Hello again, everyone, and thanks for joining us for Arkansas Week, our legislature.

The Arkansas General Assembly has begun work on a state government spending plan for the fiscal year that begins in mid-summer dollars and cents agenda.

And we'll cover that, of course, in a subsequent broadcast.

In this edition, though, we focus on the engine that makes that budget possible.

The Arkansas economy, it is as captive to domestic and global factors as is that of our neighbors, our nation.

The price of credit money, the price of farm fuels, especially diesel, the price of fertilizer and seed, all elements of the ag sector, though they weigh heavily on manufacturing and tourism as well, and banking and finance, trade and tariffs, conflicts on other continents, and less lethal disputes in our own hemisphere.

And let's not forget climate.

Our farmers and their suppliers most certainly have not.

And update now, as planting season begins and summer approaches, we are joined by Doctor Jeremy, hospital director of the Arkansas Center for Research in Economics at the University of Central Arkansas, Conway and Doctor Jared Hartke, Extension Rice, agronomist at the U of A's Cooperative Extension Service.

Gentlemen, thank you, as always, for coming aboard.

Jeremy, let's begin with you.

Can you give us a thumbnail overview?

Where are we right now?

Tax collections would seem to be pretty robust.

Still.

State collections.

State tax collections.

Yeah.

That's right.

So in Arkansas State tax collections continue to be robust meaning they are both above what was forecast and above what was collected last year.

So those numbers are looking good.

And as you said, you know, those numbers are based on the engine, the economy, how much consumers are spending.

That's the sales tax and how much people are earning in wages and salaries.

That's the income tax.

So those continue to be robust.

I think nationally, though, we are starting to see increasing concerns with unemployment starting to creep up, both in Arkansas quite a bit in Arkansas and a little bit nationwide.

We're starting to see both in the fourth quarter of last year.

It looks like in the first quarter of this year, GDP growth starting to slow down.

So those are worrying signs that I think should give us some caution about what the next few months might look like.

Add on to that the higher prices, by the time the show areas will have some new inflation data, I think it's going to show certainly from higher gas and diesel prices.

Inflation will have ticked up quite a bit compared to a year ago when we look at the March complete March data.

So there are some worrying signs that there have been showing up the past few months.

Right.

And that inflation data, the last inflation report we got did not yet came out after.

That's right.

Yeah.

So they did not factor in fuel.

They do a month at a time.

So the last report was all the February the end of this week.

We're getting the full March data.

And that's going to show that the full impact of those higher gas and diesel prices and other energy prices as well.

Yeah.

Let's go back to the states.

Take if we can for just a second.

Is there a point, is there some value and can we measure the the the relative income from.

Well we can measure it.

But but the implications of both income and consumer spending.

Retail spending.

Right.

If we think about Arkansas in general revenue budget, about half comes from each of those two sources, about half from income, half from sales taxes.

They both seem to be pretty robust, including the income tax.

Even with cuts to the rates in recent years, those both seem to be still continuing to generate revenue.

But you know, we can February consumer income and spending data.

That was personal income.

Real income was down in February.

So that means that we could start to see that.

We are seeing that in the revenue data already.

We haven't yet seen a negative effect in Arkansas, but I think if we get more months looking like that, that's where we really start to worry about those two sources.

We're looking around the corner there.

Absolutely.

Yeah.

We're looking at those slowing down.

You know, we've just completed March as those higher gas prices not only mean people have to spend more on gas, it means they have less left over for other things.

So I think that's that's the worry.

As long as gas prices stay start, keep staying high.

Consumers have less money to spend on other things, which is going to lower, sales tax revenue.

Yeah.

Okay.

Doctor Harris, can you give us a similar overview on the ag sector, particularly with reference to row crops, planting season?

Yes.

We're we're seeing we're well into planting season now getting started with, with somewhat favorable weather, but an extended drought period which is not.

But from a call standpoint, we're seeing things move the wrong direction.

The beginning of the year started with already poor outlook and particularly especially for rice than anything.

