Rural Economic Outlook 2019 Department Research Update

Dayton M. LambertProfessor & Willard Sparks Chair in Agricultural Sciences and Natural ResourcesDept. of Agricultural Economics, Oklahoma State UniversityOctober, 9, 2019

Outline

IntroductionDept. of Agricultural Economics Research SnapshotGraduate student research Spring flood impacts on Oklahoma McClellan-Kerr

Arkansas River Navigation System (OK-MKARNS) and OK Economy

Oklahoma Rural-Metro Outlook: Jobs and Industry

Department Research Publications (2017/2019)

Mission statement Create practical, empirical knowledge that will increase the efficiency and

productivity of Oklahoma agriculture, rural communities, and the well-being of Oklahomans

Create and increase knowledge in the discipline of agricultural and applied economics

Agribusiness

Food & Consumer Economics

Marketing

Natural Resources & Environmental

Economic

Production & Farm

Management

Rural Development

DepartmentResearch

Areas

Department Sponsored Research

http://www.agecon.okstate.edu/faculty/publications.asp

GRADUATE RESEARCH

Current: 9 graduated, Spring ’19 Total, 39 students (Fall, 2019) 19 MS 20 PhD 7 countries

Recent placement: Mississippi State University (Assistant Prof.) University of Wisconsin–River Falls (Assistant Prof.) Berkeley Research Group LLC (Managing Economist) Indaba Agricultural Policy Research Institute (Zambia) Xtra Factors Inc. (Director, Research Development) Utah State University (Post-doc) Pennsylvania State University (Post-doc)

Thesis & dissertation titles

Tyson

Yejun Choi : “Procompetitive effects of mergers & acquisitions in the food manufacturing sector” ( with Trejo-Pech [U. Tenn.])

Ti

me

(199

0 –

2017

)

Merger & Acquisition Activity (COMPUSTAT Data)

Fresh Pet Hill ShireAdvance Pierre

IBP

Earth Grains

Thorn Apple Co.

Food Brands

Life of a firm

Acquisition of other firms

“2018 Grassland Reserve Incentive Program and Land Use in Oklahoma”Chellie Hogan, Amy Hagerman, Dayton Lambert

GRIP initiated under Conservation Stewardship Program

Eligible Land: crop base that has been grass/pastured from 2009-2017

Rental Rate: $18/crop base acre, max $40,000/year

One-time enrollment (5 year contract length) Ineligible for ARC/PLC payments

Research questions

How, in terms of land use allocation, might Oklahoma producers respond to GRIP?

Which planted crop acres will be most affected by GRIP?

What are the expected impacts of policy on revenue from crops, pasture?

Grassland

Satellite imagery, 2008 – 2018 30 x 30 m pixels Catalogues 60+ land uses Aggregate county level

Focus of this study:

Wheat: Spring, Winter, Durum Other Grains & Oilseed Cotton Grasses: Clover, Switchgrass Hay: Rye, Alfalfa Pasture Developed: Urban

USDA Cropland Data Layer

Cropland Data Layer

Land use, GRIP, Oklahoma Counties

Next year’s land use

Population density

Rainfall

Returns to land use

Pasture rental rate

Cropland rental rate

Revenue

Wheat

Other Grains

Livestock

Cotton

Last year’s land use

2008

All land uses

2018

Grass & pasture

0.00

0.02

0.04

0.06

0.08

2010 2012 2014 2016 2018 2020 2022 2024

Perc

ent Grasses

0.00

0.05

0.10

0.15

2010 2012 2014 2016 2018 2020 2022 2024

Perc

ent

Wheat

0.60

0.65

0.70

0.75

2010 2012 2014 2016 2018 2020 2022 2024

Perc

ent

Pasture

Observed PredictedPredicted Forecast Intervention

Beaver County

Forecast

Forecast

Forecast

Land use, GRIP, Oklahoma Counties

Land use, GRIP

Beaver County – Land Allocation

Percent

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2019 2020 2021 2022 2023

Expected Change in Revenue ($ millions)

Wheat Other Grains Grasses

2019 SPRING FLOOD DISRUPTION EFFECTS ON OK-MKARNS AND OKLAHOMA ECONOMY

2019 Headline News

OK-MKARNS Primary Commodities (normally…)

Value (millions $)Tons (1,000s)

Source: Tulsa Port Authority of Catoosa

0 500 1,000 1,500 2,000 2,500

Sand, Gravel and Rock

Manufacturing…

Petroleum Products

Food/Farm Products

Coal and Coke

Minerals and Building…

Other Chemicals

Grain

Iron and Steel

Soybeans

Chemical Fertilizers

0 200 400 600 800 1,000

Sand, Gravel and Rock

Manufacturing…

Petroleum Products

Food/Farm Products

Coal and Coke

Minerals and Building…

Other Chemicals

Grain

Iron and Steel

Soybeans

Chemical Fertilizers

Two different (but related) questions

What is economic contribution of Oklahoma’s Water Transportation sector?

