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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.
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 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.
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