Farmers find ways to deal with fuel hike

“Just get your checkbook out.”

That was John Hartman’s initial response when asked how he and Hartman Farms, near Parma, deal with the recent spike in farm fuel prices.
On the strictly technical side, he said they are doing some crop shifting.
Hartman said he’s shifting toward crops with lower input costs – such as beans and grains – and away from costlier crops such as potatoes.
“There are other reasons for not raising potatoes,” but now an increasingly significant reason is to avoid running diesel pumps to sprinkle them, he said.
Some Treasure Valley potato producers use electric pumps and others use diesel pumps, he said.
“Diesel is considerably more expensive. A potato crop is very fuel intensive.”
Hartman’s “checkbook” comment contains a grain of truth.
“For the most part when people farm, through the years they have been as efficient as they’re able to be,” he said.
For example, farmers know how many trips across the field they must make in a farm vehicle to optimize efficiency, Hartman said. Making a big reduction from that baseline can cause side impacts such as leaving rough ground that can hamper irrigation and germination, he said.
“A lot of my neighbors are excited about high commodity prices,” he said. “I’m looking over my shoulder at fuel, fertilizers and labor. It’s going to take away most of your profit. You’re just going to be trading dollars at a higher level.”
Farm fuel-price impacts do not end when the producer gets paid for the commodity, Hartman said. “Consumers are feeling that equally. For example, I raise onions. There are significant costs of handling and shipping.”
Drew Eggers grows mint and other crops in western Meridian. Each January, he buys about half the diesel he needs for the year - all that he can store on-site.
“What I bought it for in January ($2.75 per gallon) is over a dollar less than what I could buy it for now,” he said.
Usually, Eggers waits until June to buy the rest of the fuel he needs.
“Last summer we were paying $2.50 to $3, and then it dropped back, in January, to about $2.75,” he said. In January 2007, he paid “a little under $2.”
Harvesting and handling mint uses a high amount of energy, Eggers said. The boiler he uses to steam out the mint oil is fired by natural gas, which is “increasing in price, but not as much as diesel.”
Running the gas-fired boiler cost $1,200 to $1,500 a day in 2007, he said. “That will be higher this summer.”
Drew Eggers Farms spends plenty on diesel, running farm machinery to harvest mint in the field and trucks to bring it back to an on-site still, he said.
Eggers catches one break on input costs in that his land’s pitch is well-suited for efficiency and is irrigated via a furrow system rather than by sprinklers.
Nevertheless, fuel and fertilizer costs have a major impact now, he said. Fertilizer prices (IBR, 3-31-08) probably have increased at a greater rate than fuel prices, and input costs consequently are going up at a higher rate than they have ever experienced in 30 years of farming.
“We are enjoying a higher price for our product, so we are able to keep up with the increased cost,” Eggers said. “But there is going to be a point where those prices are going to level off or fall back. The concern then is that our input costs won’t.”
Jack Ingram took over as manager of Producers Supply Co-op, Nampa, on June 1, 2003, when a delivered gallon of farm diesel cost $0.999. The price was $1.199 in February 2004.
“Today we are at three-eighty-three nine,” he said May 1. That compares to $3.299 at the start of March and $2.989 in January.
“We have had to increase our operating line (of credit) significantly every year due to fuel prices and fertilizer price increases,” Ingram said. A tanker load of diesel that once cost $10,000 now costs $30,000, he said.
Cost increases are passed to the customer, but Ingram said he make less margin on fuel today than he did five years ago.
Reasons for that include competition and the cost of money, Ingram said.
“We’re probably one of the few companies that still allows customers to charge for 30 days. Most others are 10 days. I pay for fuel in 10 days.
“On the dealer level, whether at the C-store or bulk-tank level, we are making less margin than we ever have,” said Ingram, who owns a convenience store in western Canyon County.
“Historically, fuel margins are tight anyway,” said Jeff Jones, controller at Jerome-based Valley Co-Ops Inc. “In times of rising prices, you can’t absorb that. The public perception is that the supplier is making a ton of money on it, but historically, margins are not great.”
Some larger Valley Co-Ops customers, such as dairies, have started ordering full tanker loads of diesel delivered directly to their site, he said.