Lower fuel prices help farmers cope with other costs

Issue Date: March 9, 2016
By Ching Lee
Sutter County farmer Chris Capaul puts diesel in a newer tractor that he bought when fuel prices were higher. Despite lower prices for diesel this year, Capaul says he continues to try to run his farm as efficiently as possible, to save money because of higher production costs elsewhere and reduced crop prices.
Photo/Ching Lee

As California farmers prepare for spring planting, they say lower diesel prices have been a welcome relief, especially with other production costs soaring and crop values falling.

"I guess fuel is the one bright picture of the year," said Chris Capaul, a Sutter County bean and rice farmer.

Despite the fuel savings, Capaul said he has not changed much of what he does on the farm and continues to do what he can to save energy and money. For example, he bought a new tractor that uses less fuel when diesel prices were higher, and that has improved his savings. He also uses additives in the fuel to make the tractor run cleaner and more efficiently. Many of his pumps now run on electricity, allowing him to reduce his diesel expense, he added.

While paying less for diesel is a blessing, Capaul said, other expenses have surged while his earnings have shrunk. The higher-value dollar has hurt his specialty bean business, most of which is exported to Japan; he has not been able to sell his bean crop from last year.

Capaul also has not been able to grow rice the last two years because of a lack of water. Although that means not having to run his pumps, which takes further pressure off his energy needs, he's also losing income. He said he's still unclear about his water allocation for this year, and therefore has not finalized his planting decisions.

"I'm going through a lean year because I don't have the cash flow," he said.

The cost of diesel may have come down, but the cost of water in California has gone up, said John Moore, who grows potatoes, citrus fruit, pistachios and almonds in Kern County. Because of that, he said he continues to prepare for what could be another drought year.

"This is nice that we're getting some relief from diesel prices, but we haven't changed our practices because of it," he said. "We're going to do what we have to do to get the job done and save as much as we can."

Because of heavy environmental regulations on storing large quantities of fuel, Moore said he avoids that practice by filling up when he needs to, typically more often during harvest.

While farmers are getting a break from fuel prices, Moore noted that the Kern County economy depends in large part on the oil industry, and has been struggling. He said he's seeing the negative impacts throughout his community, from reductions to the county's general fund to cutbacks in the fire department.

"It percolates to every facet of our local economy, which is not a great thing," he said.

For San Joaquin County sheep and cattle rancher Florence Cubiburu, the decline in fuel prices has taken some pressure off her operating expenses, mostly in the area of animal transport, but she said it hasn't influenced any of her day-to-day decisions on where and how to move her livestock. She uses grazing grounds within about a 40-mile radius and has continued to use those same locations, opting not to travel out of state.

"(Lower fuel cost) is helping our bottom line, but our other costs are skyrocketing," Cubiburu said, noting she's paying more for everything from labor to insurance.

The cost of feeding her sheep also has jumped, as farmers now charge more for her animals to graze on their alfalfa fields and other after-harvest crop residue, she added.

Merced County dairy farmer Jimmy Burroughs said he's hoping his milk hauling costs will soon come down, but so far he has not seen any reductions because he's still on the same contract. However, he noted the drop in diesel prices has helped to lower his harvest expenses on the farm. He grows about 80 percent of his silage for feed.

"Whatever savings we're seeing, that money is spent in other aspects of our business, because our milk price has been marginal at best lately," he said.

Burroughs also buys all of his hay, mostly from Nevada and Oregon, and he said hauling charges have been less.

Glenn County rice farmer Lee McCorkle, who also runs a trucking business, said lower fuel costs have not influenced him to change his practices on the farm, but he has adjusted the transportation surcharges for hauls.

While farmers have found some relief at the pump, the dip in oil prices has not necessarily carried over into the fertilizer market. But that may be changing, McCorkle said. He noted the price of his last fertilizer order, which he made last week, is the lowest he's seen in several years—but he also said his dealer warned the price may go up again closer to rice-planting time.

Bean and rice farmer Capaul observed that fertilizer prices remained elevated last year but said he thinks that market tends to lag behind changes in the oil market.

"I think we're going to see (lower fertilizer prices) this year, which is good news, because that's a big expense, too," he said.

To be more strategic about when to buy fuel, Capaul said he's been tracking diesel prices for the last three years to try to determine a pattern to the rise and fall of prices. Though he found "no rhyme or reason" to it, he said he's comfortable with the decision he made, having purchased his fuel in December and January. Fuel prices have been climbing in recent weeks.

(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.