Giving in to the impulse to take preemptive steps now to hedge against even higher energy prices before next planting season could be a mistake.
That buy early thinking is understandable, said Lubbock, Texas, Extension economist and risk management specialist Jay Yates. “But barring another major disaster farmers will be better off to wait. For now, I recommend a hand-to-mouth strategy.”
Yates said farmers are not likely to see diesel fuel drop back to 90 cents a gallon anytime soon, if ever. But he also doesn't believe $2.50 will hold either.
“We went through this in the 1970s, and we had an oil boom in the early 1980s. Then we had a bust. Folks thought the boom would never end but a lot walked away from mortgages when the bust came. Since then, we got used to cheap oil.”
Yates said farmers understand the basics of managing resources, including energy, and most have taken steps to conserve as much as possible.
“For the most part, the more efficient producers have cut the fat away from energy consumption. They've reduced trips across the field about as much as they can. They've cut the fat; if they cut more they begin to get muscle and bone.”
It does make sense to combine trips when possible, however, and Yates said new technology such as Roundup Flex and Liberty Link will make that feasible.
He recommends farmers check labels for tank mix options. “They may want to add plant growth regulators, insecticides and fungicides with their over-the-top herbicides,” he said.
Yates said farmers should already be following a field-by-field production strategy. “I hope everyone is doing that already,” he said. “That's the basic of the basics, as is soil testing and maintaining equipment.”
He also warns against being penny wise and pound-foolish. “It doesn't always pay to save fuel,” he said. “The cost of replacing an older tractor with a more fuel-efficient one, for instance, may not save any money, considering the price of the new unit.
“Take care of what you already have. It may not save on fuel but it can save you money. Change the oil and filters regularly. That should be another of the basics of the basics, but we still see a lot of dirty oil in farm machinery.
“Sometimes new equipment provides more benefits than fuel economy,” Yates added. “A 90-foot boom sprayer with GPS technology, for instance, comes with a whole different set of issues that may improve profit potential. A 90-foot sprayer, versus a 60-foot unit may also save fuel.”
Combining operations also may reach a point of futility, Yates said.
“We can combine things beyond the ability of our labor force. Be wary of making one trip across the field too complex.”
He said farmers can add fertilizer tanks, herbicide tanks, seed hoppers, fungicide injectors and other inputs to a planting rig and save several trips. But if the system is too complex, potential for mistakes can multiply. “We can go to extremes,” he said.
Yates said farmers might want to join in strategic alliances to improve buying power. Buying in bulk, he said, may save money and provide some negotiation leverage.
“But it takes a special relationship with partners to make such an alliance work.”
Yates said the current energy crunch should encourage bio-fuel production. “At $2.50 per gallon diesel, bio-fuels could step in and make a difference,” he said. “Now, it would be hard to find bio-fuels in the High Plains. We don't have the infrastructure to supply it, but we have a big oil mill here and if prices stay up there is no reason why we can't start producing some of the fuel we use.”
He also said oil companies “are drilling like crazy, especially for natural gas, with futures prices running at $13 to $14. We tend to forget that oil is a commodity, like cotton and grain.”
And, like cotton and grain, oil prices move with market demand. That's why Yates recommends resisting the urge to buy too much fuel with prices at near historic highs.
“Just wait, prices will not stay that high forever.”