Will Lower Fuel Prices Help Farmers In Planting Season?

The drop in crude oil prices will only have a limited impact for farmers this growing season, as lower grain values will likely offset any savings for cheaper fuel.

Although crude oil prices are down around 50 percent from last year’s highs, diesel prices have only recently begun to fall and farmers said prices for inputs like seed and fertilizer remain elevated. With corn, soybean and wheat values down between 15 percent and 20 percent from a year ago, that’s making them think hard about what they will plant this spring.

“The lower energy prices are only a minor offset to major planting decisions,” says John Kleist, lead agricultural hedge strategist, eBOTTrading.com. “We’ll have to see if diesel prices come down, if drying costs are lower. I don’t know if it will filter down through to fertilizer, and a lot of guys have already purchased that.”

Roger Wilson, farm management and budget analyst at University of Nebraska, said how much of an impact fuel prices have on farmer’s bottom line depends on how he or she uses energy. Wilson estimated for Nebraska corn farmers who have common pivot-irrigated land, a change in diesel fuel to $2.35 a gallon from $3.25 would drop the cash cost of production to $2.84 a bushel from $2.98, about a 4.7 percent change.

 

High Input Costs

While helpful, fertilizer costs remain high and eat up a larger portion of farmer’s budgets, Wilson says. That’s having several farmers rethinking what they are planting, with many of them considering increasing their soybean planting over corn in part because of the fertilizer costs.

Larry Wuebker, who farms 880 acres in west central Iowa, says he’s going to watch the corn/soybean ratio heading into spring before he makes his final decisions.

Last year he planted half corn and half soybeans, and the year before that he planted about 70 percent corn and 30 percent soybeans. This year he’s leaning toward planting more soybeans versus corn, something his neighbors are likely to do as well.

“The seed dealers are telling us that (sales of) bags of seed corn are down and seed beans are up,” Wuebker says.

Seed prices are about the same in his area as last year, with fertilizer prices slightly higher. Land rents so far haven’t budged, he says.

Diesel prices should show some savings.

“It might take $5-$10 off an acre,” Wuebker says. “I got a contract for $2.05 (a gallon) diesel for this season. My brothers found some for $1.76. That’s almost half of a year ago.”

That’s helpful to a farmer like Wuebker, but energy costs are only a small part of the total input costs.  He uses only one to 1.5  gallons per acre.

One Kansas corn and soybean farmer, who farms about 30,000 acres, says the drop in energy prices is not making a difference for him.

“For a no-till guy like me, we are looking at something like two gallons per acre of diesel use per year- and 85 percent of that is for harvesting. So you can see that a $1 drop in fuel prices amounts to almost nothing – $2 per acre – when put in the context of $700/acre total investment,” he says.

 

Lower Grain Prices

The lower grain prices have had more of an effect on farmers than the slide in energy.

Both Wuebker and the Kansas farmer I spoke with say lower grain prices means farmers are seeing less value in “elite” corn and soybean hybrids, and many are planting more stand-by hybrids, which are more affordable.

“Some people are going to a lot cheaper seed, but there’s less technology in it. They’ll probably get a lower yield out of it,” Wuebker says.

James Lieb, who farms about 3,500 acres just north of Amarillo, Texas, says he’ll definitely save money on diesel costs and the natural gas he uses to irrigate the ground he uses to plant corn. However, he’s not sure whether or not the energy savings he’ll enjoy will offset the reduced price of grain. Still-high fertilizer prices are a big consideration for the reason to possibly plant fewer corn acres.

“I would have thought fertilizer prices would have come down with the natural gas prices falling. I was always told they used natural gas to help make fertilizer,” he says.

For the acres he plants to corn, Lieb says he might look at less expensive varieties for seed and at other brands, too, echoing Wuebker’s and the Kansas farmer’s sentiments.

“Last year I think I averaged $4.75 a bushel for corn, and I don’t think I’ll get that this year. I’d like to get that.”

Debbie Carlson has focused on commodities for much of her writing career. She spent more than a decade at Dow Jones covering the Chicago-based futures exchanges. As a Dow Jones editor, she worked closely with The Wall Street Journal and Barron's in planning commodities coverage.

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