Oil prices biggest factor for Wallowa Co. ag profits

<I>Andy Martin/Chieftain</I><BR>Supply and demand normally drives beef prices, but that's not the case during the current recession. Ranch owners in Wallowa County were forced to sell some cattle early last year because of high fuel prices. The cattle pictured are from a ranch near Imnaha.

The National Bureau of Economic Research officially informed the nation that it was in a recession in December. "They said, 'yes, we're in a recession and by God we've been in one for a year' - which everybody knew," said Annette Shelton-Tiderman, workforce analyst for the Oregon Employment Department.

Shelton-Tiderman joined Oregon State University Extension Service agent John Williams in a recent Wallowa County Chamber of Commerce-sponsored presentation on the state of the economy at the national, state and county level and the two could agree on several key points with regard to the obvious recession.

First, the national economy is in a deep hole and it isn't going to get significantly better for five to six years.

Second, they reiterated a left-handed compliment Wallowa County has gotten for centuries: It is not easy to make a living in Wallowa County in the first place, so Wallowa County residents know how to deal with recession.

Third, they said, Wallowa County may have already seen the worst of the current recession.

Unfortunately, the state of Oregon is just starting its slide into the pit.

According to the just-released March 2009 Oregon Economic Forecast "the fourth quarter (of 2008) was brutal to the Oregon economy." Furthermore, OEF projects an employment decline of 4.3 percent more in 2009.

"Recessions are not uncommon," Shelton-Tiderman said. "But this recession is different and economist are really nervous."

What's different about this recession is that it had already lasted for 12 months before it was "officially" recognized, and most recessions last six to 13 months. The last "official" recession was in 2001-02 and it lasted eight months. Furthermore, it's far from over. According to the OEF, Oregon's economy will not reach a balance point until the later half of 2010.

In the current recession, the year's total job losses across the nation for 2008 was 2.6 million, the highest loss in 60 years. Seventy-three percent of those jobs were lost in the last quarter to 2008, according to OEF. In Oregon, 70 percent of the jobs lost were lost in the last quarter of 2008. A record 179,000 individuals are unemployed in Oregon, and it is expected to get worse.

"The crystal ball is a little murky and it's thought that that number may rise to as much as 200,000," Shelton-Tiderman said.

During the holidays, when retailers usually hire more labor, 66,000 workers were let go. Construction jobs shrank by 101,000.

The Oregon Office of Economic Analysis predicts the loss of 25,000 jobs in the state in 2009 and no turnaround until 2010 and the following two years will merely make up for 2008-09 losses, she said.

"The bottom line is that they are not expecting employment levels to recover to the pre-recession levels (of 2007) through 2015," she said. "It's going to take us a long time to dig out of this one."

Rates already peaked?The good news, such as it is, is that unemployment rates in Wallowa County are not expected to rise significantly. At 15.4 percent they are already much higher than the 8.8 percent state unemployment rate which are in turn higher than 7.1 percent national rate. But, according to both Shelton-Tiderman and Williams, Wallowa County has already pared down to the core.

"I think by the time the (negative) trickle-down gets to Wallowa County it will be insignificant," Shelton-Tiderman said.

Shelton-Tiderman is a positive thinker, Williams said.

He spoke to the individuals that Shelton-Tiderman's figures don't factor in, the approximately 323 part-time agricultural workers in the valley, saying that they would most likely continue to scrape by as they have the last few years.

"This is the least number of ranch help local agriculture needs just to get by - those numbers won't change much," he said. What money those workers make, however, will be nowhere near a living wage - it will continue to be a "second job" or traded out.

"Ranchers can't afford to pay their unemployed buddies to come and help with calving, but they can open their freezer and give them a quarter of beef," he said.

Now the good news, sort of:Wallowa County's economy is reliant on natural resources and agriculture, and what has been happening in those industries will shape the future of the county - and Williams believes the county has already weathered the worst of it.

"Increases on agricultural costs were massive last year," Williams said. "The fact that we've got lower fuel prices will make a big difference in the future. We haven't dug out of it yet because of what we own (like high-cost fertilizer). Production costs are critical for agriculture's survival. If it will stay in this current area we'll have a shot at making it in the next 16 to 18 months."

Fuel and beef pricesIt's a big "if" and without that fuel-cost stability Williams expects to see the agriculture industry take a massive hit.

"If we had $5 gas right now I'd be talking to you about a potential loss to the ag community of 50 percent - growing broke or going out of business before they went broke," he said. "I firmly believe we were headed there. You saw the cows going to town that started that last fall."

Williams isn't talking about a few hundred market steers. " Some of the mother cows went to town," he said. "Probably over 1,000 head of them went to town. We couldn't pay $180 ton for hay and so we sold the cow instead. That's income, but those mother cows won't be there to produce a calf next year."

The bottom line, Williams said, is that cow numbers nationally are as low as they have been since 1956, yet prices are not up. "Anybody go to school and remember the supply and demand curve? We've got less cows so there's going to be more demand, right? How come the cow price isn't going up? We don't have the demand. The cattle price is going to stay low and we're going to sell more of our cows off."