And now as we move through some of the issues experienced in March and elevated diesel and fertilizer prices, things have gotten worse for rice and not any better for corn and cotton and soybean.

Interesting is somewhat static is it's experience some improved prices and not quite as impacted by those input cost rises.

But if we pursue that for a second, if we can.

Doctor Harkin, we're talking about the cost of production.

Is it supply demand, the cost of production, what's moving these, these decisions on acreage in these respective crops corn, soybeans, cotton, whatever?

Well, we're we're again, we're not seeing the price responses to these other elevated costs.

And we do operate in in a world market for both our fuel and fertilizer.

So where we have flows disrupted around the world, there's more, particularly urea nitrogen fertilizer produced in, in the Middle East.

That's being impacted, the production and exports, through the strait there as well as diesel.

So those two are factoring into our economics as we compete here.

While we can produce a lot of our own, we're we're also we will utilize domestically and export on to the world market.

Even what is produced.

The United States.

So it is a world competition for these inputs that are necessary.

We've seen diesel prices immediately farm diesel immediately pre-war in the upper $2 range per gallon.

We're now in the mid $4 per gallon, and urea per ton is gone from 570 per ton to well over $800 per ton.

So just for rice, that is roughly a $100 per acre increase in production cost with no appreciable offset in terms of, price.

Well, for the commodity.

So it's just another $100 lost in an outcome in what was already looking negative for rice, very negative for rice.

Well, if my math is right or my reading is correct anyway, just in the past several days, diesel has gone up by about a buck a gallon.

Am I correct?

So it went up dramatically.

And then we had some attempt at a at a near-term big drop in diesel futures prices.

But we're in the midst of the the current cycle current contract right now and dropped suddenly.

But the further ones out continue to rise.

So any any positives are kind of short lived.

And we're dealing with this almost daily up and down chase and prices, but still staying much elevated above what they were at the end of February.

And I am sorry this really got started.

Yeah.

And I'm struck always when I'm reminded of how many gallons of diesel, even a thousand 2000 acre farming operation can demand or can require, for success in a in a season, thousands of gallons.

Yes, thousands of gallons between again, a combination of, equipment use irrigation, you name it.

Yeah.

We do go through a lot in order to make that happen.

So again, dramatic increases in all facets of farm production.

Yeah.

Jeremy Hauptman yeah I think diesel gas.

Yeah.

Natural gas.

But certainly, you know, prices being higher for consumers is a concern.

But I think across the economy, both from higher fuel prices and to some extent from tariffs, input costs are much higher for businesses across the board.

Just like egg.

But they don't have a lot of power to raise prices, I think.

Well, consumer prices have been up a bit.

We're talking 2 or 3% a year.

But whether it's 2 or 3, people kind of get excited about that.

But still, these are small price increases compared to the increasing cost of inputs for businesses.

Squeeze their business are getting squeezed.

And I think and in many cases don't really have any good options here.

I think that when we're operating, especially for things where it's a global market, you have no pricing power, you're not able to raise prices, as your input prices are increasing, you have to absorb those almost completely.

There's some estimates at some of the cost of things like tariffs are sometimes passed forward to consumers.

And and certainly they often are.

But that's not any benefit to the business.

They're still getting squeezed in many ways with the part of the tariff that they're bearing.

And I think you're trying to see the the problems he identified in the ag sector are you're seeing that across the economy as well.

Yeah.

Well, again, excuse me, can we stay with petroleum for just a second.

That's a squeeze on a lot of industries and on manufacturing and on tourism as well.

Yeah, absolutely.

I mean, when you see especially, you know, in one month we've had in percentage terms one of the largest increases ever in, in fuel prices, both for consumers and businesses.

You know, the level may be still a little bit below what it was in 2022, but the rate of increase was so quick.

I think that's hard for businesses and consumers to adapt when the price changes happen so quickly.

And then if they stay at those all day levels, that is really going to put a squeeze not only on businesses but on households as well, as they, you know, if many of them are living close to their budget line, most of their income is going out the door.

