Although Oklahoma’s agricultural economy has remained solid, expectations for farm income and credit conditions have softened more than in other states, particularly in wheat-and cattle-producing areas affected by extreme drought, said Cortney Cowley, economist at the Oklahoma City branch of the Kansas City Federal Reserve Bank, in a study Wednesday.
Oklahoma received more rain in recent weeks, which may improve prospects for cattle, corn and soybean production but was too late to benefit the wheat crop, Cowley said. Also, some of the driest areas remained dry.
As of the second week in June, more than 40% of Oklahoma was still in some level of drought, she said. Moving forward, severe drought and higher production expenses may continue to dampen the outlook in Oklahoma compared with other states in the region.
A GROWING DIVIDE
Oklahoma agricultural credit conditions are solid but softened in the first quarter, following a strong rebound in 2021. Improvements in farm loan repayment rates also continued to slow after accelerating rapidly in the third quarter of 2021.
However, the latest index for repayment rates was still the fifth highest since 2002, suggesting farm liquidity remained strong entering 2022, she said. But, despite general strength, the outlook for the Oklahoma ag economy has diverged from other states in the Tenth District.
In the first quarter, only 23% of Oklahoma bankers expected an increase in farm income in the next three months, while almost 50% expected a decline, Cowley said. Expectations for farm income softened slightly in other states as well, but about 67% of bankers in Kansas, Missouri and Nebraska, and more than 55% of those in Colorado, New Mexico and Wyoming expected an increase in coming months.
CREDIT CONDITIONS SOFTENING
Agricultural credit conditions also were expected to deteriorate a bit more in Oklahoma than in other states, she said. Repayment rates were expected to weaken in coming months across the district, but Oklahoma was the only state where a larger share of bankers expected repayment rates to be lower than a year ago.
In addition, credit demand remained elevated in Oklahoma in 2021 and was expected to continue increasing at a faster pace than in surrounding states in the second quarter of 2022, Cowley said. Although farm liquidity had strengthened coming into 2022, higher production expenses may have begun to put more pressure on farm income, elevating farm borrower financing needs.
Oklahoma’s agriculture sector depends heavily on economic conditions in the cattle and wheat industries, she said. Production of livestock and wheat account for almost 80% of farm revenues, while corn and soybeans account for only 6%.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $140.89 to $151.00 per cwt, compared with last week’s range of $139.00 to $147.09. FOB dressed steers, and heifers went for $219.37 to $222.73 per cwt, versus $216.47 to $225.02.
The USDA choice cutout Wednesday was down $2.26 per cwt at $264.88, while select was down $2.50 at $240.81. The choice/select spread widened to $24.07 from $23.83 with 100 loads of fabricated product and 18 loads of trimmings and grinds sold into the spot market.
The USDA reported that basis bids for corn from feeders in the Southern Plains were unchanged at $1.90 to $2.00 a bushel over the Jul futures and for southwest Kansas were steady at even the Jul, which settled at $7.70 1/4 a bushel, up $0.10 3/4.
Fifteen heifer delivery intentions were tendered Wednesday.
The CME Feeder Cattle Index for the seven days ended Tuesday was $164.08 per cwt down $0.12. This compares with Wednesday’s Aug contract settlement of $170.72, down $1.10.