Advice for Pricing Fuel, Fertilizer and Labor
March 1, 2012 A Cotton Incorporated-funded project under the purview of Dr. Jeanne Reeves, Director of Agricultural Research, offers some sound advice for producers as they prepare for another production season.
Implemented at Mississippi State University by Dr. Gregg Ibendahl, the project is providing keen insight into fuel, fertilizer and labor costs.
“This project was designed to gather and disseminate information producers could use as they readied their operations for 2012,” Reeves says.
“We could look at the period from 1980 to 2000 as ag’s golden years with inflation rates being down and cotton prices staying fairly steady. But when gas hit $4 per gallon, that pushed us over the edge into the most recent recession,” Ibendahl adds. “Oil production didn’t drop off during the recession even though gas consumption did, which explains gas prices dropping. OPEC has excess capacity which should prevent any dramatic increases in oil prices.
“It’s important to remember gas and diesel prices are seasonal and certain times are better than others for buying,” continues Ibendahl. “Prices start climbing in March and stay high through the fall. I used to think diesel prices should peak in the winter when home heating oil use was highest but that’s not been the case. They’ve peaked in the spring and summer when producers are using the most fuel.
Don’t Wait Until the Last Minute
The study confirms producers shouldn’t wait until the last minute to make their fuel purchases. If growers are buying fuel for spring planting, the lowest prices usually come in January or February. If you buy for the fall, somewhere around July is your best bet.
For fertilizer, North America uses about 14% of world supply, China uses 28%, and India uses 14%.
After the early 1990s, fertilizer prices became volatile and have risen since 2010.
“What makes fertilizer prices even more volatile is the U.S. imports 55% of its nitrogen and 81% of its potash,” explains Ibendahl. The U.S. leads the world in phosphate production which affords us some control.
“Based on the economic model used in the study, $80 per barrel oil equals a price of $661 for anhydrous ammonia and $496 urea. “So I wouldn’t be in a hurry to purchase my fertilizer for next spring,” says Reeves.
“Unemployment continues to be high which should be a good thing for on-farm labor, and wages haven’t increased much. Interest rates remain low which should promote more loans, if your bank is loaning.
“While prices have risen for some chemicals, Roundup has dropped significantly, so if you’re planting Roundup Ready crops, you’ll spend a lot less than you did a couple of years ago,” She adds. “Machinery prices have increased – combines up 7%; cotton pickers up 9% and 150-horsepower tractors up 8%.”
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