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Lowdown on the Drought

With record-setting weather officially a disaster, many learn new business skills

By wmadministrator

Kentucky’s dry, hot summer and fall is forging tough-minded decision-making skills in business statewide, while in the Bluegrass region it has revived debate about long-term water supply.  Farmers are facing and making increasingly hard choices because of deepening drought exacerbated by record late summer heat in much of the commonwealth. While winter and cooler temps inevitably will come, forecasts suggest little let up in the drought until at least next spring – if seasonal rains return to normal then.

In early October, the USDA declared the entire state a disaster area. Corn, soybean, tobacco, wheat and hay production is off, severely in the case of soybeans. Cattle herds are being thinned as forage and feed options worsen.
Drought typically doesn’t impact non-agricultural enterprises as much, but the broader business world reports it has sweated this year’s weather, too. When the Kentucky Association of Manufacturers polled members in mid-September in response to a Lane Report inquiry, fully a third of the 500 replies indicated the drought had impacted participants’ production or supply chains.

Work hours shifted. Worker health and safety issues were heightened. Water transport of products was affected. Seventeen percent of firms KAM polled say the severe weather will force permanent changes in some procedures and processes in the future, said Martin Kish, association vice president for marketing and communications.

Meanwhile, severe drought resurrected serious debate about meeting water needs in central Kentucky, specifically the 10-county area served by Lexington-based Kentucky American Water, which depends exclusively on the Kentucky River. Drought means demand increases as river flow diminishes, and the pool behind Dam No. 9 where the utility draws its supply hit equilibrium for several days in late summer – there was essentially no flow over the dam. As it had during the 1999 drought, the Kentucky River Authority “mined” water from pools it maintains farther upstream to ensure adequate flow.

E.ON U.S., parent of Kentucky Utilities and Louisville Gas and Electric, which together serve more than 900,000 homes and facilities, saw peak usage records set repeatedly in August when blistering heat set in and stayed. Seven of the top 10 peak use days in company history occurred in August, said Chris Whelan, manger of international, strategic and external communications for E.ON. Voluntary conservation by customers averted service interruptions, Whelan said.
Aug. 1 to Aug. 16 went down in history as Louisville’s most consecutive days above 90 degrees ever, with triple-digit temps the 15th and 16th. August as a whole was Louisville’s hottest month in history. Outdoor thermometers averaged 81.1 degrees, easily surpassing the previous record of 80.3 degrees set in August 1936.

However, Louisville sits on the banks of the massive Ohio River and will never lack for water. As a result, Louisville Water Co. wants to build a pipeline to Lexington so central Kentucky will never want for water again either.
Kentucky American Water has a plan to instead continue to tap its existing source, and the Kentucky River Authority is behind this alternative. Fees utilities – mainly Kentucky American Water – pay for river water are the sole source of money for KRA, an agency charged with operating a system of 14 crumbling dams and locks built between 1870 and 1917. KRA is in the earliest stages of replacing all the structures.

The first major rebuild is underway at Lock and Dam No. 9, nearest Lexington, at a cost of about $15 million. The new lock and dam will be complete in December 2008, according to Mickey Humphrey of C.J. Mahan Construction Co., which is doing the work. KRA is undertaking the systemwide reconstruction with total income from its fees of only $1.3 million annually, said Stephen Reeder, director of the authority. A Louisville pipeline would erode KRA’s meager income stream.
Greg Heitzman, president of Louisville Water Co., said his company can supply all the water central Kentucky needs.

“The drought has had no significant effects on Louisville Water Co. operations or the customers we serve. LWC is using about 80 percent of our plant capacity and only about one half of one percent of the flow available in the Ohio River,” Heitzman said.

“The Ohio River is a virtually unlimited supply and coupled with our reserve capacity, we are in a position to help solve some of central Kentucky’s long term water-supply issues that have become even more critical during this drought.”
Nick Rowe, president of Kentucky American Water, still believes the Kentucky River can supply regional needs, although he does acknowledge this year’s crisis conditions.

“Kentucky American Water is committed to supplying reliable, quality water to its customers in the quantities the communities it serves requires.  However, with the minimal rain over the last few weeks combined with high temperatures, the drought has created a critical situation for all water providers across the central Kentucky region.  We appreciate everything our customers have done to reduce their outdoor water use and conserve,” Rowe said.

“Kentucky American Water and the Bluegrass Water Supply Commission have developed a solid plan to address the regional water supply deficit. We are confident this plan will sufficiently meet current and future regional needs and hope the Public Service Commission will approve this proposed plan so we can move forward with a solution and put an end to the drought in Central Kentucky.”

