The uncertainty of future water supplies and energy costs in central Arizona has led farm lender Farm Credit Services Southwest (FCSSW) to take a harder look at loan collateral risks.

Last fall, FCSSW conducted a study on Arizona water trends and related issues facing agriculture and how these changing issues could impact the lender’s future loans to farm and ranch customers.

“The purpose of the study was to determine what issues are on the horizon which may affect real estate value and the economics of farming in the foreseeable future,” said Thomas Schorr, FCSSW vice president of appraisal services, based in Tempe.

“We wanted to utilize the information and intelligence gathered within the study to determine real estate loan collateral risks.”

Schorr discussed the FCSSW study findings during the American Society of Farm Managers and Rural Appraisers Arizona Chapter’s Spring Ag Forum held in Tempe.

FCSSW is a borrower-owned cooperative where all borrowers are farmers and ranchers.

FCSSW holds the note on 46 percent of all Arizona farm and ranch loans. The rural lender also lends money to agricultural businesses in Imperial County, Calif., and others in California.

The study findings clearly proved that water is the 500-pound gorilla in Arizona agriculture. Arizona is in a water quandary caused in part by more than a dozen consecutive years of drought.

Unknown is whether ongoing drought conditions are the new norm in Arizona, or whether improved rainfall and snowfall in the next few years could dry up the drought cycle.

In addition, proposed government clean air expectations could increase water and electricity costs to central Arizona farmers which could make farming costs prohibitive.

The FCSSW survey addressed several key areas:

  • 1 - Power costs: Are sharp increases in energy costs expected which may adversely affect the financial feasibility of farming?
  • 2 - Water supply and costs: What happens in 2030 when long‐term excess water contracts expire for Central Arizona Project (CAP)-Colorado River water-supplied districts?
  • 3 - Water supply: When will CAP water no longer be delivered in reliable amounts to the districts?
  • 4 - District viability: Will CAP irrigation districts cease to be viable when CAP water is used more by non‐agriculture users?