Page 19 - Flathead Beacon // 1.14.15

FLATHEADBEACON.COM
CHEAP OIL’S RIPPLE EFFECT
JANUARY 14, 2015 | 19
AGRICULTURE
PLAGUED BY SAGGING CROP
PRICES, FARMERS HOPE TO
GAIN FROM LOW FUEL COSTS
Volatile oil prices play a key role for Montana’s largest industry
By DILLON TABISH of the Beacon
Farmers across Montana could reap the benefits of plummeting oil prices, marking a significant boon for the state’s largest industry, although continued volatility in the market could eventual- ly have less-beneficial implications, ac- cording to agriculture analysts.
Alongside everyday consumers, farm- ers’ pocketbooks are poised to benefit greatly from cheaper fuel, at least in the short term. Energy costs can account for over one-third of farmers’ production costs, from tractor diesel to fertilizers and pesticides to transportation expenses.
“It’s really important whenever something like this occurs. I can think of no other input cost that’s as important as fuel in terms of making life better for these producers,” said George Haynes, an agriculture policy specialist at Mon-
tana State University. “You never want to underestimate the importance of oil prices decreasing.”
Ron de Yong, the director of the Montana Department of Agriculture, echoed Haynes’ sentiment, expressing optimism for reduced farming costs for statewide harvests later this year.
“We’ll see if it has a long-term impact and how big of an impact it is. Fuel prices are a major cost item for producers, so it does make a difference,” he said.
There could be a downside, though.
If oil prices dip too low, it could cause a domino effect and lead to reduced eth- anol prices, which could then hurt corn prices. Although corn is not grown in Montana, the key commodity acts as a bellwether for other grain prices, such as wheat, which is the state’s top crop.
“Corn, barley and wheat prices are highly correlated to one another,” Haynes said. “If corn prices move, you also anticipate to see barley and wheat prices move in the same direction. There could be a bigger impact from this in some ways. What will happen to the ethanol market?”
A farmer in Kalispell. BEACON FILE PHOTO
Impacts on renewable fuel stan-
dards could also experience a negative impact, Haynes said.
Farmers across the West are already dealing with sagging grain prices. Corn is down 15 percent compared to a year ago and wheat is down 20 percent. Al- though prices are still above historical averages, they remain below expecta- tions and have dropped below livestock prices in Montana. Last year beef sur- passed wheat in total receipts, according to the state Department of Agriculture. A strong rainstorm in August and Sep- tember also plagued farmers in Mon- tana, especially harming the barley crop. Damage estimates are still being tallied,
Gas prices drop below $2.00 per gallon in Kalispell. GREG LINDSTROM | FLATHEAD BEACON
es will likely remain down through the summer and possibly through the end of 2015. Producers with the Organization of the Petroleum Exporting Countries (OPEC) have so far refused to cut pro- duction in light of increased U.S. shale production, including the Bakken re- gion, which led to the recent price drop, analysts say.
But cuts to production will fol- low soon, with Dave Galt, executive director of the Montana Petroleum Association, predicting a 50 percent drop in production.
Wagner said mining makes up about 6.5 percent of the state’s gross domestic product (GDP), and accounts for only about 3 percent of employment in the state. When you isolate oil and gas from the mining industry, it accounts for just
but there is no doubt it hurt farmers’ year-end results.
With 28,000 farms and ranches that generate over $4 billion annually, cheaper fuel will no doubt play a large role in the industry’s success this year. And although the harvest season is still months away, the implications could brighten this year’s outlook.
“Everybody in agriculture still feels pretty good, especially the livestock side. On the grain side, there is a lit- tle nervousness,” de Yong said. “Short term I think it will be good for produc- ers. In the long term, there may be more repercussions.”
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1.7 percent of the state’s GDP and 1.36 percent of employment, she said.
Meanwhile, the state’s largest em- ployer, health care, represents about 15 percent of the state’s economy, and fi- nancial services accounts for 14 percent.
“You have to remember that the oil and gas industry and the number of jobs it has added in the Bakken is much less of an economic contributor than other industries in the state,” Wagner said.
According to the latest projection from the University of Montana’s In- stitute for Tourism and Recreation Re- search, total nonresident visitor spend- ing came in at more than $3.98 billion in Montana, supporting some 39,000 jobs.
ITRR Director Norma Nickerson said the $3.98 billion in local spending directly supports $3.26 billion of eco- nomic activity in the state, and supports an additional $1.86 billion of economic activity indirectly. The projected to- tal contribution of nonresident spend- ing to Montana’s economy was $5.11 billion in 2014.
According to the report, gasoline and diesel accounted for 32 percent of non- resident traveler expenditures, while restaurants and bars culled 18 percent of expenditures, retail sales took 17 per- cent, hotels realized 9 percent, and 9 percent went to groceries.
Nickerson says lower gas prices and increased consumer confidence point to an even stronger year for tourism spend- ing in Montana in 2015.
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CONSUMERS
SAVINGS AT THE PUMP FUELS LOCAL ECONOMIES
As the oil industry prepares for job losses and decreased production, consumerism thrives
By TRISTAN SCOTT of the Beacon
Caving oil prices are bringing add- ed savings to Montana consumers, and while the foundering market will have adverse effects on the state’s oil and gas industry, it will buoy some of Mon- tana’s biggest economic drivers, in- cluding tourism.
Last year, tourists spent the majority of their money, almost a third, on gaso- line, and the lion’s share of nonresident visitors did so during the year’s third quarter, July through September, when a gallon of regular gasoline cost $3.73.
In January, with Northwest Mon- tana’s ski season in full swing, gas pric- es averaged $2.027 in the state, which is below the current national average of $2.117, according to the website gas- buddy.com, which lists prices report- ed by consumers.
Those prices are the lowest since 2009, when the recession drove down fuel demand and prices followed. Local-
ly and nationwide, gas prices have fallen about 25 percent over the past month, driven largely by the collapse of oil.
If gas prices stay low, it will likely draw more tourists to Montana, eco- nomic forecasters say, and with their financial confidence bolstered by the growing economy, cheap gas will also drive up spending in other sectors as visitors and residents spend their sav- ings on gas at local businesses, accord- ing to Barbara Wagner, chief economist with the state Department of Labor and Industry.
“With the lower gas prices you are going to see continued economic growth in most areas of the state simply because the majority of our economy is driven by consumer spending,” Wagner said. “We’re seeing record numbers of visi- tors at ski resorts, more people are head- ing to local breweries, distilleries and restaurants, and that actually results in more job growth than you think.”
Oil industry analysts say global pric-