Soaring energy prices are hammering Oregon’s farmers and ranchers, and the war in Ukraine is likely to only make that worse, experts say.
The turmoil comes at a bad time, too.
The state’s $5 billion agricultural industry has endured two tough years during the pandemic along with a continuing drought, and though commodity prices are up, the finances of farmers and ranchers are under pressure, said Lauren Smith, director of government affairs for the Oregon Farm Bureau.
“There’s inflation on everything they buy – all of their inputs,” Smith said. “Their supply costs are outpacing the price of agricultural goods.”
That’s smacked their bottom line.
“It’s just chipping away at our margins,” Smith said. “There’s no more wiggle room there.”
Oregon’s agricultural sector only accounted for 5% or $2.6 billion of the overall sale of goods in Oregon, valued at nearly $50 billion in 2020, according to Mike Meyers, an economist at Business Oregon, the state’s economic development agency. “Agriculture is a low value-added industry,” Meyers said, with low wages and low profits.
But the industry employs a lot of people: The sector employs 86,000 farmworkers and other people, accounting for $30 billion in wages, according to a report last year by the Oregon Board of Agriculture.
Farms are spread across the state, with more than 2,500 each in northeast, central and southeast Oregon. Southern Oregon has almost twice that many, but the biggest concentration is in the regionfrom Columbia through Lane counties, home to about 19,000 farms.
The state has another 10,000 cattle ranches, according to Todd Nash, president of the Oregon Cattlemen’s Association.
All of these establishments have been affected by rising energy prices, which have spiked since Russia invaded Ukraine on Feb. 24. The futures market, which indicates the direction traders expect prices to go, shows crude oil and heating oil prices soared the day after the invasion, and have continued to rise. Monday, however, was an exception.
After President Joe Biden announced a U.S. ban on Russian oil imports, the price of crude oil, heating oil and natural gas fell. But the war in Ukraine is likely to keep gas prices high, economists say.
They predict that farmers and ranchers in Oregon will feel the pinch.
“They use a lot of diesel for their machines,” said Jeff Reimer, professor of applied economics at Oregon State University.
Fertilizer prices are also tied to the price of oil, and during the pandemic the cost of pesticides and other materials used by farmers have gone up, Reimer said.
“All over the world, factories have shut down,” Reimer said. “Trucks have stopped, transportation has been shut down. So you can’t get things when you want them.”
The other big expense for Oregon’s farmers is labor. Unlike many other states, which have acres and acres devoted to corn, for example, and rely on mechanization, Oregon’s sector is diversified, producing about 220 specialty crops that require manual labor. During the pandemic, finding enough farmworkers has been tough and that’s pushed wages up, experts say.
Commodity prices high
The war is likely to have a mixed impact on Oregon’s farms, Reimer said. While gas and other prices are high, so is the cost of commodities.
“Prices are probably going to be higher for all commodities,” Reimer said. “That’s good for farming, but it’s not good for livestock producers because they use these commodities as a feedstock. And that’s going to make it tougher for livestock producers that fatten their animals at stockyards.”
One of Oregon’s top agricultural exports is wheat. Most of Oregon’s soft, white wheat grows in eastern Oregon, with some production in the Willamette Valley. Much of it is exported to Asia. China, Japan and Korea are the state’s top export markets in that order, according to Business Oregon. Russia is also a big wheat producer. It grows hard red winter wheat, which is shipped to Egypt, Turkey and other countries. Oregon’s wheat is often used for flatbread while Russian wheat, which has a higher protein content, is good for crusty loaves and feedstock.
Though the two are not in direct competition, economists say a slowdown in production in Russia and drop off in exports could push up wheat prices in general, Reimer said.
But Amanda Hoey, chief executive officer of the Oregon Wheat Commission, doubts that Oregon growers will benefit. “There is a lot of volatility up and down in the futures market,” Hoey wrote in an email. “Given the short crop, much is already sold.”
Another commodity that’s gone up is corn, and Ukraine is a major producer of corn, which feedlots for example, use to fatten animals for slaughter.
An increase in the price of and corn is likely to hurt Oregon’s ranchers, Nash said. A few years ago, producers paid up to $1 for every pound of weight added to a cow.
“Now we’re looking at somewhere north of $1.50 per pound,” Nash said. “It’s a great thing, if you’re in the business of producing corn and wheat, but if you’re a consumer of corn and wheat, that can be pretty tough on you.”
Another factor weighing on Oregon agriculture is rising temperatures. Last year’s heat dome curtailed pasture grasses, Nash said, forcing ranchers to spend more on grains.
“They had to feed longer because the pastures were not producing as much forage as they normally would have,” Nash said.
Beef prices also have gone up, but Nash said Oregon’s ranchers haven’t benefited because of the way the market is structured. Ranchers often sell their cattle to packers, companies that take cattle through the production process from fattening to products for retail. There are four main packers in the United States, and they control the prices of cattle, Nash said.
“We’ve been frustrated in the cattle industry because beef prices have shot up dramatically but we’ve not been able to capture that,” Nash said.
He expects more ranches to fold.
“I heard of one just two days ago,” Nash said. “He was having a hard time finding pasture because of the drought. … Somebody offered him some money for his cows and he’s out.”
Farmers try to cope
Those who stay in the business may change their production methods to cope.
“They’re finding different ways to try to make it pencil,” said Smith of the farm bureau.
She said farmers might use less fertilizer, or cut down labor costs, both of which would curtail production.
Or they’ll switch to crops that cost less to produce.
“The input costs here are a lot – more than other states,” Smith said. “If the labor costs are just too high, they will choose less labor-intensive crops.”
Oregon’s farmers are still bristling over the recent passage of House Bill 4002 by the Legislature. The bill, which Gov. Kate Brown is expected to sign, will phase in overtime pay for farmworkers over five years starting in 2023, while giving employers tax credits to cushion the financial impact. The farm bureau, many farmers and Nash, for the Oregon Cattlemen’s Association, warned the bill would cause farmers and ranchers to sell to corporate buyers. But no one knows for sure what the impact of the bill – and the current turmoil will be.
“It’s hard to say what our farmers will do this year,” Smith said. “Every year is a gamble – our farmers know that.”
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