What is economic impact of the OK-MKARNS disruption on Oklahoma’s economy?

What is economic contribution of Oklahoma’s Water Transportation sector?

Economic Contribution Analysis(noun: / ek·ә-ʹnam·ɪk / ֽkantrәʹbju∫әn / әʹnæl·әsɪs / )

Definition: A study which estimates the economic contribution (in terms of jobs, output, value added, etc.) of an existing activity in the local economy.

Ask: “What if” the sector did not exist?

Identify sales and purchases as backward or forwardlinkages (I use what’s called an “extraction method")

Oilseed

Grains

FruitVeg

NutTrees

Greenhouse

Cotton

Beef

Dairy

Poultry

Oth Animal

1-Forest

ForestInputs

FishHunt

Gas/oil

Mining

Services

Utilities

Construction

Textiles

Milling

FoodManuf

DairyProc

AnimalProc

BeerSpirits

2-Forest

AgInputs

OtherAg

Wholesale

Retail

Rail transport

Water transport

Truck transport

OthTransport

FIRE

Misc

Govt

Manuf

Oklahoma Economy: 37 Sectors

Oilseed

Grains

FruitVeg

NutTrees

Greenhouse

Cotton

Beef

Dairy

Poultry

Oth Animal

1-Forest

ForestInputs

FishHunt

Gas/oil

MiningServices

Utilities

Construction Textiles

Milling

FoodManuf

DairyProc

AnimalProc

BeerSpirits

2-Forest

AgInputs

OtherAg

Wholesale

Retail

Rail transport

Water transport

Truck transport

OthTransport

FIRE

Misc

Govt

Manuf

Oklahoma Economy, 2017 & Water Transport Sector

Oilseed

Grains

FruitVeg

NutTrees

Greenhouse

Cotton

Beef

Dairy

Poultry

Oth Animal

1-Forest

ForestInputs

FishHunt

Gas/oil

MiningServices

Utilities

ConstructionTextiles

Milling

FoodManuf

DairyProc

AnimalProc

BeerSpirits

2-Forest

AgInputs

OtherAg

Wholesale

Retail

Rail transport

Water transport

Truck transport

OthTransport

FIRE

Misc

Govt

Manuf

Backward Economic Linkages: Sectors Water Transport

$

“Upstream” sectors supporting economic demands of OK-MKARNS

Purchase of services, energy, or physical goods by Water Transport to support its activity

$

Backward Economic Linkages: Sectors Water Transport

$28.17

$15.93

$11.80

$7.76$5.82$3.82$3.46$1.24$0.85$0.82

Loss in payments to supporting

sectors (per $100 increase in output)

Forward Economic Linkages: Water Transport Other Sectors

Supply of OK-MKARNS services to sectors

“Downstream” salesof Water Transport services to other sectors

Oilseed

Grains

FruitVeg

NutTrees

Greenhouse

Cotton

Beef

Dairy

Poultry

Oth Animal

1-Forest

ForestInputs

FishHunt

Gas/oil

MiningServices

Utilities

Construction Textiles

Milling

FoodManuf

DairyProc

AnimalProc

BeerSpirits

2-Forest

AgInputs

OtherAg

Wholesale

Retail

Rail transport

Water transport

Truck transport

OthTransport

FIRE

Misc

Govt

Manuf

$$

Forward Economic Linkages: Water Transport Other Sectors

$6.13

$5.18

$4.14

$3.41$3.44$3.50$2.74$1.51$0.67$0.79

Loss in sales to dependent sectors

(per $100 increase in output)

Summary: OK-MKARNS contribution analysis

Sector Sector Output ($ millions)

Total Contribution to OK Economy ($ millions) Multiplier

Oilseed 194 271 1.40Grains 568 1,073 1.89Nat. Gas/Petroleum 38,378 47,410 1.24Mining 1,108 2,386 2.15Food Manufacturing 4,388 6,623 1.51Ag. Inputs 1,417 2,254 1.59Water Transport 16 32 2.02Manufacturing 48,123 72,210 1.50

“$1-worth of economic activity on the OK-MKARNS leads to an additional $1.02 in other parts of

Oklahoma’s Economy”Source: IMPLAN 2017 Data for Oklahoma, Author’s estimates.

