Spring 2015 Logan County
Farm Outlook Magazine

Will lower fuels costs make farming profitable in 2015?
By Nila Smith

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[April 09, 2015]  On the farm every cent matters. This year, we are seeing falling fuel prices, and to a certain extent those prices will benefit the Logan County Farmer, but perhaps not in the most obvious of ways.

Right now, gasoline and diesel prices are a dollar or more per gallon below the fall of 2014. Obviously this has to be of benefit to the farmer in running tractors and combines at planting time. But, on the whole, fuel costs are just a small percentage of the big picture on the farm.

Liquid petroleum prices in 2013 were insanely high, and thankfully those prices dropped back to a more reasonable range in 2014 making for less expense incurred when drying grain. But, was this really a reduction in cost, or was 2013 an escalation of costs? Most farmers would consider it an escalation that made the pain of a poor crop even all that harder to bear.

According to University of Illinois Extension Ag Economist Gary Schnitkey, fuel burned in tractors, trucks, and combines, does not equate to a high enough percentage of the total cost of production to make much of a difference.



In an issue of Farmdoc magazine Schnitkey spelled it out more completely. “Fuel and lube costs in 2013 were $24 per acre for growing corn on high-productivity farmland in central Illinois. Fuel and lube accounted for 4% of the $615 of non-land costs associated with corn production.

Current crude oil prices are roughly at the same level as occurred in 2010. In 2010, fuel costs for corn equaled $17 per acre. If 2015 fuel costs equal 2010 costs, an $8 per acre reduction will occur in fuel and lube costs. Overall, that would reduce non-land costs by 1.3%.”

However, lower fuel prices can affect the cost of fertilizers and chemicals in the future.

In an article published in Agriculture.com Schnitkey noted, "Declines in fuel costs could lower other production costs, such as fertilizer and seed. If there is an impact, these costs likely have a lagged relationship to fuel costs. As a result, crude oil price decreases likely will be felt not in 2015, but in 2016 and years thereafter if price decreases persist.”

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Often this is the case with Ag related products; a good year in the field, coupled with reasonably good prices, will start a domino effect that brings in higher fertilizer and seed costs in the next cycle. A bad year can bring price reductions.

On the flip side, when petroleum prices fall, statistics show that ethanol consumption decreases, causing a surplus and creating a lack of demand for corn. The cycle continues on with less demand for corn, it is devalued further. So what is saved could also be lost.

Right now, economists predict crude oil is going to stay possibly well below $100/barrel throughout most of 2015. The fact is, they don’t have a crystal ball, and they can’t know anything for certain. What we do know though is that on the farm, it will take at least 12 months before lower crude prices have a significant effect on profitability.

 

Read all the articles in our new
Spring 2015 Logan County
Farm Outlook magazine

Title
CLICK ON TITLES TO GO TO PAGES
Page
2014 Year in Review 4
The year producers won the battle 7
How GMO regulations affect exports 9
GMOs and Biotechnology: Facts and Fiction 13
What are the impacts of last year? 16
Using corn storage as a hedge 20
Is fall tillage really necessary? 23
The cost of corn-on-corn 30
CASH RENT:  The Great Equalizer 34
Lowering your costs may increase your risks 37
Will lower fuels costs make farming profitable in 2015? 39
Mr. Allen and the Mount Pulaski FFA, a natural fit 40
Ag Scholarships 44
2014 County crop yields 52

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