How are rising fuel prices effecting your operation?
I think we all know the answer to that question. There are a lot of considerations that need to be made when planning for the 2022 crop year in terms of production costs. Fuel, another F-word to add to the list of exceedingly high costs on-farm. There are many ways to look at what is happening in the world of energy costs but for the purposes of this article, the intention is to highlight considerations that we are hearing from farmers and market reports to gain an added perspective.
Securing fuel supply to last through the crop year is certainly one task to stay on top of when making plans. Shortages and/or logistical hurdles will be something we all need to acknowledge in order to ensure your fuel supply for the year. On top of that, a 20-30% increase in freight rates that we saw just last week. Over the last 5 years, Pitura Seed Farm ranged between $20-32/acre in fuel costs, where as in the coming year, it will be nearly doubling that. Depending on the farm, there has been comments made by some considering reducing tillage by a pass in order to save fuel costs this fall if things persist. Although the prices are continuing to rise, there are also growers who have not yet pulled the trigger on ordering their fuel with optimism that prices will come back down.
Something new that we are doing at Pitura Seed Farm this year to better our operation through maximizing efficiencies, is to track the amount fuel being used by each piece of machinery on the farm. This is by way of a tracking system installed on the fuel tank pumps where we will be able to code-in what tractor is being filled and with how many given litres. At the end of the year, we will be able to asses which tractors, combines and trucks were the most or least fuel-efficient relative to the jobs their doing and if there is anything we can change or improve. It will be able to give us a much more accurate assessment of how many litres/acre we are using and in-turn, dollar/acre. Stay tuned to hear how this goes!
With costs of production rising the way they are it helps to have this offset by the competitive commodity prices growers are seeing. It will be difficult to predict at what point we see corrections in these markets with the volatile economic and geopolitical variables at play and also how governments will react. In approximately 40% of countries around the globe, government is involved in the retail fuel pricing with a price ceiling or a fixed price, whereas in the other approximately 60%, fuel markets are liberalized and the retail fuel prices are market-determined, like in Canada and the US. However, in provinces like Alberta we have already seen initiative from the provincial government by removing their fuel tax for the time being.
Daily Average Retail Prices for Diesel in 2022
Source: Natural Resources Canada
One last fuel consideration to make would be the need for secure storage of your fuel, on-farm. With warm weather in the forecast and tanks being filled, the stories of fuel theft are already surfacing. Although it seems highly unlikely, provisions or programs could be made by the government to safeguard farmers and consumers from these shockingly high prices. Wishful thinking indeed, but staying informed and optimistic will be aid in starting things off right this growing season.
-Steve Tapley