Implications of Rising Energy Costs for Irrigated Farms in the Oklahoma Panhandle

Abstract

As recently as five years ago, research on irrigated crop production in the Oklahoma Panhandle and surrounding area overlying the central basin of the Ogallala Formation focused on irrigable acres and regional share of national production as limits to irrigation development. An aggregate analysis was conducted to determine the economic life of the underground water supply for alternative scenarios regarding the rate of development in irrigated crop production (Bekure, Bekure and Eidman). In addition, bioeconomic modeling was used to determine the effects of alternative means of regulating water use at the firm level (Mapp, Mapp and Eidman). In these analyses, input and output prices, intensity of production practices, and the institutional structure were assumed constant through time. Several recent economic analyses have focused on aggregate or regional effects of alternative product and input prices in areas to the south of the central Ogallala (Condra and Lacewell; Lacewell, Condra, and Fish). Within the central Ogallala, analysis at the firm level has focused on developing costs and returns for reduced tillage production practices and evaluating the effects of changes in overall energy costs on kilocalories of output (Schwartz; Eidman, Dobbins, and Schwartz). This paper examines the impact of rising natural gas prices on the pattern of irrigated crop production, net farm income, and the quantity of water pumped through time for representative farms under various sets of assumptions regarding water resource situations, crop prices, and tillage practices. The geographic setting for this analysis is the Oklahoma Panhandle. The area is semiarid, receiving from 15 to 18 inches of rainfall annually. The existence of large quantities of underground water suitable for irrigation, favorable input and output price relationships, and the profitability of irrigated production have resulted in rapid irrigation development over the past decade. The larger profits from irrigated production are obtained at the expense of greatly increased energy inputs, particularly natural gas. In the three Oklahoma Panhandle counties, 91% of the irrigation wells are powered by natural gas (Schwab). Natural gas accounts for about 60% ot total energy inputs for irrigated production (table 1). This analysis focuses on the effects of a change in natural gas price rather than an overall rise in the price of energy-related inputs. Recharge of the Ogallala aquifer is small relative to rates of water withdrawal and the static water level is declining steadily (Hart, Hoffman, and Goemaat). This analysis accounts for the interaction among rates of water use, water depth, well yield, and pumping costs in determining the optimum organization of production through time. Discussants for this session were Otto C. Doering III of Purdue University, Ronald D. Lacewell of Texas A&M University, and Duane Harris of Iowa State University. Harry P. Mapp, Jr. is an associate professor and Craig L. Dobbins is a graduate research assistant in agricultural economics, Oklahoma State University. Journal Article No. J-3188 of the Oklahoma Agricultural Experiment Station. This research was conducted under Grant 14-340001-6037 of the Office of Water Research and Technology. The authors are indebted to Vernon R. Eidman and Harold J. Schwartz for their contributions on earlier phases of this research and to Odell L. Walker, Loren L. Parks, and James E. Casey for valuable comments and suggestions on initial drafts of this manuscript. Remaining errors or omissions are, of course, the authors' responsibility.