When one expense increases, there's often nowhere left to cut back.

Which is where you start to see these hardships.

And where are these?

You know, if we look at the broader economy, where the unemployment rate could continue to go up, when businesses are seeing that if they're seeing being squeezed, one cost, they can try to cut his labor costs.

But that's where you get the spiraling into leading to much higher unemployment and potentially leading to recession.

So I think that's where, given the already soft position of the economy, that, increase in one cost, a major input like gas and diesel and energy costs could really put a squeeze on businesses where you could start to see, lots of layoffs resulting from this, in addition to the other layoffs that are happening for various reasons.

You know, things related to AI, general uncertainty, that this could be, you know, on top of all that.

Yeah.

Follow up on that.

If if we wait for just a second the labor situation, what are the underlying causes here?

Just consumer inflation.

What?

Well, we've had a very tight labor market for a long time, meaning that there has been, you know, not many available workers for available positions.

With unemployment been low, that's in general been good for workers as their wages have been increasing pretty well in the past few years.

However, that has that means that there has been not a lot of churn in the labor market.

People aren't changing jobs because many are worried that the next job won't be there if they leave their current one.

So I think that a lot of workers are staying where they are workers that are unemployed are now being unemployed for longer periods of time.

You just have less turnover going on in the labor market.

Which could mean that there could that could present challenges if there start to be big layoffs in certain sectors.

Yeah.

Not hard to labor labor factors into the Arkansas AG, well into the nation's ag economy as well.

Yes, we're we're continuing to experience shortages and issues with finding sufficient labor locally throughout the farm and ag community.

And that is certainly one added piece that's an issue out there.

I would be remiss if I didn't, you know, mention really from from a just a general agriculture row crop in the state since December 2024, we've had over 100 farm retirement auctions, just, you know, from then to now, that is a lot, considering they're only 1800 rice farms in eastern Arkansas.

So we're seeing that labor is a factor in that as well as all the costs.

And now we're staring at potentially 50.

Only 50% of our rice acreage will be planted this year compared to what our our statistical average is that we normally plant.

You know, we're responsible in Arkansas for half of the nation's rice production, rice acres.

We're probably going to plant half of normal this year and see a dramatic change in the landscape.

This will be the lowest rice acre since the 1970s in the state of Arkansas.

Yeah.

Follow that up if you can.

In terms of the global market and the factors that are driving that, we have to include climate in there.

I suspect climate as well.

Well, some of our climate issues have have driven into it.

We really ran into a crux of multiple yin and yang perfect points.

The the global factors coming together.

We had two consecutive years of of very good acres with very good yields.

The the quality of those larger crops was not as great as we expect.

Good, but not great at the same time.

Very good competitive crops out of South America that compete with some of our same markets and then around the world and places like India.

Really Overproducing putting a lot of rice onto the world market.

And again, farmers don't set prices.

We take prices.

And it's really brought, the world market price for rice.

Now extremely low, far below our cost of production.

And just everything came together all at once.

We're used to experiencing one of these types of factors at a time.

And having to deal with it and, and deal with a little heartburn over it.

But they have all come together at once, and we're we're really struggling under the weight of that, particularly in rice.

Yeah.

Well, I think the phrase is perfect storm.

Can we go to soybeans for just a moment and talk about that?

Obviously, you know, the situation with Asia, China, has has had a pronounced impact on the soybean, situation not only in Arkansas, but in every every bean producing state.

There was some relief, offered.

Where did that leave us?

We're going into the season now.

Where where's the soybean farmer?

So the soybean farmer, believe it or not surprisingly, compared to the other crops in eastern Arkansas, has the best current outlook of any of them right now.

So we've, amazingly, since the first of the year, we've seen some price improvement.

Certainly a lot of that has to do with with the soybeans that were sold and moved, throughout the winter, in agreements with China and other buyers.

That put us in a little better position.

And some of the processing, maybe as much as anything based on speculation of what is hoped to come with that market.

