Uncertainty fuels price hikes

By Janet Kubat Willette

Farmers have cut their fuel requirements by half in the past 30 years, but they will still feel the sting of higher petroleum prices.

Crude oil prices have set record highs in the past weeks, topping $50 a barrel, sending gasoline, diesel and propane prices higher.

Oil prices are higher in spite of the fact that more oil is being pumped, said Mike Derickson, CHS manager of refined fuels marketing and operations. Strong demand -- both in the United States and throughout the world, especially China -- coupled with uncertainty in the world keep pushing the price higher, he said.


"There's a lot of us that believe there will be an adjustment down …; there are a lot of experts out there that believe we will see $60 a barrel," he said.

Demand for distillates in the United States is up 7 percent, Derickson said, and gasoline demand is up 1.5 percent ot 2 percent. That's an indication of a strong economy, he said.

Petroleum costs impact every part of the U.S. economy, he said, and petroleum has a unique place in the role of how the economy works.

But energy costs make up a relatively small percent of farmers' input costs, he said, tying seed costs for ninth place.

Farmers have switched to reduced tillage, herbicides rather than cultivating and larger, more energy-efficient diesel tractors to trim their energy costs, said Doug Tiffany, an agricultural economist at the University of Minnesota.

The prevailing higher fuel costs will lower farm incomes to a certain degree because farmers will have to spend more cash for their fuel, he said. However, indirect costs may be even greater as farmers pay more for all sorts of inputs requiring energy in their manufacture.

Natural gas prices have risen to higher levels in recent years, resulting in higher costs for nitrogen fertilizer and also increasing the cost of producing ethanol, crushing soybeans and processing milk. These increased energy costs will eventually be passed on to consumers by processors.

"On a brighter note, alternative fuels such as ethanol and biodiesel are more competitive as substitutes with petro-based fuels," Tiffany said.


Farmer-investors in ethanol plants typically receive higher dividends during times of high gasoline prices and lower corn prices, he added.

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