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Long-term Drought Management

Understand the cyclic nature of drought in Oklahoma and how to effectively manage it. Learn about ENSO impacts, strategies for producers, and the financial benefits of refinancing. Discover how to match herd size to resources, reduce pasture damage, and increase flexibility for sustainable farming practices. Discover expert advice for navigating long-term drought conditions.

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Long-term Drought Management

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  1. Long-term Drought Management Eric A. DeVuyst Department of Ag. Economics Oklahoma Stage University

  2. Drought appears cyclical in Oklahoma

  3. Oceanic influences on our weather • (Source: G. McManus, Assoc State Climatologist) • ENSO (El Nino-Southern Oscillation) • Varies every 1-3 years • El Nino (cool and wet) • La Nina (warm and dry) • Pacific Decadal Oscillation (PDO) • Varies every 20-30 years • Cool phase (more La Ninas, drier) • Warm phase (more El Ninos, wetter) • Atlantic Decadal Oscillation (AMO) • Varies every 20-40 years • Warm phase (dry)

  4. Recent droughts are infants! (Source: G. McManus, Assoc State Climatologist) YIKES!

  5. BILLION $ QUESTION If we might be in long-term drought, how should producers respond?

  6. Management options • Cut-n-run? • Get out now • Buy heifers now? • Gamble that drought is over • Hold the course? Maintain herd #s? • Buy feed if necessary • Weather the storm? • Cut herd even further • Manage for options? • Maximum flexibility

  7. What the cost of the “wrong” strategy? • Cut-n-run • May miss profitable opportunities • Tax consequences!!!!!!!!!!!!!1 • Lose livelihood • Buy heifers now • If drought continues, bred heifer revenue > cost • Damage to pastures • High feed costs • Drinking water • Stay the course (maintain herd size) • May need to cull later in depressed market • Damage pastures • Drinking water?

  8. What the cost of the “wrong” strategy (cont)? • Weather the storm (cut herd further) • Too few cows if it rains? • Subset of Options strategy • Manage for options (flexibility) • If it rains, make hay! • Sell, stock pile • Summer stockers • Stock pile forage for fall/winter grazing • Pasture weaned calves • Lease grazing

  9. How to manage for options • Match herd size to resources given that drought will continue • Reduce pasture damage/stand loss • Keep purchase feed bill to minimum • Genetics matched to environment? • Too high milk EPDs • Too large-framed cows

  10. Refinancing to reduce cash flow demands • Interest rates remain low • Even if cash flow is not an issue, refinancing can save $s • Purchase assumptions • Purchased 160 acres @$1,100 per in 2005 • 25% down, 6% interest, 25-year note • Refinance assumptions • Refinance in January 2013, 3.5% interest over 25 years

  11. Repayment summary • Original note • Paid off in 2030 • Annual payments of $10,326 • Total interest paid over 25 years just over $126,000 • With refinancing • Paid off in January 2036 • Annual payments of $6,784 ($3,542 per year lower) • Total interest paid over 30 years about $110,000 • Refinancing can help cash flow for farms/ranches with structured debt

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