But right now that that improvement in pricing and soybeans don't require some of the same inputs that rice, corn, cotton do that, that they're soybean isn't being weighed on quite as much from a diesel fuel and urea fertilizer standpoint.

So it's been holding a little more steady with these other events going on at the moment compared to the others that are giving ground with increasing production costs.

So I know it sounds a little bit odd, but that is the situation for soybean right now.

So we'll see a dramatic increase in soybean acres.

Certainly something will be planted with rice dropping and rice.

And so again, a great rotational partner.

So last year we only had 2.5 million acres of soybeans, the lowest since I think 1960.

This year we stand to potentially set a new record for soybean acres.

We'll we'll see just how high it goes.

But 3.4, 3.5 million acres of soybeans.

So, we'll we'll see how the spring actually shakes out if we don't get some, you're, excuse me, some rainfall in the near future and begin to add moisture back here.

We're not sure what anybody is going to continue to plant anywhere, because it's it's way too dry under the drought conditions we're in.

We we need help that that there's you another addition to the perfect storm.

Yeah.

And that factors into one supposes the the increase in farm bankruptcies that is not merely projected but is is happening as we speak really?

Yes.

And we expect that if nothing changes, if something doesn't improve, we expect that trend to continue on into the winter of 26 into into spring of 27 to see that continue.

There are far too many that are still just barely hanging on.

Even with all of the the bankruptcy and retirement options that we've already had.

So if that trend continues, what we're talking just now about basically a calendar year or a season and a half, can that trend be arrested?

It it can be arrested again, pricing, in cost input costs are not in our control.

And the price we take for the crop is not within our control.

But the bigger picture on the economy, especially of if we were to arrest it, certainly, if we're not able to the economy of the delta of eastern Arkansas, all of these auctions, I mean, these are jobs and everything associated with agriculture that small towns eastern Arkansas rely on.

It's kind of a lifeblood of, of that economy.

And each each grower that goes out is fewer employees and their families and, and it continues to, to dissipate.

So we're very concerned about the current and future state of the agriculture and delta economy.

Again, not just AG, but everything surrounding those areas and people that rely on the industry.

Yeah, and that has a less a ripple effect.

And it can have a tidal wave effect on social services tax collections at the local level, education, health care, the whole gamut, the whole social fabric.

Yes.

That's it's all coming together.

We've seen this occur back in the 1980s farm crisis that already happened then.

And in many ways this is much the same crisis.

The numbers are just a little different, but the math really comes out the same to a very similar degree.

Some saying it doesn't match quite as much.

Interest rates were much higher in the 1980s farm crisis.

They're still extremely high.

Now, the big difference is input costs are well over twice as much as what they were then.

So again, the math comes out about the same.

To point out just how extreme this situation is in the farm economy.

Yeah, Jeremy Hope at all.

As paradoxical as the situation may seem, vis-a-vis soybeans anyway, in terms of the crop outlook or year outlook, is it not possible that higher fuel prices could benefit tourism and Arkansas in the sense that people will stay closer, spend more money?

Our neighboring states may choose to come to Arkansas rather than, say, Wyoming.

Yeah, I mean, there's a possibility of that happening.

I think one one place that the fuel costs have really shown up are an airline tickets.

And if we think maybe more tourists are driving to Arkansas rather than flying, I think that may make people reshuffle their plans.

But I think you're going to see impacts in, in both those areas.

So the kind of net effect is maybe a little hard to tell in advance, but I think that's certainly something that, you know, as people look, where can I cut back?

Well, discretionary items like that, like taking a vacation.

That's something that people can cut back on.

So maybe there's some reshuffling of where people go and maybe that benefits Arkansas a little bit.

But I think if people in general are saying, well, they're not going to take a vacation or we're going to take a shorter vacation because of because our costs are up, I think that that most likely is going to be hurting everyone rather than picking some winners and losers.

Yeah, well, we continue back on the manufacturing sector.

We continue to see plant expansions or creation, which would seem to suggest that a certain level of entrepreneurial confidence is at play.

Subject, though it is, of course, the cost of money, interest rates, etc.. Labor supply.

