Oil at $117 a Barrel. What is a Farmer to Do?

Two-Horsepower Solution

At some price, oil will become too expensive to burn as a fuel, at least for some applications. If you believe in free markets, you accept the facts as they are, oil is always at the correct market price. While the world seems to tolerate high fuel prices, rising food prices are more problematic. In many parts of the world the rising price of food is approaching the red line. People look at food as a right and oil as a commodity, but you need oil to produce food. 

Not all oil is distributed based on price. It is sold at a deep discount within Saudi Arabia, Russia, Venezuela, Iraq, Kuwait and Iran. The producing countries are extracting a targeted tax on the oil consuming countries. The consuming countries seem unable to respond. 

The contradictions compound. The squeeze continues.

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Farmers eye options as fuel, fertilizer costs soar

FREDERICK, Md. (AP) Washington Times—

Maryland farmers are facing record-high diesel fuel and fertilizer costs this plant season, the result of the escalating costs for crude oil and natural gas.

Diesel prices Friday averaged a record $4.168 a gallon nationally, more than triple the price last year for fuel widely used to power farm equipment.

U.S. prices for natural gas — a major component in the production of the nitrogen fertilizer anhydrous ammonia — have nearly doubled since late August, boosting field-preparation costs.

Brian Clark, a University of Maryland Cooperative Extension agent in Clinton, said the increasing costs of inorganic fertilizers has resulted in many farmers in Maryland's farm belt and the region turning to such alternatives as manure.

"But there is little they can do about record diesel prices," he said.

Chuck Fry, a Frederick County turkey and dairy farmer, said he pays $120 to $140 to refuel his diesel-powered, poultry-litter spreader, compared to $30 to $40 last year. The increase has made Mr. Fry use his large equipment more judiciously, he told the Frederick News-Post.

Ragina C. Averella, a spokeswoman for AAA Mid-Atlantic, said farmers also are dealing with higher livestock feed costs.

The increased production costs, plus the higher cost of transporting farm goods to market on diesel-powered trucks, are ultimately passed on to consumers, she said.

"It is a horrible cycle that translates to higher transportation costs to the marketplace and still higher prices for the eggs, milk, fruits, vegetables and other consumables," Mrs. Averella said. "All of this while we all continue to grapple with higher pump prices, too."

According to the American Farm Bureau Federation's Marketbasket Survey, retail food prices increased about 9 percent in the first quarter of 2008.

Historically, diesel fuel was cheaper than gasoline because it was easier to refine, according to industry researchers. Since the Environmental Protection Agency issued mandates in September 2004 requiring major reductions in the sulfur content of diesel fuels to improve air quality, the price generally has been higher than that of regular gasoline, according to the Energy Information Administration.

Mrs. Averella said retail diesel fuel prices are likely to remain high as long as crude oil prices and world demand for distillate fuels remain high, according to forecasts by the EIA.