Wheat Growers Set Fuel Surcharge

(A headline we’d like to see)

Imagine CNN or the Wall Street Journal reporting this news item:

America’s wheat growers today announced a new fuel cost surcharge that would be applied to sales of wheat, amounting to 15¢ per bushel, assessed at the point of first sale.  This charge is designed to offset the cost increases for nitrogen fertilizer and diesel fuel used on the farm, fuel surcharges for delivery of goods to the farm, and fuel surcharges to farmers for shipping wheat to market by railroads, barges and trucks.

“Everybody else in the marketing chain is passing fuel surcharges on to their customers, so we had to follow suit or risk picking up the tab for everybody else’s fuel surcharges,” said a spokesman for the National Association of Wheat Growers.

This tongue-in-cheek, “don’t we wish” daydream of a news brief (issued by the NAWG around April Fools Day) is to point out the obvious – that producers do not have the ability to pass along higher energy costs. Like BNSF Railway, for example, which recently announced that it will increase its fuel surcharge effective May 1 from 8% to 10%.

Others in the grain industry have complained all the way to state and federal lawmakers that BNSF is price gouging.  This is denied by BNSF, though the controversy likely played a part in the railway’s recent announcement that it will begin assessing U.S. fuel surcharges on a mileage basis, rather than as a percentage of the freight bill (a change put off until Jan. 1, 2006).

Rising energy costs are fast becoming a key competitive issue for American crop producers.  And it doesn’t figure to wane anytime soon. In fact, it may get even worse. The International Monetary Fund reported this spring that the outlook for tight supplies combined with China’s growing demand for petroleum will keep oil prices volatile through 2030, with the possibility of spikes as high as $100 a barrel.

Hopefully by then, however, renewable fuels will be the norm, helping to stabilize and support grain markets, and lowering our energy dependency. In the short-term, however, federal lawmakers need to realize the foresight in maintaining a farm program that helps provide farm income stability in an era of increasingly unstable markets and costs. 

Change the Crop Insurance Signup Deadline
More and more crop producers are selecting crop revenue plans over yield-based plans.  Last year in Minnesota, for example, while Actual Production History (APH) was the top plan in policies sold, Revenue Assurance (RA) was the top policy in acres insured.

February prices are factored into the revenue plan formulas, finalized in early March. This has crop insurance agents and farmers scrambling to make sense of their options by the March 15 signup deadline for federal crop insurance.

“Agents and farmers wait for the volatility factors that determine what the premium will be, which determines which plan the farmer wants,” fumes one farmer/agent. “We have only about a week to get new farmers signed up or to make changes. That is insane!”

Hasty analysis and decisions not only isn’t prudent risk management, it increases the likelihood for mistakes, at the same time that federal policy rules and penalties have stiffened to assure that acreage is reported timely and accurately.

A National Association of Wheat Growers resolution for 2005 is “a crop insurance sales closing date that more accurately reflects the season in the area in which the crop is planted.”  It should be noted too that in Canada, the crop insurance signup deadlines for spring crops in the key grain-growing provinces was moved five years ago from March 15 to March 31. It makes sense as well to move the signup deadline for spring crops in the U.S. from March 15 to March 25 or March 31.