NEW YORK: Farmers worldwide are feeling the pinch as fuel costs rise to near four-year highs just as they plant and harvest their fields, eroding agricultural income already hamstrung by depressed crop prices.
The agricultural sector from the US to Russia, and Brazil to Europe, is seeing profits harmed by the rise in diesel prices. The global oil benchmark, Brent crude, touched $80 a barrel for the first time since late 2014 on Thursday.
Coupled with local economic issues, the increase is making it even harder for many farmers worldwide to turn a profit in the $2.4 trillion agriculture industry, casting a cloud over future investments.
In the US, fuel accounts for 5 percent of farmers’ costs, and is hurting margins at a time when farm income is half that of 2013. Massive harvests have depressed prices of staples such as corn, wheat and soybeans.
Diesel fuel is essential for planting, harvesting, and shipping crops to market. In the US, farmers will spend an estimated $15.25 billion on fuel and oil in 2018, an 8 percent increase from 2017, US Department of Agriculture (USDA) data showed.
The price of ultra-low sulfur diesel used for farming equipment and transporting crops has not been this high in May since 2014. Heating oil futures, the proxy for ultra-low sulfur diesel, traded at $2.29 a gallon on Thursday.
Ron Heck, who grows soybeans in Perry, Iowa, said his fuel costs could go up $1,000 to $2,000 during the northern hemisphere’s spring.
“You feel the pain right away,” Heck said.
In Russia, fuel prices for farmers are up 50 percent compared with a year ago, Arkady Zlochevsky, the head of Russia’s Grain Union, a non-governmental farm lobby, told Reuters. Farmers will need to spend more ahead of harvesting, which starts in about a month in Russia, he said.
US farms are also factoring in potential losses of income due to a 25 percent tax China announced on major American imports following the US government’s decision to slap duties on steel and aluminum.
“We’re seeing financial stress occurring in agriculture that we probably haven’t seen for a decade or so,” said Scott Brown, director of strategic partnerships at the University of Missouri’s College of Agriculture, Food and Natural Resources.
Net farm income is forecast to fall to $59.5 billion in 2018, an
8.3 percent drop from 2017, according to the USDA. It has fallen by 55 percent since 2013.
In Holly Grove, Arkansas, Tim Gannon paid about $17,000 in February to fill a 7,500-gallon tank with diesel used to run equipment and irrigation. The price increase means it may cost up to 25 percent more, or an extra $4,000, to refill it in coming weeks, he said.
“That’s a fairly significant amount of income to lose,” he said.
In Brazil, farmers are also taking steps to deal with higher costs. Eder Ferreira Bueno, a farmer in grain state Mato Grosso, said increased fuel costs meant he had “no other option but to spend less to treat the soil.” Other farmers might hire fewer workers or delay investment plans, he said.
In Europe, French grain producers say rising oil costs may have a knock-on effect on fertilizers and crop protection products.
“It comes at a time when things are already difficult for farmers economically,” said Philippe Pinta, head of grain growers group AGPB in Paris.