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Fuel Prices Squeezing Farmers: Costs Increasing for Such Things As Planting, Fertilizer

Posted on: Wednesday, 10 May 2006, 06:00 CDT

By James Mayse, Messenger-Inquirer, Owensboro, Ky.

May 10--Fuel prices are hurting more than just drivers.

The high prices dramatically increased the cost of putting corn and soybean crops into the field this spring. And the high cost of planting the crop will likely not be offset by higher grain prices.

Although grain farmers lose money with every pass their planters make over the fields, livestock producers have been affected by fuel costs as well. For cattle producers, the cost of fuel affects the amount of fertilizer they place on their hayfields and the price they receive when they take their cattle to market.

"In 2005 the cost for average-quality Indiana corn land (per acre) was $184 to put the crop out. This year, it's $223 per acre," said Chris Hurt, an agricultural economist with Purdue University.

Overall, the cost of planting the corn crop is up 21 percent because corn requires fuel for combines and large doses of nitrogen, a common corn fertilizer made with fuel.

Wheat planting expenses have increased by 16 percent compared to last year, and the cost of planting soybeans is up 11 percent. Soybeans, however, do not need nitrogen fertilizer.

If the prices remain high into the fall, corn farmers will feel the financial pinch again because corn often needs to be dried in gas-powered heaters.

"They'll continue to realize those higher fuel prices," said Craig Gibson, a farm management specialist with the University of Kentucky. "At fall harvest, if we don't get some relief, they'll realize that (again)."

Craig Dobbins, a Purdue agricultural economist, said farmers are usually able to somewhat avoid price increases in the fertilizer market by fixing the price long before the spring. But when farmers were trying to set the price of fertilizer last year, the nation was still feeling the effect of Hurricane Katrina.

"The problem is many (prices were set) in the fall. We were still suffering from the hurricanes, so prices were quite high," Dobbins said. "So even if you did get a discount, it was higher than it was in the past."

If the 2006 growing season is average, corn could fetch an additional 20 cents per bushel, with the average price being about $2.20 in Indiana and $2.40 along the Ohio River, Hurt said. Of course, the crop's selling price is dependent on weather -- if area farmers have an average year here while farmers in the Midwest suffer crop losses from drought, the market price will be higher.

But Gibson said he is unsure if a modest increase in corn prices will offset what farmers paid to put the crop in the field.

"Right now, my feeling is the revenue will probably not cover all the additional cost," Gibson said. Last year, farmers received "loan deficiency payments," a federal crop subsidy.

"My fear is there may not be (loan deficiency payments) for the 2006 crop," Gibson said. The problem is that crop prices may be high enough that subsidy programs are not activated -- but will not be enough to counterbalance the increased cost of planting and harvesting the crop, Gibson said.

Next year, the demand for ethanol could drive up corn prices, Hurt said. But, until then, farmers will have to muddle through.

"It's going to be a tight squeeze for farmers," Hurt said.

Cattle producers are feeling the pain of high prices as well. When prices increase, it hurts cattle ranchers through transportation costs and indirect ways.

"You use a lot of fuel around the farm or ranch," said David Anderson, an extension livestock market economist with Texas A&M University. "A little more than 10 percent of the operating costs are fuel-related."

Farmers who fertilize their hayfields to grow cattle feed are suffering from high prices the same as corn growers, Anderson said. Farmers who decide not to fertilize their forage fields may end up paying anyway, if they have to buy supplemental feed to make up for what their hayfields didn't produce, Anderson said.

Feedlots, which have to transport cattle across the country, compensate for high fuel prices by paying less for cattle, Anderson said. While fuel prices are high, beef prices are declining somewhat because producers are increasing their herds. More beef is on the market, and beef producers are having to compete with other, lower-cost meat, such as poultry, Anderson said.

Lee Meyer, a livestock specialist with UK, said the greatest effect on cattle producers could come from corn prices. If feedlots have to pay more for corn, the lots will offer less for cattle at the market.

"If corn prices go up 50 cents, there is a $4 negative impact on feeder cattle prices," Meyer said. But cattle prices are healthy, so cattle producers will probably continue to expand their herds. The impact of higher fuel costs on cattle producers is "pretty minor," Meyer said.

The higher fuel cost "won't be enough (for producers) to change the size of their herds," Meyer said. "It's just such a small thing compared to everything else in terms of the industry."

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Copyright (c) 2006, Messenger-Inquirer, Owensboro, Ky.

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Source: Messenger-Inquirer

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