At Least Third Driest Year
In late September as fall began, commonwealth rivers and reservoirs were still inching lower. Water providers were ratcheting up restriction on optional uses and all the regions of the state were sinking deeper into the Extreme Drought category on the Palmer Drought Severity Index. September ended and October began with the rare announcement that the Commonwealth’s 13 U.S. Army Corps of Engineers reservoirs will entertain requests from farmers, fire departments and other key water users to withdraw water. The state Department of Agriculture issued a drought-induced warning to farmers Oct. 2 to test their animals’ forages for nitrite levels that could cause poisoning.

This is not to say that everyone is feeling pain. Yes, ponds and creeks are drying up from the lack of rainfall this year, but Kentucky’s geology still includes thousands of natural springs, most of which continue to produce something – for now.

“We are realistically going to have at least the third driest year in the past 100 years,” said Keys Arnold, a meteorologist at the University of Kentucky. And on a statewide basis 2007 is in contention for driest year since regular record keeping began in 1895, he said.

The statewide precipitation average is 48.99 inches annually. As of Aug. 31, the statewide composite rain gauge had only 23.7 inches. Arnold said May through August was “one of the driest four months in history” for Kentucky. The commonwealth’s driest overall year since 1895 came in 1930 when there was a scant 29.39 inches of precipitation, and it turned out to be prelude to a dry decade.

No one can yet put dollar figures on the cost of the 2007 drought. They can say with certainty its influence will be felt for years.
Agribusiness folks are definitely thinking about federal assistance, but they say it takes so long for gears to turn in Washington it’d be a least year before any dollars emerged from the pipeline the county level. Gov. Ernie Fletcher’s office is busy doing its spadework.

“Our administration, through the Division of Water, has been continuously monitoring conditions across the state since last fall, when signs began to point toward a potential drought. The division has been working with local water systems to determine their needs and provide technical support and assistance to these systems,” Fletcher said in a statement issued to The Lane Report.

“Access to clean, safe drinking water is something that most of us take for granted, but during drought conditions we come to appreciate this necessity of life. The division is coordinating its monitoring and response actions with many other state and federal agencies including the Kentucky Division of Emergency Management, the Kentucky State Climatologist, the Kentucky National Guard, the UK College of Agriculture, the U.S. Army Corps of Engineers, the U.S. Geological Survey and the National Weather Service.”

Secretary Teresa Hill, head of the Environment and Public Protection Cabinet issued this statement:

“One of our most important missions is to provide sufficient warning and technical assistance to water systems and the public to prepare for water restrictions because of drought. Our water professionals work to provide timely notifications to areas with potential for water shortages, coordinate with other state and federal agencies in drought response and provide technical assistance to local water systems to help mitigate the effects of diminishing water supplies.  Simple measures by citizens can help their water system during a drought such as checking for any leaks and making repairs and not letting water run continuously while preparing food, washing dishes, shaving or brushing your teeth.”

State government officials in Frankfort monitoring conditions. There is a weekly conference call to share information.
Around the commonwealth, some agriculture extension agents are conducting regular seminars for farm operators to help them stay in business. Kentucky is the nation’s third biggest cattle state so much of the focus is on managing herds through the coming winter.

In Campbell County in northern Kentucky, extension agent Don Sorrell has been having area cattlemen do the math. He literally brought in calculators and placed them on the meeting tables.

“I asked how many days are you going to have to feed until you have green grass to turn them out on?” Sorrell said. They discussed how much and what types of feed are necessary per animal. “We have no grass whatsoever. There has been no pasture for approaching 60 days in our area,” he said in late September.
“A lot of ’em have never had to make these economic decisions in their life,” Sorrell said.

Cash Cull
Many participants in the state’s $600 million cattle trade are opting to avoid feed costs and generate cash flow by culling their herds. Two-third to three-quarters of those in the bovine business have sold off stock, Sorrell estimates, some as much as half their herd. From Paducah to Pikeville, there are roughly 45,000 cattle farms in the state where similar calculations are taking place. For those choosing to feed, hay is generally the choice, but even that is tricky business, said Rick Greenwell, the agent in Springfield in Washington County.
“We are the worst right here. We’ve been feeding hay for over a month,” Greenwell said Sept. 20. “Nobody’s ever seen that before.”

When he immersed himself in the hay business on behalf of his county’s farmers, Greenwell was a neophyte. He asked a trusted friend to steer him toward mentor and feels comfortable now with a reliable source in Ellsworth, Kansas.

“It’s a minefield you would never imagine,” he said. “I learned that Rick Greenwell should not be in the hay business. … You can lose your shirt fast.”
While the perception of hay may be ho-hum, today it is a basic ag commodity. It was running about $180 a ton last month. Beyond the basic dollars involved, and making sure someone needs those five loads you’ve paid for, Greenwell said hay buyers have to find out if they’re paying for bales that sat flooded in a field a year ago, whether the load will be tarped during transport and sometimes must track down trucks that disappear off the map between there and here. One driver hauling a load to Kentucky decided, Greenwell said, to get married midroute and go on his honeymoon – in the hay truck.

