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Recent trends and conditions in the natural resource industries.

Under our Natural Resource Industry Research Program (NRIRP), the Bureau of Business and Economic Research monitors and reports on current conditions and trends in Montana's important natural resource sectors.(1) These sectors include agricultural production, wood products manufacturing, oil and gas exploration and production, nonfuel mineral mining and nonresident travel. The Bureau has constructed profiles--using selected indicators--for each of these natural resource sectors. These profiles track industry trends since 1985.

In this article, brief current outlooks for each sector are followed by more detailed discussions of Montana's important natural resource industries.

Agriculture

Cash receipts tied to cattle and wheat marketings account for about 80 percent of all agricultural receipts in Montana. Wheat prices have been quite low recently, but are expected to improve in 1993. Cattle prices, softening in recent years as cattle inventories rebuild, are expected to decline further during the current year.

Wood Products

After falling to very low levels, nationwide residential construction has been rising. This has spurred lumber consumption and reinvigorated Montana's wood products industry. Gains in industry employment last year largely recovered the prior year's recession-related employment losses. However, with heavily depleted timber stands on private industrial tracts and reduced timber sales on national forests, Montana logging activity is expected to decline in coming years.

Oil and Gas

Crude oil prices are at relatively low levels and are expected to remain so for the foreseeable future. Because of this, oil and gas exploration and drilling activity in Montana, as in other states with oil and gas resources, will continue only at a slow pace.

Nonfuel Mineral Mining

Gold, platinum, and copper prices have been sliding for several years, and the outlook for 1993 is not good. Low prices will continue to damper activity in Montana's metal mining industry.

Nonresident Travel

Nonresident visitors to Yellowstone and Glacier Parks are increasing, travelers enter Montana by car and plane in increasing numbers, and state accommodations tax revenues are on the rise--all indications of continuing growth in Montana's travel and tourism industry. Steady growth should continue.

Farm and Ranch Production

Cattle and Wheat Price Trends

Montana agriculture focuses on cattle and wheat production, so prices in just these two areas heavily determine overall income conditions for the state's agricultural producers. Figure 1 shows varying levels of cattle and wheat prices in recent years (1985 through last year). These are actual prices received by farmers and ranchers, including federal farm program loan rates and target prices for wheat, which have been converted into inflation-adjusted dollars.

Cattle prices have been relatively good in recent years, generally holding at $75 plus per hundredweight. However, these good prices were primarily the result of drastically reduced cattle numbers nationwide during the mid-1980s, as cattle herds were liquidated during the farm financial crisis experienced by large segments of American agriculture. Cattle numbers are slowly rebuilding and as they do, cattle prices are softening. This is expected to continue in the current year.

Both target prices and loan rates for wheat have been gradually reduced in recent years. The market price for wheat, or what farmers actually receive at the elevator, has been volatile, plunging in 1990 and 1991, improving, then falling again last autumn. Wheat prices are currently expected to strengthen through the year.

Production and Receipts in Montana

The primary variables in Montana's wheat production are climatic: amount and timeliness of rainfall; and the harshness of winter. Figure 2 shows the dramatic drop in wheat production during the drought years of 1985 and 1988. In 1992 wheat production totaled 140 million bushels, down from 160 million the previous year.

In recent years declining cattle numbers limited Montana cattle producers' ability to increase cattle marketings with favorable prices. Montana producers marketed about 913 million pounds of cattle in 1991, down from 1.1 billion pounds in 1989.

Farm and ranch income in Montana improved considerably in recent years after dipping to disastrous levels in the mid-1980s. In each of the last two years, farm income reached about $490 million. About the same level is currently expected for this year.

Wood Products

Nationwide Market and Price Conditions

Softwood lumber consumption is heavily dependent on residential construction activity, and both are important indicators of trends and conditions in the wood products industry. Nationwide, housing starts fell from an annual rate of about 1.9 million in early 1986 to as low as one million at the beginning of 1991. However, spurred by falling mortgage interest rates, housing activity has been steadily climbing during the last two years. Even with this recent growth, the number of housing starts is currently well below historical levels in the United States and should remain so. Wharton Economic Forecasting Associates (WEFA) currently forecasts 1.39 million starts in 1993 (up from 1.22 million in 1992) and 1.47 million in both 1994 and 1995.(2)

As housing starts and U.S. lumber consumption fell in recent years, prices for framing lumber and plywood softened and then dropped precipitously in 1990--to almost $200 per thousand board feet. But with rising housing construction, increasing lumber demand, and constraints on timber supply, these prices too have risen and are currently expected to continue rising.

Industry Activity in Montana

Montana's lumber production has been fairly stable in recent years (with the exception of a sharp decline in 1988 when mill strikes occurred in the state). Production slipped to 312 million board feet in the first quarter of 1991, but has since risen to about 360 million board feet. Although plywood production fell to 130 million square feet early in 1991, it has climbed in the last year.

