Diesel bill adds to cost-price squeeze on farm

Blessed with a week of good weather, most Manitoba farmers are now in the home stretch of harvest and beginning to assess whether their crop will earn enough to cover the cost of growing it.

Commodity market prices have surged well above the numbers used to prepare production budgets earlier this year, with the price of top-quality milling wheat up 27 per cent over a year ago. Canola and soybeans are up 36 per cent and oats by 14 per cent.

That’s a significant boost for the crops harvested in good shape before rainy weather shut down operations for a couple of weeks during the critical harvesting window. However, upwards of half of the province’s crop overall was affected by the bad weather, resulting in yet-to-be calculated yield and quality losses.

Then there’s the cost side of the balance sheet.

Diesel prices have nearly doubled in recent months because of war in the Middle East and between Russia and Ukraine. Energy supply chains and infrastructure have been targeted on all fronts, and the impact on supplies is affecting the price of anything transported with diesel, which is pretty much everything.

Fertilizer costs have softened somewhat from their earlier highs but remain volatile.

These two inputs have a profound effect on farm budgets.

For example, combines are powerful, but thirsty machines, typically consuming around 70 litres per hour. At today’s prices that puts the cost of fuel at between $175 and $200 per hour for one piece of equipment. Larger farmers are running more than one combine, along with trucks and tractors hauling grain or pulling tillage equipment.

Although it varies with each farm, the cost of one day of harvesting can easily hit $10,000.

Even if the hostilities end tomorrow and the Strait of Hormuz opens the day after, analysts warn it will take months if not years to bring the damaged capacity back online. The International Energy Agency said this week global diesel supplies will be constrained well into 2027.

Few anticipated the U.S. decision to stir the hornet’s nest that is the Middle East nor the repercussions for global energy flows.

Equally unpredictable was the Trump administration’s effort to bring the cost of diesel down by ignoring international sanctions and buying from Russia. It not only provides Russia with more funds to support its invasion of Ukraine, prolonging the war, but is also expected to have a negligible effect on U.S. fuel prices.

The only thing predictable about the global chaos is there will be more of it, at least for the foreseeable future.

That presents farmers with a dilemma, especially considering their current cost-price squeeze.

Farmers are advised to put the same diligence into monitoring fuel and fertilizer markets as they apply to tracking selling opportunities for grain — or hire someone to do it for them. That includes positioning themselves so they can take advantage of temporary dips and lock in supplies and prices, such as when short-lived ceasefires are announced.

David Drozd, president of the grain marketing advisory service AgChieve, says there are opportunities for farmers to cut their diesel bill by monitoring the markets and negotiating a price with deferred delivery from their supplier.

Or they can invest in more on-farm storage and bring it home.

“I know it’s expensive, but if you could save a dollar a litre, it goes a fair ways towards the purchase of that tank, which you will have for a long time,” Drozd told a recent extension webinar. “It’s no different than buying grain bins to store grain when prices are low in anticipation of holding it until it goes higher.”

Another capital outlay amid a cost-price squeeze is a daunting prospect. As well, it exposes farmers to a different set of risks that hit close to home.

Isolated farmyards storing fuel, commodities, tools and equipment are easy targets for rural thieves.

Rural property owners feel sandwiched between thinly distributed police protection and the risk of being victimized by criminals or charged with a crime themselves if they intervene inappropriately in the eyes of the law.

There’s no single right answer. Just a lot of factors to consider.

Laura Rance-Unger is editor emeritus for Glacier FarmMedia. She can be reached at lrance@farmmedia.com