Association Perspectives:

Energy Bills Relevant to Farm Bill, Trade Bills

In the short term, the farm energy situation provides impetus to validate another double AMTA. Over the long term, the issue may weigh heavy on American agricultural competitiveness.

There was an article in the January issue of the National Sunflower Association’s Sunflower magazine detailing how producers in the High Plains are moving toward limited irrigation management. Less water is becoming available for irrigation from the slowly depleting Ogallala Aquifer, which sits beneath eight High Plains states. As well, the rising cost of energy has made pumping water more expensive—natural gas, widely used for irrigation, has about doubled in price over the past year.

The Colorado producer featured in the article compared the cost of irrigating—about $3/acre for flood irrigation in the 1970s, compared to about $50/acre now—and pointed to what might be an even bigger threat to the viability of irrigation in the High Plains than the water itself. “I think energy costs could get us before the depletion of water,” the producer said.

It’s a telling quote. While a low market price often take center stage as villain behind the farm problem, it has an equally villainous twin—the rising cost of inputs. Most noticeable the past two years has been the rising cost of energy.

In this issue of Prairie Grains (page 24), one area producer points out that he expects his cost per acre this growing season to go up about 40%, and that the higher cost of energy may affect everything from fertilizer, fuel, and drying costs, to the cost of hauling grain and a wider market basis. Higher fertilizer costs may also affect the nation’s crop production, shifting acres away from corn and over to soybeans, which require less nitrogen.

The fact that cropping systems across the nation may be distorted by input prices should serve as a red flag for federal lawmakers.

In the short term, the farm energy situation provides impetus to validate another double AMTA (Agricultural Market Transition Act) payment to crop producers this year. Because not only must producers contend with another year of poor commodity prices, but also higher production costs—two financial variables that producers would be hard-pressed to manage otherwise.

The farm energy situation must also be addressed in federal policy over the longer term. Syndicated columnist Alan Guebert pointed out in an article in the January 12 Farm and Ranch Guide (headlined “Rising anhydrous prices point to deregulation woes, crop shifts”) that the U.S. imports six times more anhydrous than it exports, according to figures compiled by The Fertilizer Institute, http://www.tfi.org ..

Further, while no new anhydrous-making plants have been built in the U.S. for 25 years, American fertilizer companies have invested hundreds of millions of dollars in state-of-the-art anhydrous production plants in Latin and South American countries like Trinidad, Venezuela, and Argentina, according to the TFI.

Guebert points out that in the unregulated U.S. natural gas market, today’s spot prices hover around $9 per million Btus. In Latin and South Americas’ tightly controlled, government-regulated natural gas markets where anhydrous makers are shifting production, natural gas prices hover between 25 cents to $1.25 per million Btus. “That price differential gives those foreign farmers another production advantage over American farmers,” he says.

Thus, the cost of energy for the American farmer is a key competitive trade issue as well. Should the U.S. government seek ways to not only stabilize commodity prices, but farm input costs? Is more oversight needed to protect energy-dependent industries such as the farm sector? Should measures be sought to prompt the U.S. to become more adoptive of alternative fuel sources such as ethanol and biodiesel? These questions are critically relevant as future domestic farm and international trade policies are debated.

“Association Perspectives” represents the views of the North Dakota Grain Growers Association, South Dakota Wheat Inc., Minnesota Barley Growers Association, and the Minnesota Association of Wheat Growers, which publishes Prairie Grains along with the Minnesota Wheat Research and Promotion Council.