"Fuel prices have increased substantially primarily due to concerns over supply disruptions that may occur in the Middle East," says Gary Schnitkey. "These price increases have led to higher projected production costs for corn and soybeans in 2003."
Schnitkey's study, "Increases in Fuel Related Costs Lead to Higher
Production Costs," is part of the Farm Economics Facts & Opinion series and may be found online at: http://www.farmdoc.uiuc.edu/manage/newsletters/fefo03_05/fefo03_05.html.
"Diesel fuel prices are currently hovering around $1.50 per gallon, an increase of about 50 cents per gallon over 2002 prices," he says. "Diesel fuel use for tillage, planting and harvesting operations vary from farm to farm with most farms using between five and six gallons per acre. Fuel use of 5.5 gallons per acre and a $1 fuel price causes diesel fuel costs to be $5.50 per acre. An increase to a $1.50 per gallon price means fuel costs are $8.25 per acre, an increase of $2.75 per acre.
"This $2.75 increase only covers fuel for field operations. Other fuel is needed for general use and grain hauling, causing overall fuel costs to increase more than $2.75. Average increases in fuel costs are likely to be around $3.50 per acre, given that fuel prices do not decrease before the fall harvest period."
Schnitkey's study also examines nitrogen and liquefied petroleum (LP) gas prices, which have increased dramatically since last spring.
"As many farmers applied anhydrous ammonia in the fall, prior to most of the increase in price, per acre nitrogen costs for these farmers will increase less than the 40 percent increase in prices," he says. "Between February 2002 and February 2003, LP gas prices increased over 100 percent. This could indicate that drying costs will increase dramatically if LP gas prices do not decrease between now and summer."
Schnitkey said that quick resolution of the war with Iraq might lead to substantial decreases in petroleum prices.
"While LP and nitrogen prices are impacted to some extent by uncertainties surrounding the Middle East, analysts believe that price increases are due to long-term increases in demand. If this is the case, there is less chance that nitrogen and LP prices will decline dramatically with an Iraqi resolution," he says.
The online version of Schnitkey's study includes a table reflecting per acre costs for various types of tillage, planting and row-crop cultivation, and additional operations.