Wednesday, September 21, 2011

Fuel for thought...  

I have never really followed the argument that higher fuel costs were a big deal for my budget. To be sure, they rippled through input costs (especially fertilizer), but otherwise never moved my needle for cropping decisions. 

Hence my puzzlement at statements like this:
Agricultural production is sensitive to changes in energy prices, and higher energy prices could cause acreage shifts.

With higher energy related expenses from 2012 to 2018 (fuel up an average of 2.6% to 5.3% and fertilizer up 4% to 10%), total acreage for corn, sorghum, barley, oats, wheat, rice and upland cotton would decrease by an average of 0.2% (under the lower energy price change scenario) to 0.4% (higher price change scenario). [More]
Really? In my world, those figures show almost complete INsensitivity to energy prices. In fact, 0.2% strikes me as outside the error band for projections five years out.

Now add in the increased efficiency of Tier 4 engines that will start populating our farms.

But give tractor manufacturers credit. They met the EPA's January 2011 deadline for Tier 4A compliance. (Final Tier 4 compliance is due by January 2014.) Not only that, they created engines that are more powerful and more efficient than what came before. Trials at the Nebraska Tractor Test Lab confirm that.
A few months ago, CNH proudly announced that some of its Tier 4A tractors had set records for fuel efficiency during preliminary trials at the Nebraska Tractor Test Lab. [More]

I will note in passing that this boost - while expensive upfront - also demonstrates the possibility that environmental protection can prompt regulation that nudges us in a better direction.

I am not now actually using less fuel per acre the longer I farm. It's down below 4 gpa, where it has been for years.  

The more interesting energy question for me is why propane isn't dirt cheap like natural gas. The reason is the production process.

Propane is produced as a by-product of two other processes, natural gas processing and petroleum refining. The processing of natural gas involves removal of butane, propane and large amounts of ethane from the raw gas, in order to prevent condensation of these volatiles in natural gas pipelines. Additionally, oil refineries produce some propane as a by-product of cracking petroleum into gasoline or heating oil. The supply of propane cannot easily be adjusted to meet increased demand, because of the by-product nature of propane production. About 90% of U.S. propane is domestically produced.[citation needed] The United States imports about 10% of the propane consumed each year, with about 70% of that coming from Canada via pipeline and rail. The remaining 30% of imported propane comes to the United States from other sources via ocean transport.
After it is produced, North American propane is stored in huge salt caverns located in Fort Saskatchewan, Alberta; Mont Belvieu, Texas and Conway, Kansas. These salt caverns were hollowed out in the 1940s,[9] and they can store 80 million or more barrels of propane. When the propane is needed, most of it is shipped by pipelines to other areas of the Midwest, the North and the South, for use by customers. Propane is also shipped by barge and railway to selected U.S. areas.[citation needed]


So instead of propane being made from NG on purpose, it is more what you have left over after extracting the NG. This makes the economics of production a little more complicated that I thought.

Increased liquids prices can lower gas producers’ breakeven costs by $2 per million Btu, which may boost U.S. output by more than 8 percent through 2014, according to Sriram Vasudevan, a New York-based director at Macquarie Energy Markets.
Propane at the Mont Belvieu hub in Texas gained 3 cents, or 2.3 percent, to $1.36 a gallon on Jan. 10, the highest price since Feb. 3, according to DTN, a unit of Telvent GIT SA, a Madrid-based information provider. Ethane at Mont Belvieu was unchanged at 60.75 cents a gallon. Ethane fell to 43.5 cents on June 23. Butane climbed 31 percent since early July to $1.70 a gallon. [More]
(The "liquids" refer to propane, butane and ethane.)

I also think the no-till claims of drastic fuel usage decreases to be less useful than at first glance. "Rolling" fuel is a $10-15 expense, which today isn't a real biggy or subject to major savings by shifting production methods.

Another reason I think no-till will probably continue its stagnant or diminishing share of acres.

All things considered, this may be all I think about fuel for this year. There are way bigger fish to fry, economically.

1 comment:

Anonymous said...

Two years ago my fuel cost for drying corn was my third largest expence for raising that crop. Last year and looks like this year not so much. But don't kid yourself the fuel needed for drying corn can be HUGE.