With crude oil prices reaching the $50-plus per barrel mark last week, Louisiana farmers are facing an unsettling outlook for energy and other inputs as they look ahead to the 2005 growing season.
At this point, farmers have absorbed a barrage of price increases, mainly for fuel to run combines, cotton pickers and cane cutters. In its latest farm prices report, the United States Department of Agriculture estimated the average nitrogen price for September was up 51 percent from two years ago, with diesel fuel up 33 percent and LP gas up 68 percent.
The crude oil market, which has seen some of the steepest increases ever, also is awash in some of the largest uncertainties. That means farmers will have a tough time putting a pencil to next year’s planting intentions.
“It all comes down to the ratio of input costs to potential profit,” said Ron Harrell, commodity director
for the Louisiana Farm Bureau. “Despite some good yields, countered by average prices, farmers know that fuel and fertilizer costs will be their most expensive input costs. Where they draw the line at acres planting will depend heavily on what those numbers are come spring.”
The conflict in the Middle East, combined with strife in other oil producing countries such as Venezuela, has kept crude prices at record levels. Some analysts feel the high price of a gallon of gas, averaging roughly $1.82 across Louisiana last week, may be with us through the spring. These issues, combined with an escalating global demand for oil by developing countries like India and China, will do little to curb the world’s appetite for fossil fuels.
“Those economies are developing faster than anyone predicted,” he said. “For countries with cheap labor, higher fuel prices aren’t as important as meeting production schedules. These countries are churning out production and their energy demands are putting pressure on energy resources around the world.”
Harrell projects that 2005 costs for fertilizer, seed, chemicals, diesel and drying fuels could be up an average $15 per acre from 2004.
“Producers can sometimes moderate the impact of higher fertilizer prices by cutting back on usage rates, but that’s less feasible for seed and chemicals,” Harrell said.
The nitrogen fertilizer outlook continues to be undercut by the natural gas crisis, which started in
mid-2000. Fifteen nitrogen production facilities, representing more than 22 percent of U.S. capacity, have permanently closed with other nitrogen fertilizer production facilities idled by the volatility of U.S. natural gas prices. Natural gas is the primary feed stock in nitrogen fertilizer production.
“It used to be that Mother Nature was the biggest concern among farmers,” Harrell said. “But right now it’s the cost of putting seed in the ground. What happens over the next three months will likely determine whether Louisiana farmers put in the same number of acres as this year.”
(Aaron Duhon is president of the Lafayette Parish Farm Bureau.)