About 90 percent of the Montana logging and wood products manufacturing workforce are wage and salary employees. Figure 8 shows quarterly earnings data, calculated in inflation-adjusted dollars, for these wage and salary workers. Industry earnings fluctuate seasonally and fell to low levels in 1991, closely corresponding with the nationwide recession. However, employment gains by the industry last year recouped these recent losses.

Oil and Gas Exploration and Production

Trends in Crude Oil Prices

Crude oil prices are the dominant factor influencing the level of oil and gas exploration and drilling in the United States. Figure 9 shows quarterly average prices for crude oil purchases by U.S. refineries. These prices, which are heavily affected by world oil supply conditions and international events, collapsed in 1986, plummeting by over 50 percent from the last quarter of 1985 to the second quarter of 1986. Aside from a brief spike after Iraq's 1990 invasion of Kuwait, prices have remained at very low levels. WEFA currently estimates crude oil price's will average about $19 a barrel during 1993 and increase to nearly $21 a barrel in 1994.

Industry Activity in Montana

As oil prices declined in the mid-1980s, so did investor interest in drilling for more oil and gas. Oil and gas drilling in Montana, which totaled 660 wells for the year in 1985, has ranged from 250 to 320 wells a year during the last five years. As Figure 10 shows, most of the state's recent drilling activity has concentrated on expanding existing fields of natural gas.

Montana's crude oil production peaked nearly twenty-five years ago, and has fallen by 38 percent in just the last seven years. By contrast, natural gas production in the state, while not growing, has remained fairly stable since the mid-1970s.

These oil price and drilling activity trends are clearly reflected in recent industry employment levels. About 90 percent of Montanans employed in oil and gas exploration and production are wage and salary workers. Their number has fallen from over 3,600 in 1985 to a current level of about 1,600 workers. Similarly, industry worker income has dropped from over $100 million a year in 1985 to less than $45 million.

As in nearly all other U.S. regions with oil and gas resources, Montana's exploration and drilling activity is expected to remain at low levels for the foreseeable future.

Nonfuel Mineral Mining

Trends in Metal Prices

After years of decline, metal prices rose markedly in 1986 kind 1987. This surge prompted renewed interest in metal mining nationwide, including Montana. However, many metal prices waned again in 1988 and 1989 and continued falling into 1992. Most metals, including precious ones such as gold and platinum, are used industrially; the recent recession reduced demand for them. This relationship suggests that as economic activity increases again, so too will most metal prices.

Industry Activity in Montana

Montana's mining industry responded to higher metal prices with increased investment in new metal mines, and, where possible, more production from existing mines. During the mid-1980s price surge, the value of Montana's nonfuel mineral production shot from $250 million to $660 million.

As metal prices have gradually declined from that peak, so has the value of nonfuel mineral production, falling by over 10 percent since 1989. Most of the drop can be accounted for by declining copper and platinum-palladium production. Gold and silver production values, however, have stayed at high levels despite falling prices.

About 80 to 90 percent of those employed in Montana's nonfuel mining industry are wage and salary employees. Industry employment rose from around 2,000 workers in 1985 to as high as 3,500 to 3,600 workers in 1988, 1989, and 1990. During the past two years employment has declined.

Nonresident Travel

Nationwide Travel Activity

The travel industry has become one of the largest industries worldwide as well as in the United States. The U.S. Travel Data Center estimates that the number of "person-trips" (number of people involved in individual trips at least 100 miles from home) in the U.S. has increased over 20 percent in the past few years--from about 1.1 billion trips in 1985 to over 1.3 billion in 1991. Over 80 percent of this travel activity is for pleasure, vacationing, or something other than business purposes.

Travel-Related Activity in Montana

Montana's spectacular scenery and recreational resources attract more visitors from outside the state each year. The number of visitors to Yellowstone Park, up 12 percent in the last two years, is 42 percent greater today than in 1985. Visitorship at Glacier National Park, up 11 percent in the last two years, is 40 percent greater in 1992 than in 1985.

As indicated in Figure 18, the number of nonresidents entering Montana by automobile increased 13 percent in the last two years, reaching a level 36 percent greater than 1985's estimated level. State accommodation tax revenue has increased by 15 percent in the last two years (in inflation-adjusted dollars), another indication of growth in this sector of Montana's economy.

This growth has increased employment in Montana's nonresident travel industry to over 17,000 workers. These workers received an estimated $214 million in income last year.

Citations

1 The Bureau's Natural Resource Industry Research Program receives funding support from Plum Creek Timber Company, Montana Wood Products Association, and American Forest Resource Alliance.

2 The WEFA Group, "U.S. Long-Term Economic Outlook, First Quarter 1993," 1993.

Larry D. Swanson is director of economic analysis at the Bureau of Business and Economic Research, The University of Montana, Missoula, MT.
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Title Annotation:Montana
Author:Swanson, Larry D.
Publication:Montana Business Quarterly
Article Type:Industry Overview
Date:Jun 22, 1993
Words:1856
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