http://www.heraldandnews.com/articles/2005/05/19/news/agriculture/ag1.txt

Feeling the pinch

May 18, 2005

Brian Holmes, a delivery driver with Ezell Suty Fuel, fills a storage tank Tuesday with off-road diesel fuel for Gene Culver at Culver's home on Reeder Road. Diesel fuel prices have gone up more than a $1 a gallon in the past few years.

By HOLLY OWENS

Klamath Basin farmers and ranchers are feeling the pinch of continually increasing fuel and fertilizer prices.

"The last six months have been the most volatile of any time that I have known," said Angela Suty, part-owner of Ezell-Suty Fuel in Klamath Falls.

"Overall it's gone up," Suty said. "Over the last three to five years it's gone up about $1 a gallon."

At the pumps Tuesday, retail diesel prices ranged from $2.29 to $2.59 per gallon in Klamath Falls. For farmers and ranchers, who pay varying prices for bulk purchases, a fill-up can range from hundreds to thousands of gallons.

"It used to be that they could stock up on their diesel during the winter months when the price was generally lower and use that fuel into the summer while the prices went up," Suty said.

Farmers and ranchers have found they can no longer rely on the advantage of seasonal price swings.

"The price of diesel has not been lower in the winter," Suty said.

Suty has noticed shifts in the fuel market over the last four years.

"Things started changing, it seems like, after Sept. 11. Things got more volatile and have continued to be," she said.

Increases in diesel prices also have altered quantities of fuel ranchers and farmers are buying. Producers are no longer buying diesel in a few large purchases, but in smaller amounts throughout the year.

"They're much more cautious when buying because the price is so volatile," Suty said.

Cattleman and farmer Luther Horsely say the fuel prices will decrease already slim profit margins on 2,200-acre operation near Midland. Horsely raises beef cattle and grows small grains such as wheat, barley and oats, and also grain hay, grass hay and alfalfa.

"I noticed it in just my employees, in just pickup gas. It's very noticeable when you see the fuel receipts just for running employees around," Horsely said.

As fuel prices go up, profit margins for producers continue to go down.

"With diesel taking such a jump and fertilizer taking a like percentage, it's going to reduce the margins that were already thin," he said.

Increases in fertilizer prices are mainly the result of climbing natural gas prices. Natural gas is a major component in manufacturing nitrogen-rich fertilizer, an essential ingredient for raising small grains and other crops in the Basin.

"Most commercially made nitrogen is derived from the reaction between natural gas, taking the hydrogen out of natural gas and the nitrogen out of the air. That makes anhydrous ammonia," said Chris Mowdry, owner of Basin Fertilizer and Chemicals in Merrill.

"The price of natural gas in North America is hovering around $6.50 to $7 per million Btu," Mowdry said.

Over the last five years Mowdry has seen fertilizer prices almost double.

"We sold ammonium sulfate in 2000 at $132 a ton. Now it's $227 a ton," he said. "Urea we sold in 2000 at $228 a ton. This year - $400 a ton."

Suppliers also are being put to the test with higher fuel prices, which affects their transportation costs.

"The price of fuel is also a contributing factor," Mowdry said. "We haul it (fertilizer) from Sacramento or Stockton. Stockton is the closest fertilizer plant to us in this area."

Most fertilizer sold through Basin Fertilizer and Chemicals is manufactured outside of the United States in order to take advantage of lower natural gas prices.

"The rest of the world - like in Saudi Arabia or Venezuela, Trinidad - tend to be warm and don't use natural gas for heat, cooking or power generation, and they have a surplus. So with North American natural gas at $6.50 to $7 per million Btu, these other places are at $1 to $2, and since this is the feed stock of the nitrogen fertilizers almost all of it is now imported," Mowdry said.

"That's putting our American food supply at risk - just like oil."

In an effort to combat price increases in his operation, Horsely is looking at ways to maximize yields from his crops and increase efficiencies in his operation, an ongoing endeavor for any farmer or rancher.

"It's hard to be more efficient when you've been trying to do that for several years," he said.

Horsely is getting help for improvements through the Environmental Quality Incentives Program with the Natural Resources Conservation Service and is looking at a no-till drill project through the Klamath Soil and Water Conservation District.

"I've been putting in some more advanced sprinkler systems with EQIP money," Horsely said. "Which will make the system more water efficient and help improve yields."

Horsely also is signed up to use the conservation district's no-till drill which can help with both water conservation and fuel reduction.

"That will help with moisture and hopefully a lot of fuel," he said. We're "doing it on a real small scale and just trying it out."

Horsely is getting a little help from recent rainy weather with at least one of his crops, hay and alfalfa, something he hopes will help offset increasing fuel and fertilizer prices.

"I've never seen it grow so fast. It's beautiful. But the rain is putting us back on our planting schedule," he said. "Hopefully we'll see some better hay prices this summer that will help make up for it."