Rural Plains communities avoiding recession’s worst
TORRINGTON, Wyo. - Carl Rupp and his neighbors follow the old rancher’s creed: “Keep your money in your pocket.’’
Rupp has farmed his whole life. He lives in Goshen County, a rural spot along the Nebraska line where cattle outnumber humans 16 to 1 and you can still see the ruts cut by wagons that hauled pioneers along the Oregon Trail. “We’re very conservative,’’ said Rupp, 62. “We don’t go out too far on a limb.’’
That prudent financial bent, matched with the high prices paid for crops and energy in the past few years, has largely protected Goshen County and a core group of several hundred other counties in 10 states from the recession’s chokehold. The Associated Press Economic Stress Index shows they make up a “safe zone’’ that covers a long swath of middle America, from the Great Plains south to Texas.
But the safe zone is shrinking. Energy production and prices are sliding, especially for coal and natural gas. Crop prices are dropping, too, as there’s less demand in Asia for American wheat, corn, and soybeans. There were 800 counties in the safe zone a year ago, a number that dropped to about 300 counties in May and slid further to 200 counties in June.
“To say that you’re doing pretty well is just to say that it’s the best-looking puppy in a pretty ugly litter,’’ said Wyoming Governor Dave Freudenthal, who recently imposed a 10 percent budget cut across his state’s government in response to falling tax revenue from the energy sector.
The contiguous counties in the safe zone start in Montana and North Dakota, and cascade into Wyoming, South Dakota, Nebraska, Iowa, Kansas, and Oklahoma, and end in northern Texas and eastern New Mexico. Those in the safe zone had an AP Economic Stress score under 5 in June, making them the economically healthiest in the United States.
The AP calculates a score from 1 to 100 based on each county’s unemployment, foreclosure and bankruptcy rates. The higher the score, the higher the economic stress.
As the rest of the nation was riding the mortgage bubble, many farmers and ranchers in the safe zone who suffered through the agriculture crisis of the 1980s took on comparatively little debt. And when the recession hit, it didn’t dampen demand for the row crops grown on the Great Plains.
Consumption of food and feed grains has increased 3 to 4 percent annually in recent years, while a federal mandate that gasoline contain certain levels of ethanol has also kept demand for corn and soybeans high.
“The last few years, ag has been pretty good,’’ said Rupp, who sells alfalfa to dairies and feedlots. “In the long run, if there is such a thing, it’s more stable than being in a county with energy as a primary industry.’’
But while not in a bust cycle, agriculture prices are still down enough from last summer’s highs to worry Doug Goehring, North Dakota’s agriculture commissioner.
“If you really want to hurt the economy, beat the heck out of agriculture,’’ Goehring said.
Elsewhere in the safe zone, the business is energy, and the recession is starting to take a toll. While oil prices have increased this summer, it’s the price of natural gas and coal that matters most here. Natural gas that traded for nearly $13 per 1,000 cubic feet last summer is now available for less than $4. The spot price for coal is running around $9 a ton, down from about $13 last year.
The number of rigs in Wyoming drilling for coal bed methane dropped to zero in May, down from 19 the previous year, while the number of conventional rigs drilling for natural gas and oil is off by more than half. No coal mines have closed, but annual production could drop as much as 10 percent as the recession stalls the need for electricity nationwide.
“The prices of coal are down. Production is going to be down,’’ said Marion Loomis, executive director of the Wyoming Mining Association. “So we’re going to see a pretty significant reduction probably this year, and it’s really just based on the amount of electricity that the country is using.’’
When booming, energy extraction kept unemployment low. In Oklahoma, for example, unemployment began creeping upward not long after as energy prices began sliding in September. It stood at 6.3 percent in June, up from 3.8 percent in June 2008. Wyoming’s unemployment rate was 5.9 percent in June - far below the national average of 9.5 percent, but the highest in the state since June 1999.
Because of their small size, the AP index lacks foreclosure data for about half of the 200 counties that made up the safe zone in June; those with a population under 25,000 were assigned a foreclosure rate of zero. But there is widespread anecdotal evidence that real estate is an anchor in a place where many families proudly trace their land titles to homesteading ancestors.
Aided by low interest rates, the value of farm and ranch land has grown by double digits this decade. Unlike California or Florida, there was no largely speculative housing bubble here.
Mike Daly started First State Bank of Wheatland in 1981, first setting up shop in a mobile home in a southeastern Wyoming town surrounded by lush farmland.
His bank, which now has several branches, never got into the subprime mortgage market, and he said his customers prefer the traditional fixed-rate, 30-year home loans.
“The vast majority of our borrowers have had a pretty good run. And by that, I’m going to say eight to nine years of really good (ag) prices,’’ Daly said. “They’ve increased their equity positions, they’ve paid down debt, and they’re in a position, for the most part, to weather the storm.’’