Energy costs gobble up yieldsFarmers see profits diminished by...

Energy costs gobble up yields
Farmers see profits diminished by rising prices
By CHRISTOPHER DOERING
Reuters News Service

WASHINGTON - Dee Vaughan, a 47-year-old Texas grower, has planted corn every year since he started farming in 1978, but he may finally be running out of gas.

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"We're sitting on a time bomb," said Vaughan, a former president of the National Corn Growers Association.

"If we see (natural) gas prices stay up in the $8-9 range, we may not grow any corn in our area. We may have to grow less energy-intensive crops."

Vaughan has watched as energy costs on his farm doubled during the last five years, prompting him to cut labor, renegotiate land leases and switch to no-till farming in order to save money.

This year, the overall energy cost for one acre of corn on his farm is expected to run about $150 — a figure that includes tractor fuel, natural gas-based fertilizers, corn-drying and irrigation costs.

The energy cost would have been as much as $180 without quenching rains that reduced the need to irrigate.

"The first time we have a major drought ... we're going to be in trouble," Vaughan said of his 3,000 acres of corn.


Hurting harvest
This year alone, energy costs for most farmers are expected to jump at least 30 percent and could soar even higher as farmers shell out more for fertilizer, gasoline and diesel fuel, according to the Washington-based American Farm Bureau Federation.

Robert Young, chief economist for the Farm Bureau, the nation's largest farm group, estimated that energy bills this year for corn have risen to about $130 an acre, $57 for wheat and $46 for soybeans.

"As we go out to to do our farm meetings ... (energy is) probably the No. 1 issue that comes up right now," said Young.

"The real question becomes: How long do we stay at $70 oil?"

U.S. crude oil futures and gasoline futures set records last week after Hurricane Katrina crashed into Louisiana, Mississippi and some other parts of the Gulf Coast. Prices have since eased on federal government plans to loan emergency crude oil to refiners and to obtain gasoline supplies from Europe.

Farmers are already in the midst of this year's harvest, with diesel used to operate most farming equipment. Since last year, diesel prices have jumped 72 cents to $2.59 a gallon, the Department of Energy's statistical arm said.

But economists caution that while farmers may have little choice but to pay up to harvest their crops, the real impact could come later when growers decide what crops they will plant next year and how much fertilizer they will purchase.


Fertilizer component
Natural gas is a key component of nitrogen fertilizers used by farmers. Natural gas also is used to run equipment that dries harvested grain and irrigates crops.

"If we assume that energy prices will continue to be high all the way through the time people make decisions for next year, we can expect there to be fewer acres of commodities that are very intensive in the use of energy," said Pat Westhoff, an economist at the University of Missouri's Farm and Agriculture Research Policy Institute.

The biggest U.S. cuts in plantings could come in cotton and corn, which are especially dependent on nitrogen to enhance plant growth and yields. Farmers could shift to soybeans, which are less dependent on fertilizer.

The U.S. Agriculture Department forecast farmers in 2005 will harvest 10.35 billion acres of corn, down from a record 11.81 billion a year ago. Cotton is expected to drop to about 21.29 million 480-pound bales, a decline of 8 percent from 2004.

The USDA Wednesday provided the latest evidence that higher energy was beginning to take its toll on the pocketbooks of U.S. farmers.

Production costs are expected to jump $9 billion this year with much of that increase tied to a 24 percent rise in energy costs during the first half of 2005.