What is economic impact of the OK-MKARNS disruption on Oklahoma’s economy?

Economic Impact Analysis(noun: / ek·ә-ʹnam·ɪk / ɪmʹpækt / әʹnæl·әsɪs / )

Definition: A study which estimates the economic impact (in terms of jobs, output, value added, etc.) of an external shock on the local economy’s sectors.

Identify changes in output, value added, and jobs

State-level analysis IMPLAN (MIG Group, 2019) Isolate water transport sector Subtract OK-MKARNS

commodity values from total industry sales

Dollar value impacts on: Total Industry Output Total Value Added Jobs

Oklahoma Economy

What is economic impact of the OK-MKARNS disruption on Oklahoma’s economy?

Total Industry Output Total Value Added

Intermediate Expenditures

Value Added = Output – Intermediate Expenditures

Delay Costs per Ton of Commodity Shipped for Disruption Periods Item 2 months 4 months 6 months

Chemical Fertilizers $11.25 $24.82 $38.39

Coal and Coke $5.23 $16.67 $28.10

Food/Farm Products $6.84 $18.49 $30.13

Iron and Steel $13.06 $28.18 $43.29

Manufacturing Equipment and Machinery $34.40 $72.02 $109.63

Minerals and Building Materials $10.07 $22.89 $35.71

Miscellaneous Products $0.00 $0.00 $0.00

Other Chemicals $10.01 $22.74 $35.47

Petroleum Products $10.31 $23.21 $36.11

Sand, Gravel and Rock $0.55 $3.03 $5.50

Grain $7.41 $19.17 $30.92

Sources: Robinson et al. (2015), OK-DOT 2018 Water Way Fact Sheet

Disruption shocks (millions $’s)Port Definition 2 months 4 months 6 months

Chemical Fertilizers $21.99 $48.53 $75.06Coal and Coke $2.02 $6.42 $10.83Food/Farm Products $1.65 $4.45 $7.25Iron and Steel $7.78 $16.78 $25.79Manuf. Equip./Mach. $0.09 $0.19 $0.29Minerals & Bldg. Mat. $1.32 $3.01 $4.69Petroleum Products $2.18 $4.96 $7.74Sand, Gravel and Rock $1.02 $2.30 $3.57Grain $0.08 $0.44 $0.81Soybean $6.24 $16.13 $26.03

Source: Author’s calculations.

Shock Economy

Sector DisruptionSoybeans (-)Wheat (-)Fruit/Vegetable 0Tree nut farming 0Greenhouse 0Cotton farming 0Beef cattle ranching 0Dairy cattle/milk production 0Poultry/egg production 0Other Animal production 0Forestry 0Forestry Inputs 0Nat. Gas/Petroleum (-)Mining (-)Services 0Utilities 0Construction 0Textiles 0Milling 0Food Manufacturing (-)Animal Process. 0Brewery/Spirits 0Second Forest Activities 0Ag. Inputs (-)Wholesale 0RetailTrade 0Rail transportation 0Water transportation (-)Truck transportation 0FIRE 0Manufacturing (-)

Data

Jobs

Output

Value Added

Changes in…

GRA’s preparing Computer for AnalysisAg Hall Room 411

Results: Expected economic loss from disruption

Impact Type Jobs Output Value Added

-------------------------2 months-------------------------

Total : 135 to 456 $24 to 86 million $10 to 38 million

-------------------------4 months-------------------------

Total : 314 to 1,080 $57 to 205 million $25 to 92 million

-------------------------6 months-------------------------

Total : 509 to 1,761 $90 to 326 million $42 to 150 million

Source: author’s estimates.

Value Added Components ($ millions)

1946

7611

25

39

9

21

35

2 MONTHS 4 MONTHS 6 MONTHS

Direct effect Indirect effect Induced effect

Direct loss from inactivity

Direct loss from inactivity

Direct loss from inactivity

Loss from dependent sectors

Loss from dependent sectors

Loss from dependent sectors

Source: IMPLAN 2017, author’s estimates.

