AFB study: Farmers face $2 billion fuel crisis

As growers ready to take to the fields, they are finding it takes about 40 percent more money to fill the tractor’s tank than it did last planting season.

With little relief in site, the cost of a fill-up could rise even higher before the season is done.

Terry Francl, a senior economist with the American Farm Bureau Federation, estimates the increase in crude oil prices could result in an additional $2 billion to farmers’ output costs in 2003.

Francl’s projections were one of several crucial issues discussed March 3 at the Mississippi Farm Bureau’s annual commodity conference in Jackson.

J.L. Slay, commodity director for MSFB, shared with the group Francl’s staggering price tag for the escalating fuels costs.

The increase in crude oil prices hits growers from two directions. Costs for diesel fuel, gasoline and oil are up, and costs of manufactured inputs such as fertilizers and chemicals are directly tied to the rising fuel costs.

Every $3 per barrel increase in the cost of crude oil increases the cost for petroleum fuels and oils to farmers by $1 billion.

The Energy Information Administration predicts crude oil prices will average $6 per barrel more in 2003.

Agricultural economist Steve Martin of the Delta Research and Extension Center at Stoneville, Miss., works closely with Delta row crop producers in farm budgeting and planning He just hopes prices don’t continue on their rapid rise.

“We are experiencing about a 40 percent increase in fuel costs, and that is current. I don’t know if it is going to stop there,” says Martin.

“On a Delta soybean farm with herbicide tolerant varieties, it will mean an additional $2 an acre in fuel costs. On a rice farm, which relies on irrigation, costs could go up $12 an acre. A cotton farm could average about $6 an acre,” says Martin. “It may not sound like a big number, but you multiply it over the entire farm – and over the entire industry – and it’s a significant number.”

Martin says even harder hit will be rice and corn growers who traditionally use more nitrogen on their crops.

“All fertilizer costs will increase some, but especially for crops that rely heavily on nitrogen such as rice and corn,” says Martin. “If people don’t already have their fertilizer booked, they are going to see an increase of 20 percent to 30 percent.

Even if growers have booked their fertilizer, Martin says the higher costs are still a burden for the industry.

“Some of the nitrogen fertilizer may have been booked earlier in the season, but because of the wet conditions this winter and for the past few weeks, it hasn’t been applied. There is a loss there whether it is to the farmer that hasn’t bought his fertilizer yet or to the agribusiness industry that is going to have to replace it at some price.”

Martin and Francl share the concern that farmers have little recourse to compensate for the higher fuel costs.

“Most producers have gone to some form of reduced tillage. It may not be totally no-till because of their soil type, but most have already reduced tillage and trips across the field,” says Martin. “If they are going to plant a crop, they are going to have to run some equipment.

“Producers, unlike other industries, can’t pass on costs. They are price takers. They take the price the market bears, and they get no compensation for increases in their costs in terms of the price they get for their output.”

Francl said without a way to recoup these losses, the overall net income for farmers will be adversely affected in 2003.

USDA estimated net cash income to farmers was $46 billion in 2002. Early estimates for 2003 place net cash income at $51 billion, says Francl, adding that number could now fall $1 billion to $2 billion if fuel and fertilizer prices continue at the current level through the planting and growing season.

According to Francl, the lone bright spot in the current situation is that higher energy costs could make biomass fuels such as ethanol more competitive. The AFBF estimates about 800 million bushels of corn were used to manufacture 2.1 billion gallons of ethanol in 2002. Wider acceptance of ethanol combined with higher prices for conventional fuels could increase ethanol use by 400 million gallons in 2003.

Eva Ann Dorris is a free lance writer who lives in Pontotoc, Miss. e-mail: [email protected]

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