Agriculture

Worldwide commodities crash damages some Kansas businesses, rescues others

Wheat stands ready for harvest in a field near Anthony, Kan., Sunday, June 21, 2015.
Wheat stands ready for harvest in a field near Anthony, Kan., Sunday, June 21, 2015. File photo

The great commodities price crash is more than a year old – and while it has plunged some key Kansas business sectors off a cliff, others are riding pretty.

Commodities are the valuable goods pulled out of the Earth, the basic building blocks of the rest of the economy. Kansas is, to some extent, a commodity-heavy state, producing billions of dollars’ worth of wheat, corn, soybeans, grain sorghum, cattle, dairy, hogs, oil, natural gas and more.

Last year 7.1 percent of the Kansas gross domestic product, or $10.5 billion, came from agriculture and mining, the sector containing the oil and gas industry. That makes Kansas the 15th-most affected state by the commodity bust, less afflicted than almost all Great Plains, Mountain and eastern Gulf Coast states.

Wyoming, with 36 percent of its GDP coming from commodities, is the country’s most affected state.

The robust oil and farm sectors have buoyed the Kansas recovery, as weak as it has been, since 2009. Well, not this year.

Oil prices in Kansas have fallen more than 60 percent since August 2014 and are now approaching $30 per barrel. There have been layoffs and deep spending cuts throughout the industry as producers hunker down to wait for better times.

Crop farmers are enduring a less precipitous plunge, but soybean prices are down 40 percent and corn prices are down about 25 percent from 18 months ago. For farmers, the question of whether they will make a profit is once again very real.

As the corn harvest nears, Marion farmer Terry Vinduska said he is keeping a close eye on the market price.

“Obviously, it’s huge,” Vinduska said. “Our cost of production is set … All of those dollars have been spent, and the one thing we cannot control is yield and price.”

He hauls his grain to the local elevator as soon as it’s cut. He can wait to sell it, in hopes the price rises, but the elevator charges 4 cents per bushel per month for storage.

But there has been plenty of cheering as prices fall, as well.

The price of aluminum, one of aircraft makers larger expenses, is almost half what it was at its peak in 2011 and 25 percent below last fall.

And the fall in oil prices? Well, every business that owns a car or sells something to someone who own a car, is feeling some benefit.

The U.S. Energy Department in April estimated that the average household will have $700 more in their pockets this year from lower gasoline prices. That is money that can be spent on school supplies, craft beer or a trip to Kansas City.

The reasons why

The big reasons given for the drop in commodity prices are the slowing of the global business cycle, particularly the Chinese economy, which has been buying much of the world’s excess commodities.

A second reason, a particular burden to U.S. companies, is a 15 to 20 percent appreciation in the U.S. dollar against major world currencies. That makes U.S. products 15 to 20 percent more expensive than they were.

Karyn Page, president of the Kansas Global Trade Services, said that she is hearing from exporting companies that they face a significantly harder time selling overseas.

“With a weaker dollar everything was on sale,” she said. “Now, we’ve gone to a world where nothing is on sale.

“It’s not that they can’t sell, they just have to work harder to get the deal.”

Get used to hard work, said Tom Sleight, president and CEO of the U.S. Grains Council. Global markets will grow in the future, but so will the number of global competitors.

American farmers will have to continue to differentiate their product based on quality because competing purely on price will become increasingly difficult.

“The U.S. is still number one in corn, but that edge is slipping,” he said. “Farmers must continue to innovate and be constantly aware of the competition.”

Did Kansas come out ahead or behind because of the drop in commodity prices? It’s probably not possible to come up with an answer, said Jeremy Hill, director of the Center for Economic Development and Business Research at Wichita State University.

There are just too many factors to consider, he said, plus much of the benefit is hidden from people as slower price appreciation.

It might be easier to make a call with Wyoming, with its large coal and mining industries, or Massachusetts, with its tiny commodities production. But Kansas is somewhere in the middle.

“This state is very commodity-driven,” Hill said. “I couldn’t say whether it’s hurt more than it’s helped, but I could say it’s more impacted.”

Reach Dan Voorhis at 316-268-6577 or dvoorhis@wichitaeagle.com. Follow him on Twitter: @danvoorhis.

Related stories from Wichita Eagle

  Comments