0 5 10 15 20 25 30 35

Chemical FertilizersIron and Steel

SoybeanCoal and Coke

Petroleum ProductsOther Chemicals

Minerals and Building…Food/Farm Products

Sand, Gravel and RockManufacturing Equipment…

Wheat

Estimated Loss, TVA (millions)

OK-MKARNS Disruption & Loss of Total Value Added (TVA) to OK Economy

2-mo 4-mo 6-mo

Source: IMPLAN 2017, author’s estimates.

A more comprehensive analysis…

Expert opinion, Summer/Fall 2019Cooperatives Prices paid, inventory…FertilizerRail, truckBackhaulChanges in basis…

Kansas + other regions using OK-MKARNS

RURAL-METRO OKLAHOMA OUTLOOK: JOBS AND INDUSTRY

Rural/Urban Definition from Office of Rural Health Policy

Defines counties eligible for certain grant programs

Use Rural Urban Commuting Area codes (RUCAs), other criteria

Employment trends US, Oklahoma met/rural

0

20

40

60

80

100

120

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2014

Q3

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Q4

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Q2

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Cus

hing

OK

Spo

t Pric

e

Jobs

Non-metro Metro Cushing OK WTI Spot Price FOB Daily

Oklahoma met/rural employment trends

0

20

40

60

80

100

120

020,00040,00060,00080,000

100,000120,000140,000160,000

2014

Q3

2014

Q4

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Q1

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Q2

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Q3

2015

Q4

2016

Q1

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Q2

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Q2

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Q3

2018

Q4

2019

Q1

2019

Q2

Cus

hing

OK

Spo

t Pric

e

Jobs

Manufacturing

Mining, Nat. Gas, Petroleum

Average Annual Oklahoma Wage by Losing and Prospering Industries (2018)

Expansion of Economic Sectors, OK met/rural: 2029

ManufacturingServicesAgriculture

Coal and oil

Construction

Metro

Rural

Outlook for expected occupational demand for education & training, 2029

Metro counties:All job growth 0.8% (by 2029)

Occupations requiring:• Post-graduate degree: 1.4% / year• 2-year degree: 1.1%• Bachelor’s degree: 1.0% / year

Rural counties:All job growth 0.2% (by 2029)

Occupations requiring:• Post-graduate degree: 0.7% / year• 2-year degree: 0.5%• Bachelor’s degree: 0.4% / year

Source: JobsEQ, 2019

Gross Domestic Product (GDP): Total Value of Goods and Services

Metro counties:Total GDP (2017, nominal): $138 billion USD

• 3.2% growth• Rebound from 2016 contraction

Rural counties:Total GDP (2017, nominal): $47 billion USD

• 8% growth• Rebound from a 2016 contraction

Source: JobsEQ, 2019

Sectors driving Oklahoma’s GDP

Metro counties:

Top four contributors:

• Real Estate: $16.1 billion• Health Care: $12.3 billion• Mining, oil, & gas: $12.1 billion• Manufacturing: $11.9 billion

Rural counties:

Top four contributors:

• Mining, oil, & gas: $6.8 billion• Manufacturing: $5.8 billion• Health Care: $3.8 billion• Education: $3.1 billion Source: JobsEQ, 2019

Signs of impending recession?

Inverted yield curveGlobal slowdownCorporate “Debt Bundling”TariffsBrexitSoftening manufacturing sector

The case of manufacturing

Institute for Supply Management index (ISMI) Measures US manufacturing expansion/contraction ISMI>50 expansion; <50, contraction

Surprise contraction ISMI = 47.8 (10/01/2019) lowest in 10 years downturnOther sectors follow, layoffs

The case of manufacturing

Low ISMI causes Lack of new export orders Trade friction, tariffs $300 billion dollar tariff on China by US (total by December ‘19)

Global slowdown WTO reported drop in trade growth 6 months ago 6 months ago: E(trade growth)= 2.6% Now: E(trade growth) =1.2%

Manufacturers reevaluating supply chains Lags in normal daily operations Uncertainty; suppliers, inventory, upstream purchases

References

Robinson, D.P., G.J. Joseph, M. Muldrow, V. Wingfield. 2015. Regional Economic Impact Study for the McClellan-Kerr Arkansas River Navigation System. FINAL REPORT ~ FHWA-OK-14-16 ODOT SP&R ITEM NUMBER 2255.

Oklahoma Department of Transportation. 2018 Water Way Fact Sheet, https://www.ok.gov/odot/documents/2018%20WW%20FACT%20SHEET.pdf

IMPLAN. (2019) IMPLAN Professional®: Users Guide, Analysis Guide, Data Guide. MIG.