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Fill up now or hold out for lower prices?

Agriculture.com Staff 09/11/2006 @ 12:02pm

You can't decide. Flipping a coin, lying awake, talking to neighbors, just nothing works.

Should you call your fuel distributor and have your farm fuel tanks topped off before harvest, or will energy prices decline and let you benefit from procrastination?

Fall is your heaviest energy consumption period of the year. Harvesting. Grain hauling. Grain drying. Fall tillage. Anhydrous application. The University of Missouri Food and Agricultural Policy Research Institute (FAPRI) last week issued a brief forecast about energy costs, primarily based on the federal government's Energy Information Administration.

The FAPRI report, Fertilizer and Fuel Outlook for Fall 2006, confirms what you already knew that fuel prices are high.

"For 2006, the agricultural sector is looking at a fourth consecutive year of double-digit percentage increases in diesel costs for harvesting and hauling as well as increases for propane and electricity costs for drying grain," according to the report. Specifically, that means 10% above last year and double what you paid four years ago.

The report indicates the price you are currently paying for diesel fuel -- probably in the $2.70 range -- is what you should expect for the balance of the fall. Statistically, 60% of your fuel use for corn production is at harvest time, and fuel makes up 14% to 21% of the variable cost of producing a crop.

Natural gas prices are easing upward and FAPRI's analysis indicates the increases will continue into next spring. You will likely compare this winter's expense to last year, which is not really fair because of the mild 2004-2005 winter that helped you saving on heating bills. Nevertheless, FAPRI says a 10% increase over last year can be expected for natural gas. That would make it 70% more than four years ago.

If you remember your high school chemistry class, ammonia has a couple small hydrogen atoms and one huge nitrogen atom. That means 80% of the cost of anhydrous ammonia can be attributed to the production of nitrogen from natural gas.

"The current outlook for natural gas prices for 2007 would indicate a slight decline. Current anhydrous ammonia costs are in the $435 to $450 per ton range and are holding relatively steady to slightly lower than last year," the report says. "The cost of drying grain will also be slightly more expensive for producers this fall as propane prices are running 10 to 20 cents per gallon above 2005."

When you turn the calendar into next year, FAPRI says, "The current outlook for 2007 indicates variable costs should be flat to slightly declining as lower fuel, natural gas, and fertilizer prices are anticipated. This is supported by the short-term August 2006 outlook provided by the Energy Information Administration (EIA) and by futures markets and spot cash markets."

Analysis from FAPRI puts an asterisk on that forecast, by saying there will be continued volatility in energy markets and individual producer costs will vary from any published averages.

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