Crop Producers the Squeezed the Most with High Energy Costs

Higher fuel and fertilizer costs tighten operating margins and increase the risk for all farmers. Compiled by staff

Published on: Apr 25, 2006

Farmers planting crops face fuel prices 113% higher than they paid four years ago, says a University of Missouri energy economist. Fertilizer prices, which are largely based on energy costs, are up 70% for the same period.

Fertilizer costs for 2006 are expected to be 10 to 15% higher than in 2005, says Lori Wilcox of MU Food and Agricultural Policy Research Institute. Fuel costs are expected to rise at least 10%.

"The FAPRI baseline indicates that fuel and fertilizer costs for the next 10 years are expected to remain well above pre-2005 price levels," Wilcox says.

Abner Womack, co-director of FAPRI, says "This extended price increase is something we have never seen before. In the past, if we had an energy price spike, prices would come right back down again.

"In this baseline, prices stay up."

Higher fuel and fertilizer costs tighten the operating margins and increase the risk for all farmers, Womack says.

Crop farmers are hit first by the increased production costs, Womack says. "This price increase will affect everyone, even beef farmers, in the long run. All farmers require fuel to move products to markets."

Fuel and fertilizer costs for planting corn on a farm managed for high yields run an estimated $124 per acre. That compares with a $38 per-acre cost for soybean growers.

Most soybeans are not fertilized with nitrogen because the legume creates its own nitrogen from the air. Soybeans also require fewer trips across the field, reducing fuel costs.

Fuel and fertilizer costs for wheat this year are estimated at $65 per acre.

High-yield cotton costs are estimated at $70 per acre for fertilizer alone. Rice is higher, at $99 per acre. The fuel and fertilizer costs for both crops are expected to be up 10% for the year, Wilcox says.

Volatility seen in fuel prices is expected to continue through the summer, Wilcox says. "Monthly fluctuations in diesel prices over the past six months have ranged from a decrease of 52 cents per gallon to an increase of 27 cents per gallon.

At a price of $2.22 per gallon for farm diesel, the per-acre cost of fuel to till, plant, spray, and harvest a crop is about $11 for corn; $7 for soybeans, and $6 for wheat.

In the current analysis, Wilcox says she looked only at the variable costs per acre, not at fixed costs such as land and machinery. The fuel budgets do not include costs of custom applications, hauling, irrigation or drying the crop.

The FAPRI baseline incorporates macroeconomic projections, including energy prices, from Global Insight of Philadelphia, Pa. Historical cost of production surveys are provided by the USDA National Agricultural Statistics Service.

The report, Fertilizer and Fuel Outlook for Spring 2006, is available at www.fapri.missouri.edu/outreach/publications/2006/FAPRI_UMC_Report_04_06.pdf.