A question much on the minds of many people today was recently asked on the show:
“At what price point will farmers give up and throw in the towel because of higher energy costs? What can we do about it?” That’s from regular viewer Phil Haymaker, Hixson, TN
Gas prices upset us partly because they are literally in our face every day. It’s something we have to buy often, which increases our resentment. They didn’t go up gradually, either. Surprisingly, Americans spend only about 3% of all consumer expenses on gasoline. Similarly farmers’ fuel increase is considerable but is being overshadowed by far worse budget problems.
This crop budget from my go-to economists at farmdocDaily shows the financial headache facing farmers like us. This estimate was done last December, so even if we allow for higher fuel costs by increasing the estimate by $5 to $25 per acre it still comes out to only about 3% of the total crop cost of $760. The increases that are really jolting are fertilizer, pesticides, seed, and rent.
Regardless, farmers won’t stop farming because are of fuel costs. In fact, history shows us they will operate at a loss for several years unless financially forced to stop.
Searching for a Solution
As for proposed solutions, there are no good ones, since ideas like more drilling permit or new pipelines wouldn’t have been online for years. There are two crucial things to remember, however. Since allowing oil exports when the days of fracking were flooding us with unexpected oil, our domestic oil has been priced on a global market.
Demand, especially in Europe is accelerating and competing for oil everywhere. I think the big holdup for oil production is the fact that tight oil companies (frackers) tend to be smaller independent companies whose investors have been burned twice by sharp price drops after spending billions on new wells. Industry operators have discovered investors will now penalize companies who plan on expansion.
Since much of our petroleum independence has been built on these fracking companies, supply will remain tight. Chanting “drill, baby, drill” doesn’t work if baby doesn’t want to drill.
Successful consumers and farmers will do the obvious but difficult things to cope, beginning with finding ways to use less.