Yeah.

Workforce.

Absolutely.

I mean, there has been some expansion of of new plants or expansion of steel plants, in the past couple of years.

I think that some of that's been driven by incentives that are offered to firms in terms of lower taxes.

Of course, that figures into the tax picture of you have new firms coming in for the for the for the moment, they aren't going to be paying some of the taxes that you might expect firms to be paying.

But certainly, you know, once you have an established industry like that here, there's going to be clusters of other firms that are going to be, in many cases, drawing on the same pool of labor.

But, you know, is that pool of labor going to be there as the unemployment rate has gone up?

You know, it's gone up about a full percentage point in the past a year and a half in Arkansas.

Right.

You know, that that that is partially driven by more people available for work rather than necessarily layoffs happening.

But, you know, are those going to be the workers that have the right skills, for those type of jobs?

As as if manufacturing is the industry that's expanding and looking for for new workers.

There may, at least in the short term, be a mismatch between the two that the type of workers you have available maybe aren't right for the particular industries.

So, that certainly the fact that we have growth in those areas is good.

And I think it's a it's a good point for Arkansas economy.

But, you know, if you look at, you know, a new steel plant opening, they'll be adding, you know, 100 or 250 jobs, which is they're certainly often good paying jobs.

But, you know, the normal growth of the job market each month is much more than that, anyway.

So it's just kind of a small part of the overall growth of the economy.

And our total employment numbers are at record highs essentially.

So employment does continue to grow, even as there are more people coming in the workforce, at least initially, not finding jobs and going through what today is a often very arduous job search process to, to find that first job, especially for young people coming out of college that are my students at UCA, often much longer and harder of a job search process initially.

But part of that, again, is because, as I said earlier, people just are staying in jobs longer, which is in many cases good for them in the company.

They have those long term relationships, but it makes it often much harder for people to get into the labor market at first.

And we do are seeing to some extent for young people coming out of college, unemployment rates have been rising pretty substantially over the past year or so, as they have had some trouble getting into the labor market.

At first, we've seen unemployment rates creeping up everywhere, but but more so for those new college graduates, and others that are entering the labor market for the first time.

Yeah.

Doctor Hartke, let's go back to you for just a second, because a part of that social construct that we talked about a moment ago is, of course, health care.

And, with changes in Washington in, in federal health programs, it is feared that a great many Arkansans who are now receiving health care, or assistance with health care may lose it.

And the impact on health care, particularly in rural areas, rural small town hospitals could be severe.

And that's that's a driving factor.

And manufacturing service farm everywhere.

Yeah, the the loss of any, any support or help in these areas of the state is always going to be a further concern.

And one more driving factor that that's going to push people out of the Delta and into areas where they can again, find different jobs, better health care, support, anything along those lines each of these type of items is is what is helping right now to drive people out of the delta in those communities.

So there continues to to be discussion of factors such as that in addition to the broader economy.

Right.

Jeremy, will give you the last word.

Yeah.

I think, again, going back to labor market and health care, if you look at almost all the net job growth over the past year, in the national economy, certainly been to some extent Arkansas as well as been in health care, that's where that's where the job growth is.

That's where there's a lot of increasing demand, both from just the aging of the population, but also from you know, the fact that there is even with some cutbacks in government spending on health care, there is still a lot of public support for, with public dollars for health care.

You know, if that sector, though, stops growing, that's where most of the growth has been.

And often those are good paying jobs as well for people that may not even need college degrees in some cases.

That's been the one bright spot, the labor market, if that, if that starts, shrinking as well, either just due to, higher costs, meaning people can't afford as much or because public dollars aren't flowing, there is much, you know, then the one bright spot in the economy suddenly doesn't become so bright.

And then then, then the labor market picture really ends up looking much worse.

Got to end it there, gentlemen, because we are simply out of time.

Doctor Harkey, doctor hospital, thanks very much for being with us.

We'll have you back on soon, hopefully with some good news.

Thank you.

That does it for us for this week.

As always, we thank you for watching and we'll see you next time.