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Energy Crisis and Agriculture

by Alex McGregor, WAWG Past President
Wheat Life, November 2005

'We are seeking, at the federal level, emergency assistance'

I've been active in the agricultural community for more than a quarter century. The sudden and brutal economic crisis with which farm families have had to cope this fall has caused more hardship, worry, and apprehension about the future than I've ever seen. Pat McConnell mentioned a comment from his mother about paying more for a gallon of fuel than receiving for a bushel of grain. I've heard that observation from many veteran agricultural people. It has happened before--in the bleakest years of the Great Depression when my family sold its wheat for 24 cents. We kept the horses and mules a few more years back then and let the tractor sit. We don't have that option today.

In the more than three dozen rural communities my family business serves the talk is all about farm families, most of which have been here for generations, who have sadly concluded that they must now quit raising crops. Last week, when I was getting my hair cut, a woman in the adjacent chair said to me, "My husband and I have farmed for 50 years. He hates to quit and doesn't want to put the place in CRP. But is there any hope?" The other day a university scientist called me to say he had never seen spirits so low in agriculture in his many years working with farmers. Other growers worry about their equity declining--they hate to abandon what has been a family heritage but wonder how long they can responsibly continue.

Let me visit with you about the economics of all of this. Wheat markets have fallen by 50 cents from last fall and costs to ship to market have risen. Off-road diesel, used by growers to power the equipment used to seed, nourish, protect, and harvest foodstuffs, has increased in Whitman County from $1.36/gallon at the start of the year, to $2.49.

The nitrogen used to replenish the bounty growers produce is made from atmospheric nitrogen stabilized with hydrogen from natural gas. Nitrogen prices spiked an unprecedented $95/ton--almost 20 percent--within a week of the terrible winds of Hurricane Katrina touching shore. A senior economist with a fertilizer manufacturer estimated for me the annual cost of that hike and the two small ones that preceded it by a few days--for all farmlands in the state of Washington, just over $50-million. Another, fortunately much smaller, price increase occurred on September 23 as natural gas prices spun upward again in anticipation of the arrival onshore of Hurricane Rita.

If there's money being made in all of this, it darned sure isn't by farmers. A farm management specialist at WSU, studying the impact of grain markets sliding and energy costs escalating, enters into the farm budgets he monitors a modest $14/hour for the farm work done by the owner and an 8.5 percent return on equity. While he is still double-checking all the variables, each draft of his work shows a modest profit per bushel in 2004 and a substantial loss for '05 using numbers that reflect the new reality.

We are seeking, at the federal level, emergency assistance to cover the nitrogen increases, which amount to about 20 cents per bushel, and for at least a dollar a gallon to cover much of the cost of the off-road diesel used to produce a crop. Growers are unusually vulnerable to such calamitous change--they have no chance at all to pass along price hikes on world commodity markets or to tack on fuel surcharges to cover their added costs en route. The market has, in fact, headed in the other direction.

What can you do to help? Take a look at sales tax on farm fuels. Support the funding needed to keep our land-grant school strong at a time when we need it most. Help us address bottlenecks in our river, rail, and road transportation. Keep a strong ongoing emphasis upon building overseas markets. Help provide assistance to farm towns any way you can as they struggle to keep essential services strong. But, again, I'd turn around and ask you: "What can you do to help?"

Agriculture is the largest employer in the state, with 170,000 people on board, with products that, when processed and transported, contribute $29-billion, or 13 percent, to the state gross domestic product. Agriculture is the last bastion of family business in our economy--97 percent of our farms are family enterprises.

During the lifetimes of those vet - eran farmers who have noticed fuel prices worth more than grain, such dramatic successes have been achieved. Growers have trebl ed yields, cut soil erosi on 80 percent, wind-blown dust has been reduced six-fold, stubble burning 40-fold--the biggest gains in productivity and stewardship of any generation since wheat was first sown 11, 000 years ago. It is such a success story in so many ways--for consumers, for the environment, for the state economy and, once in awhile, for the farm and ranch families who have made it all possible.

These are fine people, the "salt of the earth" families who are Washington agriculture. They face a brutal combina- tion of circumstances beyond their control right now. As our elected leaders, and knowledgeable people well acquainted with what can be done in Olympia, I hope you not only seek ideas from us but focus your expertise on creative ways you can help assist the men and women of our agricultural community and offer them hope for the future.

Related Pages:
Half of U.S. Farms Generate Less Than $10,000 a Year by Patricia McCoy, Capital Press 11/11/5

Related Sites:
Testimony of Alex McGregor Testimony before House of Representatives Agriculture Committee
Regarding "The 2007 Farm Bill and an Overview of Challenges Faced by Farm Families and the North American Fertilizer Industry"

Alex McGregor, WAWG Past President
Energy Crisis and Agriculture
Wheat Life, November 2005

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