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Higher Fuel Prices Kick Missouri, Illinois Farmers Reeling From Drought

Posted on: Friday, 30 September 2005, 00:00 CDT

By Repps Hudson, St. Louis Post-Dispatch

Sep. 30--As Dennis Nagel drives his combine this fall -- burning 1 1/2 gallons of diesel fuel an acre -- he can't keep his mind off the future.

"While I'm shelling corn, all I can think about is, 'What can I do?' There isn't anything I can do," Nagel said during a noon break at his farm near Highland.

In this fall's harvest, farmers in Illinois and Missouri are paying record fuel prices. And many face a major management challenge as they cope with low yields from drought-damaged crops, low grain prices and expected high costs for fertilizers next spring.

Higher production costs and lower grain prices won't directly affect most Americans right away, but if these trends continue, analysts say, they could result in higher food prices. Those would stem primarily from higher transportation costs and a concentration of farmers as some fail.

Current diesel prices are about $1 a gallon higher than last year's, with even higher costs projected for 2006, said Lori Wilcox, an analyst at the Food and Agricultural Policy Research Institute in Columbia, Mo. Fuel historically makes up about 17 percent of corn-production costs.

Farmers don't pay state and local taxes on the diesel and gasoline they burn in their equipment or in trucks hauling grain to storage bins and elevators, which can trim 40 cents to 45 cents off the price of a gallon.

Nonetheless, "harvest time is the worst time for a fuel-price increase," Wilcox said. "About 60 percent of the fuel costs of corn production occur at harvest."

The total cost of production this year will go up at least $14 an acre for corn and $5 for soybeans, she said.

Meanwhile, at 10.3 billion bushels, U.S. corn production is expected to be down 12 percent from last year. The total soybean crop is forecast at 2.79 billion bushels, down 11 percent from 2004.

The Department of Agriculture's latest estimate, issued Aug. 31, projects net farm income this year at $71.8 billion. That would be down 13 percent from $82.5 billion last year -- a record harvest following a record year in 2003.

Finding ways to cope Nagel, 51, a third-generation farmer, has corn and soybeans to harvest this fall. He estimated needing to sell corn for $2.25 a bushel to cover his costs in an average year, when he'd harvest 130 bushels an acre.

But this year, he expects yield to be down 30 percent to 35 percent, meaning 84.5 to 91 bushels an acre.

Corn prices dropped to $1.54 a bushel on Thursday, cash and delivered in St. Louis. That's a reflection of low prices generally, because production is expected to be high in Midwestern areas that weren't hit by the drought.

In addition, a carryover of grain from last year's record-setting crop is helping to depress prices. The St. Louis delivery price for January, when prices typically begin to rise after the harvest, was $2.09.

The price of soybeans also was low on Thursday, $5.12 a bushel, cash and delivered to St. Louis. The January price for St. Louis delivery was $5.78.

Low yield coupled with high fuel costs means Nagel is using only one of his two combines.

Lately, he's been trying to figure out how to control costs next spring, when it will be time to plant again.

One option is to plant more soybeans, which unlike corn don't need expensive nitrogen fertilizer. This fertilizer is made using natural gas, which has become more expensive, too.

Herb Tebbe, operations manager of Madison Service Co., a farmer-owned cooperative in Edwardsville, predicts corn farmers will pay about $480 a ton for that fertilizer, mainly anhydrous ammonia, next spring.

Two years ago, he said, nitrogen fertilizer went for $300 a ton. A farmer might apply about 200 pounds an acre.

Nagel also expects to till the fields less often next year, allowing more weeds in his corn, which could cut the quality of the grain. Or he could apply chemical herbicides to hold down weeds, another expense.

Wilcox said farmers have several ways to save money as they plan for next year's crops.

"They can use rotation, putting in more soybeans," she said. "They can get a good arrangement on their fuel" by buying in bulk and contracting ahead at a lower price.

And they can look for futures contracts for their grain and for buyers who will pay a premium above the market rate, she said.

Tebbe, whose co-op supplies many farmers in the Metro East area, was delivering off-road, tax-exempt diesel at $2.80 a gallon this week.

He regularly makes the rounds, keeping several hundred customers' bulk tanks topped off during harvest. Tebbe dispenses 10,000 to 15,000 gallons a week.

He thinks fuel costs won't drop much, if at all, in the months ahead.

"I truly believe we'll never see anything less than $2 again," he said. "I'm not sure that's a bad thing. As a nation, we've got to learn to conserve."

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Copyright (c) 2005, St. Louis Post-Dispatch

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Source: St. Louis Post-Dispatch

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