Farmers face expensive spring as diesel costs surge

Source: By Marc Heller, E&E News • Posted: Sunday, March 20, 2022

Jon Patterson on his dairy farm near Auburn, N.Y. Patterson said he passed on a chance to lock in diesel prices months ago, only to see them surge after Russia's invasion of Ukraine. "This year, I was hoping the price would go down."

Jon Patterson on his dairy farm near Auburn, N.Y. Patterson said he passed on a chance to lock in diesel prices months ago, only to see them surge after Russia’s invasion of Ukraine. “This year, I was hoping the price would go down.” Marc Heller/E&E News

AUBURN, N.Y. — Surging diesel fuel prices couldn’t have hit farmers like Jon Patterson at a worse time. A sixth-generation dairy farmer in upstate New York’s Finger Lakes region, Patterson buys at least 70,000 gallons of diesel a year to run his tractors and other equipment, much of that during the busy spring planting season.

“It’s huge for us,” Patterson said yesterday on his farm, where he grows about 2,000 acres of corn and other crops to feed 1,700 milking cows.

Farmers like Patterson are looking for ways to trim consumption, but mostly they’re hoping prices settle down by the time planting season arrives — usually in late March or early April here if the ground is dry enough.

Diesel prices in recent days passed $5 a gallon nationally, and they were slightly higher than that — around $5.30 a gallon — in upstate New York. That’s a big increase from the average a year ago, $3.08 nationally and $3.15 in New York, according to AAA.

Farmers everywhere are dealing with similar challenges. In California, the nation’s top milk-producing state, diesel has climbed above $6 per gallon, an increase of more than a dollar per gallon since a month ago, according to AAA. California Farm Bureau, a lobbying group for farmers, recently said diesel accounts for as much as 15 percent of a farm’s expenses.

Prices were already climbing before Russia invaded Ukraine, pressed higher by supply chain difficulties and surging demand as travel and shipping recovered from pandemic lows. But the war and subsequent U.S. energy sanctions on Russia cast new uncertainty over the market, and Patterson and other farmers say they’re worried about expenses this spring.

Big farms have the ability to buy diesel ahead of time through forward contracting, but Patterson said he passed on that opportunity months ago when prices seemed like they couldn’t go any higher, misreading the situation. “This year, I was hoping the price would go down,” he said.

While average consumers are grumbling about $4 gasoline for their cars, the impact to farmers dwarfs what the typical American driver experiences. Diesel prices have climbed faster than gasoline to begin with, and farmers have to buy it in big quantities. Patterson said he bought 73,000 gallons last year and 76,000 gallons the prior year.

Nationally, farms spent $7.1 billion on diesel in 2020, according to the most recent annual report from the Department of Agriculture. That was down 10 percent from the previous year but still made up the majority of fuel expenses on farms, USDA said.

Farmers mainly have to just stomach the costs, in line with the old saying that farmers buy everything they buy at retail, and sell everything they sell at wholesale. Dairy farmers can’t raise the price of milk, which is dictated largely by the companies or the bargaining cooperatives that buy it from them, Patterson said.

Milk prices paid to farmers have been high lately, exceeding $20 for every 100 pounds of milk. But climbing fuel and feed costs are eating into those earnings, Patterson and other farmers told E&E News.

Rising diesel prices hit farmers in other ways too. Any service to the farm that’s subject to fuel surcharges is seeing them now, Patterson said. Farmers also bear the cost of milk hauling, and milk trucks run on diesel.

High diesel prices hit rail and barge shipping of grain too, said Allen Schaeffer, executive director of the Diesel Technology Forum, a trade group. That affects farmers who buy it to feed cattle.

“It’s a sort of up and down the food chain impact,” Schaeffer told E&E News.

Lawmakers and officials in Washington and state capitals face pressure to find ways to help farmers ride out the situation. Reducing taxes is one idea, although New York and other states already allow some tax deductions or exemptions for farm diesel purchases.

New York farmers have influential political friends, directing their attention at Senate Majority Leader Chuck Schumer (D-N.Y.), who’s made visiting rural New York a priority, and Sen. Kirsten Gillibrand (D-N.Y.), a senior member of the Senate Agriculture Committee. Neither senator has spoken out much on the issue yet, but during a big diesel price spike in the mid-2000s, Schumer met with New York farmers and called for the Government Accountability Office to look into improved conservation and fuel-efficiency technology.

Multiplied across thousands of farms in what’s known as the Northeast Milkshed in Vermont, Pennsylvania and nearby states, rising fuel costs become a broad economic concern. The milk industry’s fortunes, up or down, can spell success or struggles for rural areas across the region.

Nationally, dairy products have an economic impact of $206.9 billion in direct output and directly employ over 977,000 workers, according to the International Dairy Foods Association, a lobbying group for milk processors. Farm Credit East, a farm lending network, said Northeast states make up more than 13 percent of the U.S. total, with $27.5 billion in direct output and nearly 145,000 jobs — and that doesn’t include Pennsylvania.

The rising cost of fuel is a change in direction. In 2020, those costs were falling from a year earlier, according to Farm Credit’s annual survey of Northeast farmers. In 2019, the group’s survey showed average costs for diesel at about $163 per cow, which fell to $125 per cow in 2020, the most recent survey reported.

The impact of price swings is a symptom of farmers’ continuing dependence on diesel for energy. While alternatives exist, such as tractors that run on biofuel or electric batteries, many farmers aren’t ready to make the jump to new technology if they’re not sure the expense will eventually pay for itself, and some are skeptical an electric tractor can do the job.

About 15 miles up the road, outside the village of Aurora, Jason Burroughs said he figures his fuel costs will be double or triple what they would typically be heading into spring. The rapid increases defy efforts to save, said Burroughs, who’s ready to put a tractor in the field as soon as the end-of-winter mud dries.

“As farmers, we are the masters of conservation and trying to save costs,” Burroughs said. “At the end of the day, you’ve got to get the work done.”

Patterson said he’s found ways to cut down on fuel consumption, such as using wider hoses on equipment to apply manure to fields and tilling the soil less, which has the added benefit of improving the soil. “I’m doing anything I can to reduce the number of trips across the field,” he said.

Tractors made since about 2014 are also more fuel efficient, Schaeffer said. Most can burn biofuel blends too, which is sometimes a cheaper option. And with the help of global positioning that helps farmers pinpoint where they apply fertilizer, for instance, tractors can be used less to ease the higher costs somewhat.

But Patterson said more cutting-edge technology on the farm will have to wait.

He said it’s going to be a long time before he’s ready to invest in a new tractor, which can cost a few hundred thousand dollars and would need to run for an entire day in heavy field work, dragging big equipment.

“I don’t know if the battery power is there,” Patterson said. “One day, it will be.”

 

|