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Higher Energy Prices Could Cause Acreage Shifts

September 19, 2011
By: Ed Clark, Top Producer Business and Issues Editor

Agricultural production is sensitive to changes in energy prices, and higher energy prices could cause acreage shifts.

With higher energy related expenses from 2012 to 2018 (fuel up an average of 2.6% to 5.3% and fertilizer up 4% to 10%), total acreage for corn, sorghum, barley, oats, wheat, rice and upland cotton would decrease by an average of 0.2% (under the lower energy price change scenario) to 0.4% (higher price change scenario).
The exception of the eight crops studied is soybeans, which is less energy dependent than the other crops, according to the study by USDA/ERS. Of those eight crops, corn and rice have the highest energy-related costs.
From 2005-08, expenses from direct energy use averaged about 6.7% of total farm expenses, while fertilizer expenses represented another 6.6%.
Energy-related expenses also affect livestock producers. Although their direct energy costs are lower than for crop production, livestock producers would face higher feed costs under both the lower (0.2% to 0.6% higher annually, 2012-18 average) and higher (0.6% to 1.3% higher) energy price change scenarios. Poultry production would be less affected than beef and pork, since poultry is the most efficient feed-to-meat converter of animal types.
Effects vary regionally, USDA/ERS economists say. The Mississippi Portal region is most affected by higher energy costs, due to the predominance of fertilizer-intensive crops like cotton. Farmers in that region would see net cash income decline by 8% to 19% on average (in 2014) under the lower and higher energy price change scenarios, respectively.
The scenarios analyzed did not account for potential changes in technology in response to sustained increases in energy prices. Additionally, a decades-long declining trend in energy use per unit of output in the agricultural sector is likely to continue, which is only partly represented in the scenarios by increasing yields.
“For these reasons, reported impacts of higher energy prices on the agricultural sector may be somewhat overstated. Additionally, longer run impacts of further energy price increases would not be proportionately as large as the short-term impacts we report here.”
The economists say that the Consumer Price Index (CPI) for food at home and food away from home would be 0.6% to 0.9% higher than without the simulated energy-related cost increases for electricity, diesel fuel and natural gas.


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RELATED TOPICS: Farm Business, Inputs, Energy, Economy

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