High gas prices hamper farmers, ranchers

Economist doesn't see much relief in future Published Sunday, March 23, 2003 Last modified at 12:45 a.m. on Sunday, March 23, 2003 By Robert Pore rpore@theindependent.com

With the nation at war and gasoline prices significantly higher than a year ago, an agricultural economist at the University of Nebraska-Lincoln doesn't see much relief from higher fuel costs in the near future.

Among those dealing with the increased fuel prices are the state's farmers and ranchers, many of whom are already reeling from the effects of drought and low commodity prices.

UNL ag economist Roy Frederick said the national average for regular gasoline prices reached a record high of $1.73 per gallon in mid-March. Prices are about 40 percent higher than last year at this time, he said.

Although gas prices have dropped a few cents in the state in the past week, prices in most Nebraska markets remain higher than a month ago and a year ago.

AAA Nebraska's Daily Fuel Gauge Report showed Grand Island prices for regular gas averaging $1.67 per gallon on Friday, compared to $1.65 last month and $1.39 a year ago.

Frederick said many factors have contributed to recent price hikes, including a petroleum workers' strike in Venezuela, the war in Iraq and operating problems at some U.S. refineries.

"More fundamentally, we must acknowledge our ever-growing dependence on foreign oil," he said.

Frederick said the U.S. Energy Information Administration recently estimated this year's domestic demand at just more than 20 million barrels per day. Of this total, less than 6 million barrels are expected to come from domestic production.

"Never before has the gap between usage and production been so wide," he said.

By comparison, Frederick said worldwide petroleum demand this year is estimated at 77 million barrels per day. He said the United States, a country with 4 percent of the world's population, accounts for 26 percent of the worldwide petroleum market.

"Even a 10-percent disruption in supplies probably would cause gasoline and other energy prices to spurt much higher," he said.

Frederick said the Organization of Petroleum Exporting Countries, led by Saudi Arabia, produces about a third of the world's oil.

"OPEC is promising to make up any lost production from Iraq and Kuwait," he said. "And in recent days, Saudi Arabia has ramped up production with that thought in mind."

But for American consumers, ags occur from production to filling a vehicle's gas tank, Frederick said.

"For one thing, it takes at least a month for an oil tanker to make the trek from the Middle East to the U.S. Gulf Coast," he said. "Figure on another month to move imported oil through refineries and distribution systems. This suggests that it will be late May before gasoline shortages begin to ease."

Higher fuel costs are hurting Nebraska farmers and ranchers, who have struggled during recent years with drought and low commodity prices.

This spring, Nebraska corn farmers will invest more than $2 billion in the upfront cost of putting the 2003 corn crop in the ground, according to the Nebraska Corn Board.

Unfortunately, said Don Hutchens, Nebraska Corn Board executive director, fertilizer and fuel costs have skyrocketed at the worst possible time, which may cause more economic hardship for farmers.

He said anhydrous ammonia fertilizer, used on most crops, is produced using natural gas as a feedstock, which has increased by 50 percent since last fall. Hutchens said anhydrous ammonia is not only in short supply but also costs farmers 25 percent to 35 percent more than it did in November 2002.

The other primary input cost for farmers is fuel. Gasoline prices have increased nearly 25 percent, diesel 30 to 35 percent and propane 43 percent from last fall's prices, according to surveys taken by the Nebraska Corn Board.

"Unfortunately, farmers do not have the ability to pass these increased costs on to consumers, and consumers in the U.S. are the cheapest-fed population in the world," Hutchens said.

Frederick said that, if the war in Iraq doesn't go well for the United States, energy costs will be a problem.

"We are increasingly dependent on others, and when we are, we have to expect these spikes to occur from time to time," he said. "If the solution is not petroleum or oil, maybe it is ethanol. But we have to recognize that, when we are that dependent on others, we are going to have some problems."