Curt Judy is the extension agent in Elkton in Todd County in southwestern Kentucky thinks his part of the state is perhaps the hardest hit by weather woes. A dry spring was followed by April’s late hard freeze, stunting pastures and early crops such as wheat. “That would have been enough for one year as it was,” Judy said.

“It started getting dry back in February… and it continued,” he said. “July and August were probably our dryingest months.” The corn didn’t fill out in July. Soybeans didn’t fill in August. Hay and pastures ground to a halt. “Tobacco can stand a lot of dry weather, but not like this.”
Judy has grown concerned, too, for trees and woodlands, which are taken to market only infrequently but harvested nonetheless.

“It’s cut our corn crop by … 40 percent. It’s cut soybeans by 60, 70, 80 percent. We’ve got a lot of soybeans that’s probably not going to be harvested,” Judy said.
“It’s been very significant,” he said of the drought’s impact. “Suffer? There’s no question.”

The impact of this year’s sell-off will be less cattle for the next four to six years as farmers rebuild their herds, said Gene Barber, a partner in Bluegrass Stockyards, which has livestock sales operations in Maysville, Richmond, Mount Sterling, Lexington, Standford and Campbellsville.

“It’s really going to make a scarcity of livestock in Kentucky. We’re really going to be in bad trouble,” Barber said. “We’re in trouble nationwide with the beef industry” because similar drought hit the West and Midwest cattle producers several years ago.

Tobacco Toasted Too
Those watching Kentucky’s $300-400 million tobacco operation share the concerns.

“We’ve been in an extreme drought this year,” said Brian Furnish, general manager of the Burley Tobacco and Growers Coop, based in Lexington. The U.S. Department of Agriculture has lowered its overall yield projections for the Commonwealth from a typical 2,100 to 2,200 pounds per acre to 1,875 pound.
“That’s a pretty big loss in yield,” Furnish said, adding that some tobacco growers “will be lucky to make 1,200 to 1,300 pounds an acre.” He’s even received a few reports of tobacco crops so bad this year that farmers bushogged them.

Expectation of a dry fall during curing season raises concern in the tobacco community because there no longer is a federal price-support program. While Kentucky’s prime product is burley tobacco that typically cures to a desirable golden brown color as a result of moist, foggy fall nights, the concern is that the weather will send less-desirable yellow product to market. There is nervousness about what this year’s selling season will produce for the bottom line of tobacco families and the businesses who depend on them.

“This drought could be double edged,” Furnish said. “It could be poor yield plus poor quality.”
“It’s very very catastrophic,” Greenwell said of this year’s weather. Yet, he and other agents think Kentucky agribusiness can be strengthened by the drought.
“I’m impressed with the farmers’ resiliency and toughness. I’ve got to find that silver lining or I can’t get up and come to work.”

The deeper livestock culling process is forcing a stronger assessment of animals and even of the farmers themselves. In Greenwell’s view, the drought’s upshot will be that bad genetics are being purged from herds. “It will encourage not-committed producers to get out of the business. The hobby people are thinking of other things.” Hay will rightfully be approached and managed as a serious business.

“The strong will survive. It’s a business. The banker and the farmer want to run a good business. … The farmers are business savvy, and they’re working through it.”

The USDA disaster declaration announcement Oct. 2 came from U.S. Sen. Mitch McConnell’s office.

“Agriculture is a vital part of the commonwealth’s economy, and this disaster declaration will provide much needed assistance to our agriculture producers during these difficult times,” said McConnell. “Our farmers will now be able to apply for low-interest emergency loans to help them pay their essential farm and living expenses.”

Leland Brown, director of the Kentucky Field Office in Louisville for the USDA National Agricultural Statistics Service, said as of early fall there are no estimates of the overall financial impact. “There’s a lot of uncertainty about the crops,” Brown said. Cattle receipts could even be up in 2007 because herd culling is sending so many animals to market.

Next year will bring further tests of agribusiness savvy as the impact of the whether remains.
Fall tends to mark the state’s entry into its driest season. The good news is that the 90-day forecast from the National Climate Prediction Center in Camp Springs, Md., calls for normal rainfall, meteorologist Arnold said. Continued above-normal temperatures are expect, too, though.

“Normal rainfall in the next three months is not going to put a dent into our hydrologic drought,” Arnold said, who estimates most of the state requires 10 extra inches of water. “It’s looking to be an extended drought for sure.”
Compounding his concerns, Arnold sees global weather patterns indicating the opening of La Nina conditions. In the past that means Kentucky can expect one to three years of above average temperatures, wetter winters and drier springs.

It could create a financial proving ground that tests the business know-how of Bluegrass agribusiness, utility operators and public policy makers for the rest of the decade.

It’s a better position to be in than some of their counterparts, though. “There’s actually a worse drought going on,” Arnold said, “in Tennessee and parts of Alabama.”