Higher gas prices hit farmers

www.zwire.com 03/20/2003

Cries for energy independence helps ethanol cause, unless another renewable source grabs market.

COLUMBUS - One impact Americans have felt with a looming war with Iraq has been an increase in gas prices.

Gas prices are currently averaging $1.68 a gallon - a 54-cent increase from this time last year.

"Probably the biggest economic impact we would see with a war with Iraq would be sustained high gas prices," said Matt Roberts, Ohio State University agricultural economist.

Ag impact. With natural gas prices following suit, it could mean higher-priced fuel and fertilizers for farmers, Roberts added.

Roberts said the United States imports more natural gas than it once did. Because natural gas is the primary feedstock from which anhydrous is made, that has some potential to impact farming profitability this year.

"I don't think this is shaping up to be a year like 2001 where there was a gross anhydrous shortage, but those gas prices will stay higher," Roberts said.

"We may see a slight shift from corn planting to soybean planting because corn production requires higher input costs."

Venezuelan card. The other piece to the crude oil price puzzle is the political unrest in Venezuela that has substantially reduced the flow of petroleum products.

Venezuela is the United States' third-largest oil exporter, behind Mexico and Saudi Arabia.

"Venezuela pretty much shot itself in the foot with this situation," said Roberts. "Many of our refineries were built to process Venezuelan oil, but they have had to alter their processes and it has made them less efficient."

Boost for ethanol? Carl Zulauf, an Ohio State agricultural economist, said that another impact a war with Iraq could have would be a renewed emphasis on U.S. energy independence.

This would result in the increased use of alternative fuels like ethanol and biodiesel, crop byproducts.

"In the short run, this is probably good for U.S. agriculture, in particular corn producers because of increased demand for ethanol," said Zulauf. "In the long run, the impact could be more problematic if some other source of alternative fuel emerges that displaces the demand for ethanol."

Roberts said in the past year, since harvest, ethanol has "been a savior to the corn market" because corn exports have been very weak.

Ethanol production has exploded over the last six months, to the point where ethanol is consuming around 8 percent of American corn production, said Roberts.

Biodiesel in the news. Biodiesel, another renewable fuel, is also making headlines in U.S. energy production.

Last March, the Minnesota legislature passed a law mandating a 2 percent inclusion of biodiesel into the state's petroleum diesel supply beginning in 2005.

Minnesota is the first state to require the addition of biodiesel in commercial diesel supplies.

Tax incentives. More recently, a bill was introduced to the U.S. Congress that would give biodiesel the same tax incentives that ethanol currently receives.

"Much of the tax incentive for ethanol is because it is exempt from the highway excise tax, but it has begun to impact the budget of the interstate highway system," said Roberts.

"If biodiesel is exempt from those same taxes, concerns are being raised that as the production of alternative fuels increases, it will seriously impact that budget and the money is going to have to come from somewhere."

More emphasis on alternative fuels, however, would provide support for farm prices.

"Over the course of the year, my feeling is that national prices have been a dime higher because of increase in our ethanol production," said Roberts