Surging prices for oil and natural gas are causing concerns for farmers this spring planting season, says Lori Wilcox, analyst with the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri.
"Per acre costs for fuel and fertilizer for growing corn could be up 15-19%from 2004," Wilcox said. "Fuel and fertilizer costs this year could range from $60 to $103 per acre." Cropping practices, application rates and contracts made last fall can affect these figures.
Oil prices raise the cost of gasoline and diesel to power farm tractors. Rising natural gas prices affect the manufacture of fertilizers, especially nitrogen, which is derived from the gas.
A soybean crop requires fewer inputs with fuel and fertilizer costs per acre ranging from $23 to $34 per acre, Wilcox says. Soybean production generally requires less fuel per acre. In addition, soybean plants, a legume, fix nitrogen from the air, mostly eliminating the need for that fertilizer.
Fuel and fertilizer production costs for wheat now range from $34 to $43 per acre, an expected increase of more than 14% from 2004.
On a per bushel basis, the increased costs could be from 8 to 9 cents per bushel for corn, 10 to 12 cents for soybeans, and 8 to 13 cents for wheat. That is the price increase required to offset the increases in fuel and fertilizer over 2004, assuming normal yields, Wilcox says.
"The current outlook does not include any relief from higher gasoline and diesel prices," she says. "Projections for April through September are for retail prices of $2.28 per gallon of gasoline and $2.24 for diesel."
Many reasons can be cited for current high prices, Wilcox says. High world demand keeps ahead of growth in OPEC supplies. There is diminished capacity for crude oil production. Increasing freight rates add to the costs.
Finally, continued insurgency in Iraq and political unrest in Nigeria and Venezuela add to the problem.
For fertilizer, the increases and volatility of prices for natural gas have far surpassed those for gasoline and diesel, Wilcox says. Adding to the problem is closure of U.S. nitrogen fertilizer manufacturing plants.
"Over 20% of domestic production capacity for nitrogen fertilizer has been lost since mid-2000 due to permanent plant closings," Wilcox says. "This result is increased dependence on fertilizer imports,"
The Fertilizer Institute, in testimony before Congress, cited volatility in U.S. natural gas prices for the nitrogen plant shutdowns.
The global outlook for fuel demand and supplies this spring is tighter than energy analysts predicted in December. "Based on these assumptions, our January 2005 FAPRI baseline projected modest increases for fertilizer and fuel costs for corn, soybeans and wheat for this year," Wilcox says.
Costs of nitrogen from ammonium nitrate, a dry fertilizer, are even higher than prices from anhydrous ammonia, a gas fertilizer.
Even before the recent price increases, some dealers stopped stocking ammonium nitrate. This spring, some dealers reported shortages of anhydrous ammonia.
Wilcox notes that the fuel costs are for production, not for hauling and drying of the crop.
The report, "Fertilizer and Fuel Outlook for Spring 2005," is on the Internet at http://fapri.missouri.edu.
MU FAPRI provides farm outlook and agricultural policy analysis for the U.S. Congress. The fuel and fertilizer is a new addition of the FAPRI analysis.