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Rising fuel costs drive farm profits into the ground
By Holly Fisher
Supplements Editor
Jimmy Fender knows farming. Aside from the time he was at Clemson University earning an agricultural economics degree and his two years in the military, he has been growing crops in Reevesville.
But like so many farmers, Fender is struggling to cover his costs and make a livable profit while watching fuel prices increase.
Fender farms 1,300 acres in upper Dorchester County, growing cotton, corn and soybeans, and raising thousands of chickens in four poultry houses.
While consumers grumble about paying more than $3 per gallon at the pump, farmers like Fender use mostly diesel fuel to fill tractors, combines and other equipment. And Fender’s poultry houses must be kept warm so the chicks develop properly.
The summer weather helps keep the houses warm, but in the winter, more natural gas is needed to keep the chicks at a balmy 92 degrees. This year, natural gas is $1.20 per gallon—up from 80 cents a gallon last year, Fender said. Each poultry house holds 1,000 gallons.
Just after Labor Day, Fender was bringing in the last of his corn crop—another expensive endeavor because his combine uses 100 gallons of diesel fuel a day at a cost of roughly $2.29 a gallon.
“It’s going to get worse,” Fender said.
One piece of good news: the EPA on Sept. 2 began allowing farmers to use agriculture-grade diesel in commercial vehicles, a practice usually strictly prohibited. Farmers aren’t charged taxes on farm fuel because they aren’t using the fuel to drive on public roads. The fuel is even dyed red so the system isn’t abused.
Supply costs inflate
In addition to the fuel costs, farmers are plagued with rising costs of nitrogen and fertilizer, which are made using natural gas. Jody Weathers, co-owner of Weathers Farm Supply in St. George, said those prices are up 25%.
And farmers haven’t seen the worst yet. Most fertilizing is done in the spring, so next year’s costs could be even greater.
“If fuel prices stay where they are, (the cost) will be up another 25 to 30 percent,” Weathers said.
Corporations or retailers can pass the added fuel costs along to their customers. Farmers, though, must absorb added expenses and the increasing cost of producing an annual crop.
“We can’t pass this on to somebody else,” Fender said. And he can’t ask for more money for his product.
“I can’t say I want $3 a bushel; (the buyer) would laugh at me,” he said.
Weathers, who buys corn and soybeans from about 50 farmers in Dorchester, Colleton and Orangeburg counties, explained that prices for crops were set back in December and January, so he can’t increase or decrease what he pays the farmers for their goods.
Crop prices bottom out
Crop prices are already down this year, mostly for corn and peanuts. And if the fuel costs continue to rise, prices will continue to drop. Corn is selling for less than $2 a bushel (compared to about $2.85 last year). It takes more than $2 to produce a bushel of corn, Weathers said.
“You would have to have $2.75 or $3 to make any money at all,” he said. “If costs go up again, you have to make $3.”
He noted, “Farmers will wind up getting paid less money, but it takes a while for all of that to come to pass. Everything will adapt to the price of fuel; everything will go up. With the fuel prices going up so fast, it never gave us the time to adjust. If (fuel) had gone up $1 over a period of a year or two years (farmers could adjust)… but it goes up now 10 cents at a time.
“Right now I’m hauling grain corn to Newberry (S.C.). If I have to pay a dime more a bushel to haul it, that cuts into my profit.”
In many ways, farmers are caught in a vicious circle. Because they can’t pass costs along to someone else, they have to increase productivity to make a profit. But an increase in productivity means using more equipment, which means more fuel, which means more expenses.
“That’s a huge challenge in agriculture across the board,” said David Winkles, president of the South Carolina Farm Bureau Federation. “(The agriculture business) depends on an increase in productivity to make a profit. As costs go up, there is no other way to cover those costs than to increase productivity.”
In the 1970s, a 500-acre farm was a fairly profitable unit, explained Winkles, who also is a farmer in Sumter County. Today it takes 2,000 acres to be fairly profitable.
Another Dorchester County farmer, Pinckney Murray, farms 1,700 acres of land; 300 of those are his own, the rest he rents. The goal, he said, is the have a bigger farm to pick up the bottom line, but Murray said he is to a point where he really can’t expand anymore.
A farmer since 1964, Murray and his son grow cotton, corn, peanuts, wheat and soybeans. He is uncertain about the future. “It’s something we are going to have to face … I’m not sure what’s going to happen.”
Plowing ahead
Fender, who also farms with his son, plans to stick it out. “This is our source of income,” he said.
Times have been worse, he said. About five years ago, the drought was so bad he didn’t even have enough cotton to pick. Even though crop prices are falling, Fender said at least he has a crop to sell.
Winkles often reminds people of the importance of farmers and that a strong agricultural industry is the basis for a strong overall economy, he said.
“If we think going to the gas pump and there not being any fuel is bad, just think about if we went to the grocery store and there was no food available,” Winkles said.
Holly Fisher is the supplements editor for the Business Journal. E-mail her at hfisher@charlestonbusiness.com.
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