Ag sector welcomes low diesel prices

25 Jan 2015 | Author: | No comments yet »

AP NewsCattle rancher Randy Cree fuels a tractor at his farm west of Lawrence, Kan. WICHITA, Kan. (AP) — The recent plunge in fuel rates has been a welcome relief across the agricultural sector, assisting ease the pain of low grain costs for growers and boosting profits for cattle ranchers.

This has raised some international economic concerns, but in the United States, it has meant cheap gas for consumers, as well as a godsend for the agriculture sector, as it continues to deal with low grain profits as a headwind. And with average retail gas prices for 2015 forecast to be about $1 lower than last year, farmers this spring might end up planting extra energy-intensive crops, such as corn or rice, as the expense to irrigate and cultivate drops. And it looks like farmers may interestingly be turning to rice, corn, and other “energy-intensive” crops, as gas prices may fall by another $1 in 2015. Shoppers should not anticipate to see lower costs at the supermarket, for the reason that transportation fees constitute only a small slice of these costs.

Still, that may not redound to lower prices of foodstuffs; as transportation costs are only a minor variable in the grander scheme of things, it may take quite a while before savings in the agricultural space are passed on to supermarket customers. This is important, as road taxes can jack prices up by about 15 percent or so; diesel not being taxed makes up for its being about 20 cents per gallon more expensive at the pump. But with the nearby cost of untaxed diesel and common gasoline both under $two a gallon, Cree plans to entirely fill the two 300-gallon and one particular 200-gallon tanks. Analysts have forecast that on-road diesel may cost about $1.86 per gallon in 2015, or close to a dollar less than the $2.81 per gallon average last year.

The additional savings could urge farmers to plant more power intensive crops, including rice or corn because the irrigation and cultivation prices fall as a direct result of a drop in fuel prices. Each time he harvests his hay, his tractor should make 3 trips more than every single field — 1 to mow it, a single to rake it, and an additional to bale it. “We are hoping that for the initially time in a lengthy, extended time to have the burden of higher fuel costs off our backs — so we can maybe make a tiny bit of income this year,” Cree mentioned. Lower power rates raise planted acres for most key row crops and drop the price tag of the commodity, according to an April 2014 federal study on the impact crude oil prices have on agriculture.

The price of food at both restaurants and grocery stores is predicted to go up 2 to 3 percent in 2015, according to agricultural economist Annemarie Kuhns with the Agriculture Department’s Economic Research Service. Any fuel savings will go toward the bottom line, he mentioned, and will aid maintain his farm totally staffed with 25 full-time workers and 150 seasonal workers. “1 of the things that is truly fascinating about vegetable production is that you have years that you make income, and you have years that you drop cash,” he stated. “Almost certainly 25 percent of overall price is associated to fuel.

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