The 2009 Economic Landscape 

How Long Can Energy and Agriculture Boost the 

Nation’s Midsection? 

The energy and agricultural sectors are important 

economic drivers for states in the center of the country. 

Extending from the oil patch of Texas, Louisiana, 

Arkansas, and Oklahoma, northward through the 

plains states and eastward to the Corn Belt, the states 

in the nation’s midsection are not only rich in land 

and other natural resources, but also tend to rely heavily on these resources as drivers of economic activity. 

Booming commodity prices during the middle years of 

this decade have helped buoy the economies of these 

states, even while the rest of the country was moving 

toward recession. However, recent declines in many 

of these same commodity prices raise concerns about 

wider economic repercussions for these regions as the 

U.S. recession continues. This article describes how 

commodity industries drive the economies of the 

nation’s midsection and evaluates their outlook after 

the commodity price boom. 

Energy and Agriculture Regions Do Not Always 

Follow the U.S. Business Cycle 

Energy prices can have a profound effect on the 

national economy. In fact, since World War II, nearly 

all recessions were preceded by oil price shocks. These 

shocks adversely affect businesses and consumers, causing economic growth to slow. For example, around the 

time of the Iranian revolution in 1979, oil prices 

doubled within a year, contributing to the 1980 and 

1981–82 national recessions. Similarly, the 1990–91 

recession was precipitated, in part, by another doubling 

of oil prices in the months following the invasion of 

Kuwait and leading up to the first Gulf War. 

Unlike the rest of the nation, oil-patch states tend to 

benefit from higher oil prices. In the early 1980s and 

early 1990s, higher oil prices helped these states grow 

even during national recessions. However, when prices 

collapsed during the mid-1980s, oil-patch states fell into 

their own regional recession. The lingering effects of 

the “oil bust” resulted in falling real incomes in the 

region. The subsequent loss of jobs, income, and output 

contributed to house price declines that created turmoil 

in residential real estate markets and led to hundreds of 

bank failures.1 

Like the energy sector, agriculture does not move in 

perfect tandem with the national economy, though 

influences from U.S. and global trends can be strong. 

For example, global economic conditions affect the 

demand for food, which helps drive agricultural 

commodity prices. In addition, large interest rate movements can have a profound effect on farmland prices. 

For example, in the early 1970s, strong demand for farm 

commodities caused farm incomes to rise rapidly. When 

combined with negative real interest rates, this favorable environment caused sharp increases in the value of 

farmland. In the late 1970s, however, soaring interest 

rates and changing conditions in global supply and 

demand brought the boom period to an end. The result 

was a significant decline in real farm incomes, a rapid 

and long-lasting decline in farmland values, and 

hundreds of farm bank failures in the 1980s.2 

Energy and Agriculture Boomed through 

Mid-Year 2008 

Current energy and agricultural conditions have, for 

the most part, played out independently of national 

economic trends. Despite the weakening U.S. economy, 

the health of the energy and agricultural industries has 

been very strong over the past several years. Crude oil 

prices quadrupled in dollar terms between 2003 and 

mid-2008, setting the trend for overall energy prices. 

This price inflation was an economic boon to oil-patch 

states.3 During the five-year period ending in second 

quarter 2008, inflation-adjusted economic growth in 

these four states grew at an annualized rate of 3.6 percent 

1 FDIC, History of the Eighties—Lessons for the Future (Washington, 

DC: FDIC, 1997): 291–336. 

2 Ibid., 259–290. 

3 While the energy discussion and analysis in this article focus on oilpatch states, it should be noted that Wyoming and Montana have 

characteristics similar to this region. Both states rely considerably on 

energy extraction and experienced employment growth above the 

national average during the period of high oil prices. Wyoming, in fact, 

had one of the most vibrant economies in the nation during that time. 

FDIC QUARTERLY 36 2009, VOLUME 3, NO. 1 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2009 Economic Landscape 

Chart 1 Map 1 

60 

70 

80 

90 

100 

110 

120 

130 

140 

150 

160 

Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 

Source: U.S. Department of Agriculture 

Note: “Prices received by farmers” is a composite index of leading crop and livestock 

prices produced in the United States. The prices of these commodities are “farm-gate” or 

wholesale prices. 

Agricultural Prices Rose Steadily from Late 2002 through 

Mid-2008 but Have Settled Somewhat since Then 

Prices Received by Farmers 

Index: 1990-92=100 

compared with 2.8 percent for the nation.4 The biggest 

impact, however, was on real personal income, which 

grew at an annualized rate of 4.6 percent in the four oilpatch states compared with only 2.9 percent nationally. 

The region’s oil and gas industry not only supports a 

large number of high-paying jobs in the mining industry 

itself, but also has strong, indirect multiplier effects on 

job growth in professional and business services, wholesale and retail trade, and financial activities. 

The agricultural sector also has performed quite well 

over the past few years. A number of factors, including 

global economic growth and a weaker dollar, contributed to an extended period of rising prices for a broad 

array of agricultural products. Prices for these commodities generally began to rise in late 2002, and many 

reached new highs in the past two years before moderating in the second half of 2008 (see Chart 1). High 

commodity prices have led to record net farm incomes 

in three of the past four years and also have contributed 

to significant increases in farmland values.5 

Ethanol production has also played an important role in 

both agricultural and energy markets in recent years. As 

the price of crude oil increased from less than $26 per 

barrel in 2001 to more than $133 per barrel in July 

2008, ethanol became a viable and very profitable alter4 Growth rates used in this paragraph were calculated by the FDIC 

using data from the U.S. Bureau of Economic Analysis and Moody’s 

Economy.com. 5 For a detailed farmland analysis, see Richard D. Cofer, Jeffrey W. 