If the cattle market goes bad, Wallowa County agriculture survives because most ranchers have the ability to diversify - but the grain crop market is facing fertilizer costs big enough to choke a horse.

"Nitrogen, which is made from a petroleum product, was at $900 per ton (at it's peak price) in the Northwest last year," Williams said. "The local people that sold fertilizer filled up their bins last August with fertilizer that cost $900 per ton. And nobody called for fall fertilization because nobody could afford it. We're still sitting here with $900 ton fertilizer in the bins. This year, prices in the Gulf Coast are at $142 per ton. You still have to haul it from the Gulf Coast to here so it's probably $250 to $300 per ton. But suppliers are still sitting on $900/ton fertilizer. You still can't go down and buy fertilizer for $300 per ton. And spring is going to come. Those that didn't fertilize in the fall, and they should have, will have to fertilize this spring. It's a problem."

Timber woesThe second largest industry in the county, timber, will be lucky to simply maintain the status quo, Williams said.

"The timber industry is low - it makes the agriculture industry look good," he said.

For the private landowner, the price of timber has gotten so low that most are just holding onto what they have and hoping for better years to come. Approximately 80 million board feet of lumber were processed out of Wallowa County in 2007, and most of that is held by large companies with contracts to sell their timber. "Approximately 50 percent of the industry is under contract and contracts are in place for that," Williams said. Private landowners may expect to sell timber again when housing starts and construction picks up - provided the lumber industry infrastructure remains in place. If there is any significant change in the infrastructure, the sale of a large mill or timber-land owner for instance, "all bets are off," Williams said.

The OEF numbers make Williams look like a cockeyed optimist. According to the OEF report, the wood products sector will lose jobs at a rate of 17.3 percent in 2009, and another 5.3 percent in 2010 as the prolonged housing market correction unfolds.

A new crop offers a tiny ray of hope for Wallowa County ranchers with expansive or forested land, according to Williams. Hunting rights sold on private land have become an important commodity, he said, with estimated income to Wallowa County landholders in the millions of dollars. It's not a choice Wallowa County landowners like to make, but it's driven by necessity, Williams said. "If I'm a rancher and I've sold my cows and sold my timber, what else have I got to sell to pay the bills?"

No hard numbers with regard to that income are available because ranchers consider it proprietary information, but Williams estimates the income is in the range of $3 million for the county.

There is no "magic bean" for landowners to plant that will eventually lead to the harvest of a "golden egg." Although prices on some commodities were high this year, those high prices often reflected high costs, he said. Furthermore, any farmer that chases a high market price is doomed. "The reason we see people remaining in Wallowa County for a long time is because we have diversity in crops," Williams said. The reason Wallowa County farmers win out in the long run and have something to turn over to their sons is that they do not chase the market but instead stick to a rotation that keeps their soil in top condition, he said.

Growing peasWilliams is excited about one crop in the valley, however. Peas. When put into the crop rotation the peas dramatically improve the quality of the soil, boosting the next year's wheat or oat crop by 20 percent. Furthermore, it is a product Wallowa County can produce at a high quality level, Williams said. The county used to put a lot more than last year's nearly 1,000 acres into peas, but approximately three years ago, their biggest buyer, Green Giant, went out of the pea business in the Tri Cities. Now, Williams said, other companies finally are discovering that Wallowa County's isolated nature makes for "really quality peas."

"We had almost a 40 to 50 percent increase in pea value in the contracts this year," Williams said. "It's a product that we can sell before we get the pea in the ground, on a contract, at a given price and they guarantee (that price) whether it grows or not."

TourismAs for the tourism industry - local reports indicate that people still love to visit Wallowa County and continue to come. But they bring "smaller pocketbooks," Williams said. The OEF report, however, shows a 3.9 percent increase in employment within that industry in 2008 - one of the few bright lights in the economic gloom. Employment in hospitality and leisure is expected to raise another 3 percent in 2009, 3.1 percent in 2010 and 2.7 percent in 2011.

Foundaries, one of Wallowa County's best industries, are also suffering. Their product, and all artistic products, are typically purchased by people with disposable income - many of whom have lost millions in the market.

Even government jobs will suffer from the recession. According to Williams, "What I'm hearing out of Salem is a 15 to 20 percent loss of budget. I'm guessing we'll see close to a 10 percent downward turn in state government."

The OEF however, shows a 3.2 percent increase in employment in the government sector in 2008 and predicts that it will maintain at that level with some mild adjustments up and down.

The bottom line for Wallowa County, according to Williams is that if Wallowa County is so lucky as to have a flat economy - that's good news, given the big picture.

"We got a reprieve when the gas prices went down," he said. "The biggest thing that saved what economy we do have was that reduction in gas prices. I think agriculture in Wallowa County may have had it's worst year. I'd be smiling right now if I was headed to the banker. We may be flat or okay on making it through this next year."

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