Natural gas prices hammer farmers

SALEM, Ohio – Myron Wehr expects his crop production costs to jump $30-$40 per acre this year.

The Columbiana County farmer is not alone. Wehr and farmers all across the country are facing major input price increases with no immediate sign of relief ahead because of rising production costs associated with natural gas.

From the price of diesel to the price of fertilizer, already stressed pocketbooks are getting hit even harder. Experts say farmers will have to endure at least another two years of price shocks.

Natural gas production is not meeting the national demand and prices have more than doubled. Natural gas is a crucial element of nitrogen production and nitrogen is a huge fertilizer expense for farmers.

“There’s a real concern about the price and availability of natural gas among farmers. Prices for anhydrous ammonia is now well over $400 a ton, double from what it was a year ago,” said Allan Lines, OSU Extension economist. “Farmers are now questioning the availability of fertilizer in the spring.”

Spot shortages are a real possibility, according to Lines. He said one-third of the U.S. nitrogen production capacity was idle because of high natural gas prices.

He suggests farmers find a supplier who will allow them to prepay for their fertilizer now for the spring planting. With that, farmers will have locked in a price and will not be subject to higher prices.

“I’ve been telling people to go home and buy fertilizer yesterday and don’t ask the price,” he said.

“I don’t see prices coming down anytime soon; in fact, prices will go up again before they come down,” said Lines. “We may not be back to what we call ‘normal prices’ until 2003, but we’re almost past the peak, and we’re on the downside.”

Lines says the futures market for natural gas shows another rise to $9.93 per million BTU for the high February price, but then a steady decrease until the fall of 2002 when prices are back down into the $4.50 per million BTU range. Current prices run about $7.50 per million BTU.

Myron Wehr purchased all the fertilizer he could store, but it won’t be enough for spring planting, and he’s worried about the possible shortages.

“What I prepaid for was already in stock, but there is no guarantee that the rest will be there when I need it,” said Wehr.

The price of nitrogen fertilizer has many farmer considering planting less corn and more soybeans. Lines says there is much to consider before they make that change.

“For most farmers, I don’t think shifting acres from corn to soybeans is the best solution,” said Lines. “However, there will be significant pressure on farmers to make that switch.”

Lines believes if farmers have been fertilizing with nitrogen for maximum production for many years, a 10-15 percent decrease in the use of nitrogen fertilizer can be absorbed and profits and production would not be greatly affected. If however, a farmer can only get 50 percent or less of his normal fertilizer, he should consider planting more beans.

Other options farmers may consider are contracting with an area farmer to have manure delivered for spring planting or implementing no-till practices.

“I worry that the soybean market will be exacerbated if corn growers drop acreage too early. Corn is likely to increase in profit, whereas soybean prices are already less than desirable,” said Lines. “There is no clear choice for farmers. There is not a whole lot they can do about the situation. It’s going to be rough.”

Terry Hoopes, co-owner of Hoopes Fertilizer Works in East Rochester, Ohio, says the cause of the price increase is two-fold – freight costs and the cost of production.

“There is a shortage of domestic urea. American producers can sell their natural gas options on the open market and make a lot more money,” said Hoopes. “I could buy urea fertilizer 48 percent cheaper a year ago. We depend too much on foreign imports.”

Grain producer Mike Wilcox of Wilclan Farm Systems in Carlton, Pa., has already decided to plant more soybeans this year.

“I’m not making any drastic changes, but we’re going to cut down our corn production a little. It makes me nervous that there will be a lot farmers doing this and the soybean market will crash,” said Wilcox, “but it wouldn’t be that much of a difference.”

Wilcox has also implemented more no-till practices to help reduce costs.

Myron Wehr is still debating the corn to soybean switch. In past years, he has planted 1,200 acres of corn and 950 acres of soybeans.

“We are between a rock and a hard spot. The price of nitrogen has drastically increased. I’m sure the cost of drying the corn in the fall will also increase, so I’m looking at a $30-$40 increase per acre,” said Wehr. “That is going to make us seriously look at our crop rotation. I’ll make my final decision in early April after the March 30 report comes out.”

Wehr says the availability of Roundup Ready soybeans may also be crucial. He worries about a severe shortage if many farmers switch to soybeans.

“If I can’t buy Roundup Ready soybeans, I’ll have to change my herbicide programs and that will be even more expensive.”

Wehr said another constant increase in production cost is the price of diesel, which is 66 percent higher than a year ago, according to Jayson Harper, associate professor of ag economics at Penn State University.

Harper has calculated the average hourly fuel cost for a range of diesel prices for various size tractors. For example, running a 90 hp tractor costs $6.34 an hour when diesel costs $1.60 a gallon.

Harper says fuel costs will increase from about 5 percent of total farm production expenses to 8 to 11 percent in 2001.

Harper said many farmers will have to depend on federal government subsidies or push for the release of more strategic reserves or tax breaks.

“OPEC just announced a 5 percent cut in production which will add further pressure on fuel prices,” said Harper. “I really don’t see a decrease in price until early summer. There will be no relief for tillage and planting in the spring.”