As we stand at the start of 2017, the drought that dried the state of California during the first half of this decade could be all but a memory. Last season’s rain brought the state more in line with its historical norms, though the hope for a mega flood via a strong El Nino never materialized. This year, what was expected last year has arrived. Storm after storm has battered California from the mid to latter part of fall up through the start of the new year. From north to south, the state has been on the receiving end of above average rainfall.
To put things in perspective, we’ll turn to activity at the Don Pedro reservoir located in the foothills of central California. The water level at the reservoir to date is on par with where water levels were at the time of the last significantly wet year in 1997-98. This is notable, since in the 97-98 year reservoirs throughout the state were forced to release water in order to ensure water levels did not exceed maximum capacity. The trend we are experiencing is what the entire state has been waiting for, especially those involved with agriculture.
Assuming the California finishes out the next 3-4 months with average to above average rain fall, investors should anticipate a very strong year for crops grown throughout California. If other agriculture commodity producing regions are not afflicted with a drought or massive crop destroying infestation, the increase in production from California’s ag lands will result on downward pressure on ag related commodity prices. In short, supply will increase.