"The agricultural sector is looking at significant increases in diesel costs for harvesting and hauling, propane costs for drying grain, and fertilizer costs for fall application," says Lori Wilcox, energy analyst at MU Food and Agricultural Policy Research Institute (FAPRI). "Current diesel prices are about a dollar a gallon above September 2004."
No relief is in sight for planting next spring or harvesting next fall, Wilcox says. A national outlook projects crude oil prices will average above $63 per barrel throughout 2006. "Diesel prices are expected to show slight increases in 2006, up from 2005 levels," Wilcox says.
"Harvest time is the worst time for a fuel price increase," Wilcox says. "About 60% of the fuel costs for corn production occur at harvest."
Adding to a squeeze on the balance sheet are lower commodity prices from what will be higher-than-anticipated U.S crop yields and transportation bottlenecks at Gulf Coast ports.
For corn, the final cost of production in 2005 is expected to increase at least $14 per acre. soybean producersâ€™ costs will be up at least $5 per acre. Cotton producers will see a $29 per acre increase. "A majority of those increases come from fuel and fertilizer," Wilcox says.
After corn harvest there will be increased costs for drying the grain. Propane gas used in grain dryers costs 30 to 40 cents per gallon more than in 2004.
Current calculations of fuel costs take into account a portion of the anticipated impact of hurricane Katrina on fuel supplies. Final figures will not be known for some time, Wilcox says. The FAPRI analysis is based on the 2005 Short Term Outlook released Sept. 7 by the U.S. Energy Information Administration, which included a moderate recovery scenario.
Fuel and natural gas price increases will affect all sectors of agriculture, Wilcox says.
Fertilizer for next yearâ€™s crop will be more expensive because nitrogen comes from ammonia made from natural gas.
Metal price increases of 12% boost costs of machinery, repairs and metal for construction of farm buildings and bins.
On the moderate side, higher oil and natural gas prices have not resulted in large increases in electricity costs, which are expected to rise 2 to 3% from 2005 to 2006. Pesticide costs should remain stable, Wilcox says.
"Rising costs and lower crop prices will change farm management," Wilcox says. "Every farmer must re-examine each cropping practice whether in tillage, crop rotation or application rates. Early contracting of supplies could prove beneficial when looking for opportunities to curtail costs for next year."
View the 3-page pdf Fuel and Fertilizer Outlook for Fall 2005 online.