum-based products have gone up substantially. Margins for farmers continue to shrink, especially with higher interest rates."
Mr. Green, who has been working in farm credit for 27 years, said that he is not concerned about loan losses, but that he does believe some farmers' net worth will decrease.
"The south plains had two bumper crops in a row in 2004 and 2005, two of the best crops this area has seen in 50 years," he said. "Therefore, a lot of them had carryover or cushion. They'll still lose net worth, but its not a wreck where they can't keep going next year."
Though this drought has been more severe than others, farmers in West Texas "are used to adverse conditions," Mr. Green said.
Chuck Senter, John Senter's brother, is an agriculture lender with City Bank of Lubbock, a $1 billion-asset unit of South Plains Financial Inc. He leases his own dry-land farm to a cotton grower. That crop has already been written off as a total loss, he said.
In the small towns he visits for business, "everybody is basically experiencing the same thing," Chuck Senter said. "We are trying to figure out how that is going to affect us and arrange that with our producers as best we can."