Walser, and Troy D. Osborne, “Do Record Farmland Prices Portend 

Another Steep Downturn for Agriculture and Farm Banks?” FDIC Quarterly 2, no. 4 (2008): 25. 

The Center of the Nation Has Avoided Significant Job Losses 

in This Recession 

Employment Growth, Percent Change 

December 2007 - January 2009 

>0% 

0% to -2% 

-2% to -4% Source: Bureau of Labor Statistics U.S. Average: -2.5% 

(Haver Analytics). <-4% 

native. Strong profitability, government mandates on 

renewable fuels that supported demand, and tariffs and 

subsidies that supported prices all led to considerable 

increases in ethanol output.6 Indeed, annual ethanol 

output in 2008 had grown by more than five times the 

levels of 2000.7 The growth in ethanol production, in 

turn, increased the demand for corn, the primary input 

in the production process, to a point where ethanol 

production is projected to use nearly 30 percent of the 

2008 crop.8 As farmers planted more corn to meet the 

higher demand from ethanol plants, they reduced plantings of soybeans, which contributed to higher prices for 

this commodity as well. The result was record incomes 

for farmers and double-digit average annual increases in 

farmland values in corn- and soybean-producing states 

between 2003 and 2007. 

The health of the energy and agricultural sectors, 

combined with relatively stable and affordable housing 

markets in the central United States, has caused the 

national recession to largely bypass the nation’s midsection so far (see Map 1). The energy-rich oil patch was 

6 Don Hofstrand, “Corn-Ethanol Profitability,” AgMRC Renewable 

Energy Newsletter, Agricultural Marketing Resource Center, November/ 

December 2008; and Bruce A. Babcock, Center for Agricultural and 

Rural Development at Iowa State University, statement before the U.S. 

Senate Committee on Homeland Security and Government Affairs, 

Hearing on Fuel Subsidies and Impact on Food Prices, 110th Cong., 

2nd sess., May 7, 2008. 

7 Renewable Fuels Association, Ethanol Industry Outlook 2009. 8 “World Agricultural Supply and Demand Estimates,” U.S. Department 

of Agriculture, January 12, 2009. 

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the only region that added jobs after the national recession began in December 2007, and Farm Belt states 

reported small job losses relative to the rest of the 

nation. 

The Outlook for Energy and Agriculture Has Dimmed 

Though the energy and agricultural sectors have 

provided insulation against recession for the central 

United States, these sectors have weakened considerably in recent months. The Energy Information 

Administration’s (EIA) short-term energy outlook is 

projecting a long, severe global economic slowdown 

that will lead to further reductions in global energy 

demand and additional declines in crude oil and other 

energy prices.9 The EIA projects oil prices in 2009 to 

average between $40 and $50 per barrel on a quarterly 

basis, but prices could plunge below $30.10 Falling 

energy prices are now putting pressure on oil-patch 

employment growth (see Chart 2). This trend alone 

should not cause a repeat of the 1980s oil bust, as the 

region’s economy has become increasingly diverse since 

that time, somewhat muting the impact of oil price 

movements.11 However, when falling energy prices are 

combined with a severe national recession and a global 

financial crisis, a significant regional downturn cannot 

be ruled out. 

Declining agricultural commodity prices are also of 

concern. A severe downward price cycle in agricultural 

commodities and land values that causes farm incomes 

and land values to fall could result in prolonged 

economic weakness among farm states. Aggravating the 

situation could be a rapid and significant consolidation 

in the ethanol industry, which was already showing 

weakness in mid-2008 because of overcapacity and low 

margins caused by high corn prices. Some of the largest 

ethanol producers delayed the startup of ethanol plants 

last year, and some analysts predicted that many small 

and medium-sized plants would shut down.12 Deteriorating conditions in the ethanol industry will not only 

9 Energy Information Administration, Short-Term Energy Outlook, 

December 2008. 

10 Several leading analysts have discussed the possibility of oil prices 

falling below $30 per barrel in 2009. One notable example is “Oil May 

Fall Below $25 Next Year, Merrill Lynch Says,” Bloomberg.com, 

December 4, 2008. 

11 Stephen P.A. Brown and Mine K. Yucel, “Energy Prices and State 

Economic Performance,” Federal Reserve Bank of Dallas, Economic 

Review, second quarter 1995. 12 “Too Much Ethanol?” Farm Industry News, November 1, 2008. 

Chart 2 

$0 

$20 

$40 

$60 

$80 

$100 

$120 

$140 

$160 

1995 1997 1999 2001 2003 2005 2007 2009 

-2% 

-1% 

0% 

1% 

2% 

3% 

4% 

5% 

The Recent Downturn in Oil Prices Appears to Spell the 

End of the Growth Period in Oil-Patch Employment 

Sources: Wall Street Journal; Bureau of Labor Statistics (Haver Analytics) FDIC. 

Year-over-Year Employment Growth, 

Oil-Patch States 

Dollars per Barrel (2008 dollars) 

weigh on crop prices, but are also likely to affect farmers 

and rural communities who have come to rely on the 

industry for high-paying jobs. 

Though the economies in the nation’s midsection 

continue to perform well relative to the nation, the 

downward trends in the energy and agricultural sectors 

may weigh on the region in the near future. Moderating 

commodity prices are likely to put a damper on the 

area’s economic conditions, and the region may not 

only cease to be a source of economic strength but also 

could enter recession at a much later stage than the 

nation. 

Authors: Adrian R. Sanchez, Regional Economist 

John M. Anderlik, Assistant Director 

FDIC QUARTERLY 38 2009, VOLUME 3, NO. 1