ENID, Okla. — Two of Oklahoma’s top titans of industry — natural gas and oil, and cattle — have much to look forward to in the new year, but also numerous challenges and threats to keep a close eye on.
“In general it’s kind of a continuation of 2017, in the sense that we will see increased beef production again in 2018, that will put some pressure on the markets. What that translates into ultimately is probably we’re expecting modestly lower cattle prices,” said Derrell Peel, extension livestock marketing specialist at Oklahoma State University
Peel said though there’s more supply pressure in the market demand in 2017 for beef, it’s been good and appears it will continue into 2018. So long as there’s no excessive price pressure, Peel expects the somewhat lower prices, and no major impacts on the state in the new year.
“If we do take prices a little bit lower it will squeeze those profits a little bit, but I still anticipate that most producers will have an opportunity for some profits. I don’t see any major impacts on the state in that respect,” Peel said.
Barring some sort of surprise that would interrupt demand, Peel doesn’t foresee any big shocks in the cattle market.
Darrel Shepherd, vice-president of the Oklahoma Cattlemen’s Association northwest district and a rancher northwest of Clinton, runs Shepherd Cattle Co. He said 2017 was a good year for his operation, and he expects a decent 2018.
“I think we’re in good shape ... (I) think the expansion has kind of slowed down. I don’t foresee us jumping back up to great big prices like we had a few years ago, but I think we’re going to be pretty steady,” Shepherd said.
Peel and Shepherd both said one potential impact to keep an eye out for are the current drought conditions in the state, which Peel said is having a big impact on the wheat during the winter so far.
“If we were to continue in this kind of a drought pattern going into March and April when we start to see more of a general growing season at the start, then we could have some very serious problems,” Peel said.
Aside from that, Peel said the biggest threat to the industry, from an economic standpoint is external factors, such as if the country’s macro economy doesn’t do well, or if there’s negative changes in inflation rates. He said there’s also uncertainty currently with U.S. trade policy, and the renegotiation of trade agreements could potentially have an impact.
Shepherd said for him personally, one of the biggest challenges is input costs for his operation.
“For anybody’s operation, it would be input cost. Feed costs, fuel cost, land prices, leases … it all boils down in this business (that) your main deal is input cost. That’s just it in a nutshell. Your input is just what makes you and breaks you out here,” Shepherd said.
Peel also touched on the importance of the cattle industry to the state.
“Cattle production is the number one agriculture market in Oklahoma so it’s very very important. And we have all segments of the cattle industry in Oklahoma,” Peel said. “Other than the impacts right now on the stocker sector, most sectors have done pretty well (in 2017).”
Shepherd noted the importance of the cattle industry to rural communities in the state, and also that organizations such as the Oklahoma Cattlemen’s Association do a lot to help the industry.
“Cattle markets in rural communities, that just makes a rural community. If a rancher’s making money, then he’s out spending more money and buying feed and updating equipment and this and that and that spreads through this rural communities a lot,” Shepherd said. “(Cattlemen’s Association) have a huge impact on the cattle industry and ranching and farming in general with all that they do at the capitol plus other things.”
On the natural gas and oil side of things, Cody Bannister, the vice-president of communications for the Oklahoma Independent Petroleum Association, said there’s some cautious optimism moving into 2018.
“We saw crude oil prices increase toward the end of the year which provides some optimism. There’s always some concern especially for those producers who are new to the industry, companies that are starting up, or companies that have sought out significant capital investment to fund drilling programs,” Bannister said.
He said one concern however, has been discussions revolving around the gross production tax, and what will happen during the new special session and regular new legislative session in the new year. One of the biggest concerns is the impact changes on the tax system could have on start-up producers.
“I think last time we counted it, in Tulsa alone there were 40 new companies that were oil and gas producers funded through private equity investments. So that’s a lot people, that’s a lot of jobs, that’s a lot of investment in Oklahoma that we don’t want to jeopardize, but I think that overall people are optimistic about what the future holds,” Bannister said.
On a more positive note though, Bannister said Oklahoma is at the forefront in oil and natural gas, and that with new technologies and related advancements, more opportunities are blossoming for increased development and production making for an optimistic future.
“We’re a silicone valley of the oil field almost,” Bannister said.
A key to growth in the natural gas and oil industry is stability – whether that be in prices, the discussion in the state legislature for the gross production tax, or regulatory issues on a federal level, he said.
“The ebbs and flows of the oil and gas prices are part of the industry as well. But we also need to add stability in legislation and regulation over seeing the industry ... stability is the key to continued growth in Oklahoma’s oil and natural gas industry,” Bannister said.
Another area of concern for the oil and natural gas industry is the wind industry, Bannister said. At its peak, the state took in more than a $1 billion from the gross production tax and natural gas averaged about $7 then, he said. For the last two years, it’s been about $2 or $3.
“That’s a significant change. It’s diminished exploration for natural gas in the state and it’s driven down the benefits to the state for natural gas ... when you have significant tax provisions that encourage wind development at the cost of natural gas, it has a negative impact on the economy in our opinion,” Bannister said. “There has to be some continued movement to level the playing field between oil and natural gas, and the wind industry as far as from a legislative and tax outlook.”
Bannister also mentioned the importance of oil and natural gas to the state.
“The oil and gas industry is the defining industry in Oklahoma. One-third of our gross domestic product comes from the oil and natural gas industry. One out of five jobs and a quarter of all taxed paid come from oil and natural gas industry. So without a doubt it is an important part of Oklahoma economy, if not the driving force behind it. And it’s especially true in communities like Enid,” he said.
While many producers are in larger cities, rural communities like Enid, Duncan and Blackwell have the manpower that makes the industry keep on churning, he said.
“What is in those small towns of rural Oklahoma are the workers who make the oilfield run,” Bannister said. “Drilling superintendents and pipeliners and welders, and all those jobs are upon active drilling rigs and what we have to do in Oklahoma is ensure that we have a tax regulatory scheme that encourages continued development and continued drilling in Oklahoma.”