Association Perspectives

NAWG Urging Emergency Farm Energy Assistance

Increased cost of energy will dramatically affect producers’ bottom line

Farmers are faced with skyrocketing prices for two of their critical high-volume inputs in the wake of Gulf Coast hurricanes and other energy market pressures.  Fertilizer costs have gone up by double digits, and for the first time since the Great Depression, a gallon of diesel fuel is more expensive than a bushel of wheat.

Farmers face this impact uniquely because, unlike any other participant in the food chain, they have no ability to pass along these costs in the form of surcharges.  In fact, farmers end up paying increased fuel costs to get goods delivered to their farms, and pay fuel surcharges to get their goods to market – in short, they pay everybody else’s fuel surcharges in addition to their own increased costs.

One typical farmer is Dale Schuler of Carter, Mont.  Schuler is a professional farm businessman and family farmer, and the 1st vice president of the National Association of Wheat Growers.

Schuler’s per-acre fuel and fertilizer costs have averaged $31.02 over the past 10 years, but have exceeded that in each of the past three years. He estimates fuel and fertilizer costs are 52% higher in 2005 than the 10-year average.

Diesel fuel prices (See chart at right) have also skyrocketed. Hallock, Minn. farmer Ron Anderson estimates that his diesel fuel costs have increased 54% since 2004.  Higher diesel prices mean it now costs about 12% more per hour to run a tractor than it did last December, said Bill Lazarus, an extension economist, who does an annual study of what it costs to own and operate farm machinery. Lazarus said the cost of all field operations is up about 4% because of higher fuel prices.

To compound matters, additional financial pressure will be felt from rising crop chemical prices and transportation costs. This fall a fuel surcharge has been added to railroad freight rates, which affect the prices that local elevators can pay producers. Paul Johnson, a MAWG board member from Hallock, points out that the higher energy costs affect other sides of the farm business too, such as custom application costs which have gone up because of the increase in fuel prices. 

A report produced by Washington State University tabulates fuel price increases at 67% from last year, and fertilizer price increases at 20-23% for wheat growers in eastern Washington. Coupling the energy and wheat price changes from September 2004 to September 2005, the WSU study shows a farm earning a 2¢/bu return in 2004 will lose 35¢/bu in 2005.  On a 2500 acre farm with 60 bushel yields – both numbers are conservative for eastern Washington – that’s a loss of $150,000 in 2005.

An average northwest Minnesota spring wheat farmer will realize a $22/acre increase in production costs from climbing fuel, fertilizer and chemical prices , according to estimates using the Northland Community College Farm Business Management farm financial information.  These costs represent 115% of the five-year average net income from wheat production, resulting in a $3/acre loss.

“Fertilizer costs have gone up significantly, and that’s really going to impact the bottom line of the farmers more directly than the cost of the fuel that’s put in the tank,” says Jim Kurtz of the U of M Worthington Extension Regional Center. Anhydrous ammonia, which is used as nitrogen fertilizer, has soared to over $500 per ton in comparison with $385 last year. Urea, a granular form of nitrogen fertilizer is over $300 per ton today, while it sold for $248 per ton last year. 

The NAWG is pointing out the need for federal farm energy assistance.  Since wheat and corn production use nitrogen and oil intensively, the recent increase in fuel prices will have a significant impact on farm income and the farm economy.  The NAWG urges wheat growers to contact their Congressional representatives to give their own accounts of the impacts of high fuel and fertilizer costs.  A message can be sent through NAWG’s Legislative Action Center, online at http://capwiz.com/wheatworld/home .   You may use the letter provided, or edit it to include your personal story.