Farmers and ranchers won’t be any happier about paying $2 a gallon for fuel than the rest of us, but they should be able to manage.
Herb Hinman, Washington State University agricultural economist, says fuel and lubrication costs account for 2 percent to 5 percent of the production costs for most Washington farmers.
What happens to yields and to the price farmers receive for their crops will far out weigh foreseeable increases in petroleum costs.
“A 20 percent increase in fuel costs can be offset by a 1- to 2-cent increase in the price farmers receive for wheat, or by an increase in yield of less than one bushel per acre,” Hinman says. “Price times yield, that’s the big factor.”
These calculations are based on the cost of wheat production in Adams County, with an average yield of 60 bushels per acre.
Hinman estimates Adams County farmers pay about $4.10 an acre for fuel for a season of summer fallow-winter wheat rotation operation, out of a total operating cost of $71.50. That’s just over 6 percent of production costs.
How large or small fuel costs figure in production depends, of course, on the crop. It costs Washington farmers about $1,660 in total operating costs to grow an acre of potatoes. Of that, only $22 — less than 1.5 percent — is for fuel.
Hinman says these figures represent direct cost to farmers. Just as significant, or perhaps more important, will be secondary effects as higher fuel costs are reflected in other things, such as transportation costs to ship commodities to market.
Farmers who have to truck wheat a long way to market definitely will be pinched. Kenneth Casavant, a WSU agricultural economist who specializes in transportation costs, says truckers often charge around $1.25 a mile. About 25 cents of that – a fifth – is for fuel. If fuel costs hit $2 a gallon, it would increase costs about 20 cents a mile, or about 3.75 cents per bushel.
Higher fuel prices are another straw on the bundle of economic stress that farmers and ranchers are dealing with, but Hinman says farmers who are in good economic shape will survive. Marginal growers will have a tougher time, especially if they are carrying heavy debt loads.
While they always should be looking for ways to cut costs, perhaps the best things farmers can do to cope with rising fuel prices is to concentrate on producing high yields and sharpen their marketing skills so they can get the best possible price for their crops.
With bulk crops that’s about the name of the game. But in many other crops, such as hay, fruit and potatoes, quality also affects price. In these crops farmers can improve prices by increasing average quality.
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