Irrigation units are pictured in southwest Kansas near Dodge City, Kansas, November 26, 2012. Residents of the Great Plains over the last year or so have experienced storms reminiscent of the 1930s Dust Bowl. Experts say the new storms have been brought on by a combination of historic drought, a dwindling Ogallala Aquifer underground water supply, climate change and government farm programs. Picture taken November 26.

WASHINGTON | Fri Feb 15, 2013 4:12pm EST

WASHINGTON (Reuters) - U.S. farmers will plant crops this spring under the shadow of a persistent drought that grips prime farmland from the Mississippi River to the Rocky Mountains, with grain supplies already tight from drought losses in 2012.

In all, 56 percent of the contiguous United States is under moderate to exceptional drought, twice the usual amount, the Senate Agriculture Committee was told on Thursday.

Arid weather was expected to run until May in the wheat-growing Plains and in the western Corn Belt, where corn and soybeans are the major crops.

"In fact, we are forecasting drier conditions," said Roger Pulwarty, director of the National Integrated Drought Information System, a federal agency. Above-normal rainfall benefited the southern Plains at the start of this year.

Wheat, corn and soybeans are the most widely grown U.S. crops and form the foundation of the U.S. food supply. They are used in livestock rations and as ingredients in food ranging from salad dressing to bread, breakfast cereal and cookies.

MOST OF WINTER WHEAT IS UNDER DROUGHT

Some 59 percent of winter wheat was under drought conditions, said Joe Glauber, Agriculture Department chief economist. "While that also implies that spring planting may be affected by drought conditions as well, there have been improvements in the eastern Corn Belt, where many areas are no longer experiencing drought."

With adequate rainfall during the growing season, U.S. yields will rebound to normal levels, leading to bumper corn and soybean crops. In turn, commodity prices would fall as near-empty grains bins are filled. The corn stockpile is expected to be smallest in 17 years by harvest-time this year.

The government's three-month outlook says drought will persist in the central and southern Plains and the U.S. Southwest while easing in Iowa, Missouri, Wisconsin, Minnesota and the Dakotas.

Most of U.S. cattle and hay production areas are under drought conditions, said Glauber. Ranchers and cattle feeders culled herds as pastures withered and feed costs soared in 2012.

"Particularly for cattle producers, the next four to five months are critical," said Glauber. "Hopefully, some spring rains to get pasture conditions back up" while abundant crops in the fall "should help relieve feed prices."

ONLY 1934 DROUGHT WAS WORSE THAN 2012

The 2012 drought ranks second to 1934 as the most widespread and severe drought, said Pulwarty. But in the Midwest, 2012 was the driest summer on record with half of the usual rainfall.

Crop insurers paid a record $14.2 billion as of Monday for crop losses in 2012, almost all due to drought. The old record was $10.8 billion in 2011, also a drought year.

Indemnities could total as high as $16 billion or $17 billion when all claims are settled, said Glauber. USDA oversees the federally subsidized insurance program.

"The western Corn Belt remains dry, no doubt about it," Glauber said after the hearing. He said rainfall and temperatures in late summer, when corn and soybeans mature, are far more important than early-season moisture levels in determining yield.

"It's still very, very early," he said.

(Reporting By Charles Abbott; editing by Gunna Dickson)

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Thu Dec 20, 2012 7:41am EST

n">(Reuters) - Private equity firm KKR & Co LP on Thursday kicked off a joint venture with Suez Environment to run the water and wastewater systems of a New Jersey city it hopes will become a model for cash-strapped local authorities in the United States.

KKR and Suez subsidiary United Water will pay $150 million to the city of Bayonne for the rights to a 40-year concession, allowing them to collect water and wastewater revenues but also requiring them to come up with another $157 million over the life of the contract to manage and upgrade the systems.

The cost of repairing and expanding U.S. drinking water infrastructure will top $1 trillion in the next 25 years, an expense that is likely to be met primarily through higher water bills and local fees, according to the American Water Works Association, a non-profit think tank.

The Environmental Protection Agency estimated in 2007 that the U.S. must invest $390 billion over the next 20 years to update or replace aging wastewater infrastructure.

But the U.S. water industry, run for the most part by the public sector, remains highly fragmented, comprising about 52,000 water systems - over half of which serve a population of 500 or less - and 16,000 wastewater facilities.

Concessions such as the one awarded by Bayonne are rare due to political opposition or reluctance from local authorities to give up control of what they see as essential infrastructure, especially when they can tap the municipal bond market for their financing needs.

"We are slowly starting to see more cities looking at these partnerships given all the fiscal pressures they're facing. But for every three cities that evaluate these options seriously, at least two ultimately can't get to the finish line," said Brandon Freiman, a principal at KKR's energy and infrastructure team.

"The one that gets to the finish line generally appreciates that these are win-win deals that are good for all constituents. So while we think that there should be more of these deals, progress has been very slow," Freiman added.

Last week, another private equity firm, Table Rock Capital, said it had finalized a 30-year concession worth more than $300 million, in partnership with Veolia Water, to run the water and wastewater systems of the city of Rialto in California.

Bayonne will pay off over $130 million of its debt with the money it gets from KKR and United Water, cutting its municipal debt burden in half. It will see the two firms take over more than 96 miles of water mains and more than 83 miles of sewers serving the city's 63,000 residents.

Consumers and businesses in Bayonne will see an initial 8.5 percent bump in their water and sewer charges, translating to an additional $5 per month for residential users. Rates will then freeze till January 2015 and then rise annually based on an inflation-linked formula.

"The partnership will invest in our aging infrastructure, and provide resources that the Bayonne Municipal Utilities Authority could not otherwise deliver. Simply put, this transaction will result in a more efficient and reliable water and sewer system for today and future generations," the authority's executive director Steve Gallo said.

Infrastructure investments of such kind usually deliver internal rates of return of a little over 10 percent, lower than those typically seen in the buyouts of companies but much safer in their risk profile.

KKR will fund 90 percent of the joint venture with United Water. Two thirds of the investment will be financed with debt on an average interest rate of about 5 percent.

KKR, which has $66.3 billion in assets under management, is making the investment through a dedicated infrastructure fund pool of $2.4 billion, that includes dedicated accounts with some of its investors.

Nassau County, located on Long Island just east of New York City, and among the wealthiest counties in the U.S., is negotiating a similar water and wastewater concession with United Water to help address its budget deficits.

(Reporting by Greg Roumeliotis in New York; Editing by Hans-Juergen Peters)

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