February 14, 2015 / 12:46 AM / 4 years ago

ANALYSIS-From cattle to corn, crude oil dive ripples through farm economy

CHICAGO, Feb 13 (Reuters) - Craig Uden, who fattens cattle for beef on his Nebraska feedlot, expects to cut his energy costs by as much as a quarter this year because of falling oil prices - a silver lining in an otherwise tough rural economy.

The lowest energy prices since 2009, which have already benefited transport, retail and industrial companies, are giving farmers a boost just as the U.S. Department of Agriculture forecasts their incomes will plunge 32 percent this year.

Cheaper diesel to run machinery and trucks along with lower prices for propane gas used to dry grain or heat livestock buildings are all easing the pain of grain prices that are near 5-year lows.

In the heart of the U.S. Midwest grains belt, oil’s recent drop could save farmers more than $1.1 billion in 2015, cutting $8 from the roughly $600-per-acre non-land cost of planting a corn crop, and saving about $5 an acre on soybeans, data provided by farm management professor Gary Schnitkey at the University of Illinois show.

“A penny saved in fuel is a dollar earned on cattle ranches,” Uden said.

Between transporting livestock to and from feed yards and firing up trucks and tractors to water and feed them, he estimates savings of $40,000 to $50,000 this year on production costs that normally run around $200,000, thanks to crude oil’s plunge of over 50 percent since June.


Other winners include livestock farmers in top feed grain importers in Asia such as Japan and South Korea, and big meat producers Australia and China.

“The stars have aligned in favour of livestock farmers,” said Simon Quilty, an Australia-based livestock consultant.

Farmers in China, which accounts for more than half the world’s pork production, will get better returns, although gains will be limited by government controls on fuel and corn prices.

“Overall production cost of livestock farmers has gone down in China but not as steep as what we can see in the international market,” said Pan Chenjun, senior analyst at Rabobank in Hong Kong.

Many exporting countries other than the United States benefit from a strong dollar as well.

Since meat products are priced in dollars in the global market, this helps producers in countries like Australia, where the local currency has dropped around 30 percent since an all-time high in 2011.

The Australian benchmark Eastern Young Cattle Indicator has climbed 37 percent to 449 Australian cents a kilogram since late last year.


South Dakota corn, soybean and wheat grower Ryan Wagner topped off his on-farm diesel tanks last month at the cheapest prices since 2009. He is considering pre-booking propane, needed for drying harvested grain, at less than $1 per gallon - down from more than $4 seen in 2013 when tight stocks and heavy demand sent prices soaring.

Wagner paid $2.11 per gallon for diesel for the semi trucks he uses to haul grain to market, more than $1 cheaper than a year earlier.

“Fuel is not a huge item for us, compared to chemicals, seed and fertilizer, but a lot of guys who have on-farm fuel storage are taking notice,” he said.

But farmers still face steep prices for other fossil-fuel-based farm inputs.

Up to 90 percent of the cost of nitrogen fertilizer, an essential input for crops like corn and cotton, is tied to natural gas. (Additional reporting by Naveen Thukral in Singapore, Theopolis Waters and Michael Hirtzer in Chicago; Editing by Richard Chang)

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