High fuel costs
projected to slash farm incomes
- High costs for fertilizer, fuel and irrigation are
expected to take a heavy toll on Kansas farmers next year, with
agricultural economists projecting net incomes to plummet nearly
37 percent from 2004 for dryland farms across the state.
The forecast is even more grim for irrigated crop farms,
where high energy costs to pump water are expected to cut net
farm incomes by nearly 91 percent in 2006,
a study shows.
"This is a dire situation facing production agriculture,"
said Dusti Fritz, chief executive officer for the Kansas Wheat
Commission. "Where production agriculture is unique is that
producers cannot pass on these additional costs they are seeing
in their inputs to anybody else."
Kansas State University economists worked up the projections
on Oct. 31 to show lawmakers in Washington, D.C., the magnitude
of the impact of high energy costs on agriculture as more farm
states clamor for an emergency farm energy assistance package.
The university's forecast is based on farms in the Kansas Farm
Management Association, typically the state's larger, full-time
The study predicts income will drop
$20,430 from 2004 to 2006 for Kansas dryland farms and
$50,209 for irrigated farms.
"It is not a pretty picture," said ag economist Kevin
Dhuyvetter, one of the study authors.
Across all farms, the impact of higher fuel and other related
input prices increased costs $9.28 per
acre for Kansas farms in 2005, when compared with the
previous five-year average, the study found. An additional
$7.24-per-acre increase is expected
To absorb the impact from increased production costs, land
rent prices would need to decrease $12.82
per dryland acre and $47.59 per irrigated acre, the study
"We have told people they need to talk to your landlord to
see if they will back down. ... We might not see a lot of rents
go down, but I'm pretty sure we are not going to see them go
up," Dhuyvetter said.
At the same time, farm states such as Kansas are aggressively
lobbying lawmakers to provide emergency assistance to farmers.
One proposal gaining support would make the supplemental
appropriation part of a general disaster package that would pay
farmers about 52 cents a bushel for the added fuel costs, Fritz
said. The proposed mechanism for distribution would be tied to
the commodity farm program.
"I think momentum is building in Congress to do something,"
With the nation's farmers now finishing harvest of this
season's crops, the fear is that many operations will not be
able to show the cash flow needed to cover increased fuel costs
when they go borrow money to plant next year's crops.
With farmers busy getting the crop into the bin, many have
yet to balance their books from this year's farming operations.
High fuel and irrigation costs impacted this year's costs, but
it is the far costlier fertilizer they will have to put on come
spring that will likely be most keenly felt in 2006, Dhuyvetter
The impact of the high 2005 fuel prices will probably start
showing up in January, when most operating loans come due for
the nation's farmers. Those unpaid loans will start showing up
as delinquent accounts on lender balance sheets in February.
For now, farm loan delinquency rates at the state's largest
ag lender - the Agriculture Department's Farm Service Agency -
are at the lowest level in Kansas in the past 15 years, said
Arlyn Stiebe, the agency's farm loan chief in Kansas. As of
Sept. 30, the agency delinquency rate was 3.4 percent.
But Stiebe and lenders across the state are growing
increasingly worried about how they can make cash flows work
next year based on the current low prices for commodities and
the higher fuel prices.
"That is the concern of everybody. Quite honestly, with
energy prices the way they are, we are not going to get the cash
flows to work - plain and simple," he said.
Duane Hund, a Kansas State University farm analyst who works
with struggling farm families said some farmers could face tough
challenges in the spring.
"By and large most farm families here in Kansas are going to
have a respectable year, on average, but most real decent," Hund
said of this year's season. "But the real concern is how do we
project for 2006. These higher fuel prices, higher fertilizer
prices are not going to go away, even though we have seen prices
come down from their high."
At his farm in Scott City, Richard Randall had just finished
harvest and hadn't looked closely yet at next year's plans. He
was waiting to see how high diesel and natural gas prices get
before deciding what crops to plant or how much irrigation to
This season, his production costs for fertilizer and
chemicals were locked in before the Katrina disaster drove up
diesel and natural gas prices.
"That increase came later in July and August, when we do
heavy irrigation. We were locked in to that. There is no way to
change that. Once you get the crop planted in April and May, you
cannot give up on the crop. You are going to pump the water to
raise it. You don't have the choice," he said. "Next year is
where we are going to make the changes."
Already, many western Kansas farmers who can switch from
natural gas to electricity to power irrigation pumps are doing
so, he said.
But like other farmers facing increased production costs,
Randall's options are limited.
"Most of us know it. We have a terrible time passing these
costs on," he said. "We can only absorb so much."
ON THE NET
Kansas State University study: