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Wednesday, April 14, 2004

Rising oil prices mean higher farming costs

As oil prices rise, farming becomes more expensive. This is not only due to higher transportation costs, but because many of the chemicals used in farming (fertilizers, pesticides) are of petrochemical origin. Agrinews explains which cost factors of farming are likely going to be affected:

It's going to cost more to put in the crop this year.

Anhydrous prices have risen to 28 cents per pound from 12 to 15 cents a pound in the mid- to late-1990s.

Retail diesel prices averaged $1.64 a gallon in Minnesota and Iowa last week, according to AAA. Prices a year ago averaged $1.57. The highest price ever was reported in March 2003, when diesel prices hit $1.76.

Mike Duffy, an Iowa State University Extension farm management economist, said fuel cost is a relatively small portion of the money spent to put in a crop, but when the products that are derived from petroleum are considered the impact is much larger.

Many chemicals and fertilizers are petroleum-based. Tires and transportation consume petroleum.

Annual production, transport and primary processing of Minnesota's agricultural output consumes 241 million gallons of diesel, 24 million gallons of gasoline, 123 million gallons of LP gas, 23 billion cubic feet of natural gas and 2.27 billion kilowatt hours of electricity, according to research done by Barry Ryan and Douglas Tiffany of the University of Minnesota.

Yet agriculture in the United States uses half the amount of energy per unit of output than it did in 1978, said Tiffany, a research fellow in the U of M applied economics department. Gains have been made from larger, more efficient equipment and processors are more efficient at making fertilizer.

But prices that have doubled in some cases have farmers thinking about ways to reduce cost.

Gyles Randall, a soil scientist at the Southern Research and Outreach Center in Waseca, has received questions about how much nitrogen needs to be applied.

For corn yields up to 175 bushels per acre, 120 pounds of nitrogen is plenty for corn following soybeans, Randall said. In southeastern Minnesota, 90 to 100 pounds of nitrogen is plenty for corn following soybeans.

Duffy said farmers need to use realistic yield goals in establishing the amount of nitrogen they need.

Many factors farmers are considering in terms of fuel economy are practices educators have been trying to get farmers to do from an environmental aspect. Cost saving is an important factor in convincing people to look at alternative types of tillage, he said.

In the short run farmers should be sure their equipment is properly tuned and that implements are clean so they pull easier. In the long run they should evaluate how many trips they make across the field.

"Farming is a lot of tradition � there's a certain pride of ownership, people do things to maintain clean fields that are not economical," Duffy said. "I think what we try to do is present sound scientific based information on the costs and the returns.

"I heard a friend say farmers are all in favor of progress -- it's change they hate."

The U.S. agricultural production system is fairly fossil-fuel intensive, he said, adding that the whole energy arena is going to continue to take on more importance in the future.

"I think that we should prepare ourselves for this wild fluctuation to be the norm, not to be the exception," Duffy said. In 20 to 25 years higher energy prices could change the way U.S. farmers farm.

Producers spent $10.22 per acre on fuel and oil, not including drying fuel, in 2003. The total direct cost on that acre was $288.50. That makes fuel 3.5 percent of total direct cash expense for an acre of corn.

For soybeans, farmers spent $8.20 for fuel. The direct costs were $194.25 or 4.2 percent of the total cost.

By Janet Kubat Willette

Agri News staff writer
Source: South Central Minnesota Farm Business Management Program

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