A panel of experts discussed the challenging aspects of the flow of both water and money at a workshop in early November held during the Western Growers 89th Annual Meeting.
Titled “The Ebb & Flow of Water & Cash: Challenges Facing Our Industry,” the seminar focused on both of these topics with water understandably creating a bit more uncertainty than the economy. While the economy is in flux, it seems to be much easier to predict than the weather.
During the event, Rabobank executives Christian Lawrence, an interest expert, and Vernon Crowder, an ag economist, gave a relatively optimistic outlook to the 2015 economic situation, especially in the United States. Lawrence predicted the Federal Reserve will not raise interest rates until late in 2015. He said in comparison to other economies, the United States is in very good shape and the long-term outlook is good. “The seeds have been sown for long-term U.S. economic growth,” he said. “The U.S. (economy) will outperform most developed nations.”
Lawrence said the U.S. dollar continues to be where investors want to put their money, especially when global events, such as the Ebola crisis or political unrest, create uncertainty. He believes this trend toward buying dollars will boost the value of U.S. currency against both the euro and Japanese yen. But the Rabobank senior market strategist does not expect this to have a negative impact on U.S. exports as he sees very little inflation surfacing in 2015. Consequently, the cost of U.S. goods will be marginally higher because of the strong dollar, but not substantially higher.
Crowder, who has discussed ag economics at WG conventions for many years, painted a relatively rosy picture of the ag sector. He said fresh produce crops are very important in both California and Arizona and lead the way for a strong ag economy. He noted that in California three nut crops — almonds, walnuts and pistachios — are among the state’s top five crops in terms of value. He also mentioned that it takes many different crops in each state to create a significant economic mass noting that that diversity is key to the two states’ strength in agriculture.
But Crowder said that while agriculture is a strong market, it does generate a lot of volatility, and he does not expect that to change. He did say that as interest rates rise in late 2015, the cost of money will rise, which grower-shippers need to factor into their financial plans. He also said the cost of water will increase if California has another dry year. While there are transfer possibilities to allow growers to cover their water needs, the cost of that water on the open market will rise. In future years, the Rabobank executive said the new ground water legislation will also allow for the creation of a market for that resource.
The two experts that were on the panel to specifically discuss the water situation were Tim Quinn, executive director of the Association of California Water Agencies, and Chuck Cullom, manager of Colorado River Programs for the Central Arizona Project. Their comments about that natural resource near term were not nearly as upbeat as the experts talking about the economy.
However, speaking on Election Day, Quinn was close to ecstatic about the prospects for the California Water Bond and also had good things to say about Gov. Jerry Brown and California’s controversial ground water legislation. In fact, he called the water bond, Gov. Brown and the new legislation three “assets” that will serve the California water community well over the next generation.
With regard to the Water Bond, Quinn said the $7.5 billion bond price tag will be leveraged to attract three or four times that much federal money into the state to solve some of California’s water problems. In the area of storage, conveyance and drinkability, he said great strides will be made as this is the largest water investment ever made in the state. Later that day, the bond passed by a very large percentage.
Governor Brown won re-election by a large margin as well. Quinn said Brown is committed to solving California’s long-term water needs, and the passage of the water bond will “jump start” the governor’s water plan.
Quinn’s association was instrumental in developing the groundwater legislation. While some do not like it, Quinn argued that it is a very good solution and leaves decision making in local hands unless a community cannot solve its own problems. He believes this is a very good solution and will lead to creative problem solving. He called it “a once in a century accomplishment.”
Speaking of California’s drought, the water expert said 82 percent of the state is in extreme drought conditions while 58 percent is in the “exceptional drought” category, which is a level worse than extreme. He said there is a one in four chance California will have a wet year that can start to help the drought situation. It has been widely reported that there is a 2 in 4 chance of an average year and 1 in 4 chance of a dry year. That means there is a 3 in 4 chance that the precipitation levels will not dent the drought as an average year will do little or nothing to fill the very low reservoirs.
Cullom of CAP spent his time at the podium spelling out the future challenges to continued water supplies from the Colorado River. Over the past decade, the water levels in the reservoirs that serve the southern portion of the Colorado River (Nevada, California, Arizona and Mexico) have been dropping to historically low levels. If this trend continues — as is expected — there will be a time when 100 percent of the promised water will not be deliverable.
Cullom said that under past legislation and negotiations, California will not get a reduction in deliveries while Arizona and Nevada will. However, he said federal officials have said that they will not allow Phoenix nor Las Vegas to run dry, indicating that a change in the allocations will have to occur.
The CAP executive advocates for attacking the issue now before it becomes a crisis, and working out a plan that can be followed when the levels in Lake Havasu, Lake Mead and other reservoirs fall to crisis levels. He said, for example, that Lake Mead is dropping about 12 feet every year and in July 2014, it hit the lowest level since the dam was built in 1936. “The long-term outlook is not good,” Cullom understated.
He said within the next five to eight years, the level will fall below 1,000 feet, which is the level needed to run the hydroelectric pumps. At that point decisions will have to be made as to what to do. It is a difficult challenge but one that he believes needs to be addressed, sooner than later.
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