Michigan farmers heading into harvest face a costly new threat: diesel has surged to record levels, adding a major expense to an already difficult farm economy and potentially pushing food costs higher, Michigan Ag Today reports. The statewide average for on-road diesel reached a record US$6.67 a gallon on Friday, with off-road diesel at US$5.55 to US$5.80.
Harvest is one of the most fuel-intensive periods of the year, with combines, grain carts and semis burning thousands of gallons, and every extra dollar comes straight off margins already squeezed by high input costs and weak commodity prices. Higher fuel costs also raise the price of moving grain, livestock, fertiliser and chemicals, and can work through to consumers, a double squeeze.
'It's been these very effective Ukrainian drone attacks on Russian refineries,' said Patrick DeHaan, senior petroleum analyst at GasBuddy. 'It's pushed up global diesel prices … there's not enough diesel supply now, globally.' Russia traditionally produced one in every nine barrels of diesel worldwide, he said, 'and now that number is zero'; escalations involving the US and Iran, Houthi attacks in the Red Sea and a strike on Saudi Arabia's East-West pipeline add to the pressure.
US refineries have no slack: they have been running at 98% of available capacity, and in the Midwest above 100% through 'process gain'. 'Meaning that there is no margin for error,' DeHaan said, and refinery problems and maintenance have already appeared. 'Gasoline and diesel prices are going to continue to advance. Diesel could hit even US$6.50 or US$7.'
He cautions that he cannot predict how much worse further geopolitical or refinery disruptions would make it, but 'there's just really nothing that looks good in the market right now'. Harvest cannot wait for prices to fall: crops must be cut, grain hauled and bills paid, and for farmers already under financial strain the fuel tank is another place where the margin is disappearing.
Source: Michigan Ag Today
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