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Farmers struggle with energy prices

posted to KBC 6/13/04

Energy prices have forced farmers to absorb even more production costs in recent months, as prices for fuel and fuel-based supplies, like fertilizer, soar.

Terry Francl, American Farm Bureau Federation economist, said that through April, the price of energy-based inputs on farms had increased by $2 billion.

"The resulting $2 billion increase will reduce farmers' net cash income by the same amount—over 3 percent," Francl said.

In the last year, the cost of fuel and oil has risen 12 percent and the cost of fertilizer has risen by 6 percent. Francl said that if costs continue to rise through the summer and fall, an additional $1 billion in cost of manufactured products will have to be absorbed by farmers' incomes.

Troy Bredenkamp, AFBF public policy specialist, said that the economic situation is not as simple as it seems.

"While commodity prices have increased by what would seem to be a profitable level, it's quickly eaten up by higher input levels from the energy sector," he said.

Specifically, the price of diesel fuel, the primary fuel used on farms, has increased an average of 16 cents per gallon from last year.

Ken Dierschke, president of Texas Farm Bureau, said that oil analysts do not predict a reduction in cost anytime soon.

AFBF analysts project that U.S. annual farm expenses will be up $4.7 billion from last year, while farm net cash income will slip $1.6 billion.

The recent costs are in addition to energy costs that have been affecting farm operations beginning in 2003. Bob Drake, vice president of Oklahoma Farm Bureau, testified before the Senate Environment and Public Works Committee on March 24 calling for energy legislation to develop more energy sources.

Drake gave examples of the negative effects of natural gas prices. He said the price of anhydrous ammonia fertilizer increased from $100 a ton in 2000 to $350 or more per ton in 2003. Drake added that one farmer in his state reported a $26,000 drop in net income due to the cost of operating irrigation pumps powered by natural gas in 2003.

Purnomo Yusgiantoro, the president of the Organization of the Petroleum Exporting Countries (OPEC), said in a May 20 statement that there was nothing that OPEC could do to lower fuel prices.

Brendenkamp said that there is no short-term solution, but the current situation with high energy costs should motivate Congress to pass an energy bill.

"Our membership believes this to be a catalyst for comprehensive energy legislation. From a mid- to long-term standpoint, passage would really improve the current supply and demand problem we're seeing," he said.

Some lawmakers recently urged the Bush administration to release oil from the Strategic Petroleum Reserve (SPR) to boost supply and reduce prices. However, Bredenkamp said, such a move would have a negligible impact, if any, on fuel prices because the United States has only so much refining capacity.

Although the reserve is nearly at its 700 million gallon capacity, that's still only enough oil to last about a month. AFBF opposes opening the SPR for non-emergencies.

"While a national average gas price of over $2 a gallon is problematic and a pain in the wallet," he said, "it is not a national emergency. And in the event of a real national emergency, we would want to have that reserve there. If Congress really wants to do something to improve energy supplies and prices, it should pass the energy bill."