Oklahoma’s agricultural economy suffered more than any other state in the region last year from the state’s heavy reliance on wheat and cattle, according to a report by the Federal Reserve Bank of Kansas City. (Photo by Joseph Sharpe)
Oklahoma’s agricultural economy suffered more than any other state in the region last year, according to a report by the Federal Reserve Bank of Kansas City released Wednesday.
The report highlights how some factors that make Oklahoma’s agricultural industry unique came together to put the state further behind its neighbors in recovering from the pandemic.
“Oklahoma is particularly focused on cattle and wheat and less on corn and soybeans than neighboring states,” says the report, authored by Senior Economist Cortney Cowley, Regional Research at the Federal Reserve Bank of Kansas City.
Livestock and wheat account for nearly 80% of Oklahoma’s farm revenue, while corn and soybeans account for just 6%. While wheat prices rose 50% between 2021 and 2022, corn, soybeans and hog prices rose 80% over the same period.
“Corn and soybeans have typically generated greater revenue and profit margins than wheat,” the report said. “Also, profitability in the cattle sector has been slow to recover from the pandemic, limiting Oklahoma’s ability to keep up with the surrounding region. In addition, the drought has disproportionately affected large parts of the state, reducing wheat production potential and putting additional inflationary pressure on the cost of feed for ranchers.”
Although the war in Ukraine has pushed up wheat prices, Oklahoma producers have not been able to increase profits. Profit margins for wheat remain low, about $1.30 a bushel nationwide, compared to profit margins for corn and soybeans, which are $3 and $6 a bushel, respectively.
Drought conditions destroyed much of Oklahoma’s wheat crop for the year. About 51% of Oklahoma’s winter wheat crop was in poor or very poor condition early in the harvest season — higher than the national average and higher than the 20-year Oklahoma average. Winter wheat production in Oklahoma in 2022 is expected to be 50% lower than in 2021.
Although beef prices have risen sharply over the past year, the price farmers receive for cattle has only recently surpassed pre-pandemic levels, the report shows. Producers suffered significant losses from winter storms in 2021, and the May 2021 cyberattack on meat packer JBS SA caused significant production delays, further slowing the industry’s economic recovery.
Hay prices in April 2022 were 56% higher than a year ago and forage costs increased by 15%. Rising costs of fertiliser, diesel and agricultural machinery are also putting increased pressure on the profitability of the cattle sector.
The Oklahoma cattle herd declined 100,000 head, or 2%, for the year, while the cattle herd declined 28,000 head, or 1.3% through January 2022. Extreme heat and drought have contributed to farm and pasture deaths throughout the year, resulting in smaller herd sizes that may limit prospects for future yields.
Bankers expected the drop in revenue. Just 23% of Oklahoma bankers surveyed in the first quarter of 2022 expected farm income to increase over the next three months, and nearly half expected it to decline. In comparison, 67% of bankers in Kansas, Missouri and Nebraska expected an increase in farm income, as did more than 55% of bankers in Colorado, New Mexico and Wyoming.
Although Oklahoma’s agribusiness enjoyed a strong rebound in 2021, income growth — and farm loan repayment rates — slowed in the first quarter of 2022.
“Oklahoma was the only state where a larger proportion of bankers expected lower repayment rates than a year ago,” the report said.
Higher production costs may have started to put pressure on farm incomes and increase credit demand, the report shows.
Farm real estate values in Oklahoma, while up 16% in the first quarter of 2022, still lagged the region, which rose 24%.
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