Farmers should benefit this growing season from fuel prices lower than a year ago, but a lot of unknowns could still toss a wrench into the works.
Oil prices have backed off from the $70 per barrel highs that characterized much of 2006, says John Robinson, Texas A&M Associate professor and extension economist.
Robinson, speaking at the Beltwide Cotton Conferences in New Orleans, said oil futures recently dropped into the low $50-per-barrel range, lowest for “quite a few years.”
He said the long-term trend for energy prices is up. But in the short term, “we've built up an inventory with a mild winter so far in the Northeast. Gasoline and diesel prices are likely to drop. Into next season, (farm fuel) prices should be lower than last year.”
He said that assumption may hinge on several uncontrollable factors. “Will we have disruptive hurricanes next year? Will the winter remain mild? Will China's economic development continue at a rapid pace? We're not sure.
“Will disruptive conflicts occur in Nigeria and the Middle East? We face a lot we don't know and many factors can change fundamentals.”
Still, he expects farmers to see short-term benefits from lower diesel prices.
“But if it goes up, does it matter? That depends on who you are and where you are.”
Robinson said energy prices affect a farmer's bottom line, but in some locations, the Mississippi Delta, for instance, the effect may be less than in other parts of the country.
A 25 percent increase in energy costs in Mississippi results in a $9 per acre cost increase, with some variations (based on Mississippi State University budget umbers). “That's not a huge jump and the range may be $9 to $18 per acre.”
Farmers on the Texas High Plains, however, may feel more pain because of higher irrigation demand.
Robinson said seed costs represent a large chunk of overall production expenses. “Seed prices have risen dramatically over the last 20 to 25 years,” he said. “They have really spiked since 2000.”
Average seed costs, he said, may exceed $50 per acre, possibly $75 per acre in some locations. He said cotton farmers also tie up a lot of production costs in technology, including pest control chemistry.
“Some of those costs can't be controlled — in-season pest infestations, for instance. But variable rate application, precise sprayer calibration and other management techniques may offer savings.”
Robinson also said growers should look hard at various crop mixes, production costs and farm prices to determine acreage and production systems for 2007. “Calculate the price of cotton and the program payments and compare with other crop options,” he said.