Oklahoma’s farm economy suffered more than any state in the region over the last year, according to a report from the Federal Reserve Bank of Kansas City released Wednesday.
The report highlights how a few factors that make Oklahoma’s agriculture industry unique came together to put the state further behind its neighbors in recovering from the pandemic.
“Oklahoma is particularly concentrated in cattle and wheat and less so in corn and soybeans than states,” reads the report authored by Senior Ecoist Cortney Cowley, Regional Research at the Federal Reserve Bank of Kansas City.
Livestock and wheat account for almost 80% of farm revenues in Oklahoma, while corn and soybeans account for only 6%. While prices for wheat increased 50% between 2021 and 2022, prices for corn, soybeans and hogs jumped 80% during the same period.
“Corn and soybeans have typically generated larger revenues and profit margins than wheat,” the report reads. “Also, profitability in the cattle sector has been slow to recover from the pandemic, limiting Oklahoma’s ability to keep pace with the surrounding region. Moreover, drought has disproportionately affected large portions of the state, reducing production potential for wheat and putting additional inflationary pressure on feed costs for cattle producers.”
Even though the war in Ukraine caused wheat prices to go up, Oklahoma producers have not been able to increase profits. Profit margins for wheat remain slim, about $1.30 per bushel nationally, compared to profit margins for corn and soybeans, at $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 entering harvest season – more than the national average and more than Oklahoma’s 20-year average. Winter wheat production in Oklahoma is projected to be 50% less in 2022 compared with 2021.
Though beef prices soared over the last year, the price producers receive for cattle has only recently surpassed pre-pandemic levels, the report shows. Producers suffered significant losses to winter storms in 2021, and the May 2021 cyberattack on meatpacker JBS SA caused major production delays, which further slowed the industry’s economic recovery.
Hay prices in April 2022 were 56% higher than they were a year ago, and feed costs increased 15%. Cost increases for fertilizer, diesel, and ag machinery also put more downward pressure on profitability for the cattle sector.
The cattle herd in Oklahoma declined 100,000 head, or 2%, for the year, while the beef cow herd declined 28,000 head, or 1.3%, as of January 2022. Extreme heat and drought has contributed to death loss on farms and at feedlots this year, resulting in smaller herd sizes that may limit prospects for future returns.
Bankers anticipated the downturn in revenue. Only 23% of Oklahoma bankers surveyed in the first quarter of 2022 expected to see an increase in farm income over the next three months, and almost half expected to see a decline. By 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.
Though Oklahoma’s agriculture industry experienced a strong rebound in 2021, income growth – and farm loan repayment rates – slowed during the first quarter of 2022.
“Oklahoma was the only state where a larger share of bankers expected repayment rates to be lower than a year ago,” the report reads.
Higher production expenses may have begun to put more pressure on farm income, increasing the demand for credit, the report shows.
Farm real estate values, though they increased 16% in Oklahoma during the first quarter of 2022, still lagged the region, which increased 24%.