Fuel cost drop should arrive in time for spring: experts

Friday, December 19, 2014

by MIKE BEAUDIN

Farmers should begin to reap the benefits of falling crude oil prices just in time for spring planting, says a senior analyst for a fuel watchdog group.

Dan McTeague says both diesel costs and input costs should be lower as long as Canada and the northeastern United States don’t shiver through another polar vortex winter of record cold temperatures.

Farm diesel prices in mid-December averaged around $1.20 a litre across Canada after a dramatic drop in world oil prices. In Ontario, retail gasoline prices plunged below a loonie in most places but diesel has lagged behind.

Tom Kloza, global head of Energy Analysis, a New Jersey-based oil price information service, said farm diesel should be selling around $1 a litre in Ontario by January. Based on current oil prices, diesel is still priced too high, he said in an email. “There is simply too much ‘catching up’ to do with the crash that has happened in world oil markets” for the drop to happen right away.

McTeague said diesel shouldn’t be compared to gasoline because different market forces and cycles affect it. A busy harvest in Canada and the United States kept demand and prices up through the fall. He said diesel is also more expensive than gasoline because it’s in higher demand around the world and costs more to refine.

Mother Nature also plays a major role in determining diesel prices. Home heating oil and diesel are similar which means a cold winter, especially in the heavily populated northeastern United States, pushes diesel prices up as well. Home heating oil and diesel shot up last winter, one of the coldest on record, resulting in shortages that continued to keep prices higher most of the year.

If temperatures are more moderate this winter, farms should see more savings on fuel costs come spring, said McTeague.

“A big adjustment is on the way which will help farmers,” he said in a telephone interview.

Alfons Weersink, a professor in agriculture economics at the University of Guelph, said farmers are used to uncertainty.

“Volatility is normal for farmers so this year won’t be much different,” he said in an email interview.

Weersink said fuel costs on average make up five per cent of a farmer’s operating costs depending on the operation and crops produced.

Fertilizer, made from petroleum products, should also come down in price but farmers likely won’t see much savings in 2015 because it takes longer for price changes to make their way through the system, he said.

“A bigger benefit to many producers, particularly those that export, is the falling Canadian dollar,” he said. “This makes our exported agriculture products more price competitive and raises domestic prices for crops like corn that are priced off the U.S.A. market.”

However, that gain may be offset somewhat because a lower loonie translates into higher fuel prices since diesel trades in U.S. dollars, said McTeague. BF