Rising Fuel Prices Could Mean Higher Costs for Producers, Consumers

Rising fuel prices could mean higher costs for producers and eventually consumers, said a Texas A&M AgriLife Extension Service economist.

Dr. Mark Welch, College Station, said he saw indications of fuel prices bottoming out late last year. And since January, there have been signs of overall inflation within the economy.

Higher fuel prices will mean an increase in input costs for farmers who are preparing land and planting 2017 crops, Welch said. It will also likely mean higher costs for irrigation, fertilizer and chemicals that aid optimum field production.

He said the concern is what higher fuel prices will mean not only to production budgets but the overall costs of producing, shipping and storing commodities.

“It goes beyond the diesel in the tractor and gas in the truck,” Welch said. “When fuel prices are high, it costs more to make things and move them. It affects food prices. Everything is tied closely to energy.”

Direct fuel costs today make up a small portion of production budgets, Welch said. Farm equipment is more efficient in fields, covering more acres or doing more in a single pass.

Diesel and gasoline fuel costs amount to around $6 to $8 per acre for a typical dryland grain sorghum or cotton crop, according to AgriLife Extension-based budgets, Welch said. The cost of fertilizer is around $12 to $20 per acre, twice the cost of fuel.

For irrigated crops, direct gasoline and diesel are little changed but fertilizer increases to $50-$60 per acre and irrigation fuel adds $40-$50 per acre.

A larger impact for producers is how fuel prices can impact other costs, such as fertilizer, Welch said. Fertilizer prices are low now, but about 75 percent of the cost associated with producing anhydrous ammonia, a commonly used fertilizer, is natural gas.

Typically, there is a lagged commodity price response at market to fuel prices and other increased costs on the input side, Welch said.

“It can make things difficult for producers when commodity prices are falling and costs continue to rise,” he said.

AgriLife Extension district summaries can be found here.

Source: Texas AgriLife Extension

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