Diesel surge and 100% scarcity robs farmers of their ‘vital blood’

(Bloomberg) – Farmers from Iowa to Ukraine are grappling with soaring diesel prices and an unstable supply, forcing them to spend unprecedented amounts on fuel in a chaotic market and raising concerns about the fall harvest.

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In the United States, where corn and soybean farmers are rushing to plant after rains and cold temperatures forced delays, filling a tractor tank daily is now costing some farmers $1,000, or the double what it was a year ago. And the most intensive part of the agricultural season is yet to come.

“We’ve never seen this level of agricultural diesel price increases,” said Iowa farmer Chris Edgington, president of the National Corn Growers Association. The cost per gallon jumped to $4.70 from $2.20 a year ago, he said.

In Ukraine, a breadbasket country, three months after the start of the Russian military invasion, producers tend to the fields amid brutal bombardments of storage sites. A grain farmer said he had enough fuel to last two months. He’s nervous about diesel supplies ordered weeks ago that haven’t arrived.

“If you have to wait so long every time, you slowly wear yourself out,” said Kees Huizinga, who farms 15,000 hectares (37,000 acres) in Ukraine. Crops needed to feed dairy cows are days away from harvest, and if delays continue, bigger problems could pile up for corn and sunflowers in the fall.

In the United States, with grain supplies dwindling and inflation continuing, diesel is in short supply, especially on the East Coast. Many U.S. farmers are nonetheless well positioned for another year of profits, as war and global weather challenges have prolonged higher prices for 2021 crops. Wheat recently hit a record high and corn and soybeans are trading almost to records. Yet they fear prices will crash as the cost of diesel and other farm necessities remain high.

US diesel prices are the highest on record, with warnings of shortages, particularly in the eastern US. Russia’s invasion of Ukraine has tightened the world’s fuel supply. While the situation in the Midwest is not as dire, wholesale prices in Chicago are still up 75% from a year ago.

“Diesel is the lifeblood of agriculture,” said Ben Riensche, an Iowa corn and soybean farmer whose fuel costs have risen from $35 to $70 per acre. Fertilizers, grain and machinery parts cannot move through the system efficiently without diesel, which is also needed for its huge earthmoving equipment. In fact, diesel is just a fuel problem. The price of propane has almost doubled compared to last year. It is used to heat farmers’ homes and electric dryers during harvest to reduce moisture in corn and make the grain suitable for storage and sale. This will likely be important this season for growers battling heavy rains and flooding in northern US states and the Canadian prairies. In addition, soaring gas prices at the retail pump could increase further during the summer driving season. Related: Every U.S. State Has Gasoline Above $4 a Gallon “As milk is transported, there’s a fuel surcharge on that,” dairy farm owner Jon Patterson said. “I have no way of passing this on to the next Right now the price of milk has gone up to help offset some of this, but what’s going to happen when the fuel and all these other inputs remain high and the price of milk falls?”

Patterson is investing in bigger equipment to pump fertilizer more efficiently and using GPS to avoid covering the same terrain twice, which wastes precious fuel. Illinois farmer Matt Bennett, co-founder of commodity brokerage firm AgMarket.net, notes that growers with “any crop” should be able to absorb greater energy costs with Chicago wheat futures up 66% year-to-date, corn futures 35% and soybeans 25%.

“The big problem I see is when the pendulum swings,” he said. “I don’t know when that is, but when commodity prices go down, inputs are likely to stay high.” He has helped clients hedge risk by buying New York Harbor diesel and natural gas futures in recent months. “When transportation costs go up, they don’t come down so easily.”

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