June 12, 2024

Energy prices projected to rise

Dan Basse

CHICAGO — Farmers looking to trim historically high production costs could face more challenges again next season.

The price of oil and natural gas — both instrumental components of farm inputs — is expected to rise into next year compared to current levels.

The Energy Information Administration’s short-term energy outlook predicts prices could average $86.48 per barrel for Brent crude oil and $3.22 per million BTU for natural gas in 2024.

That’s up nearly $4 per barrel for oil and 64 cents for natural gas compared to the average estimates for 2023.

“Crude oil prices have increased since June, primarily due to extended voluntary cuts to Saudi Arabia’s crude oil production and increasing global demand,” EIA noted in its latest report. “We expect these factors will continue to reduce global oil inventories and put upward pressure on oil prices in the coming months.”

EIA projects the United States will boost crude oil production from an average of 12.76 million barrels per day this year to 13.09 barrels daily in 2024. But the planned uptick in production may only help to moderate price increases.

“Energy prices will keep rising,” said Dan Basse, president of AgResource Co. in Chicago. “World crude prices could reach $90 to $95 by the first quarter of 2024 (and possibly reach triple digits by next summer). Look at taking forward coverage (if you’re a bulk buyer).”

Farmers should also consider hedging some of their fertilizer needs for the coming season.

“I have a hard time seeing fertilizer prices come down much more,” Gary Schnitkey, soybean industry chair in ag strategy at the University of Illinois, told FarmWeek. “If we have a cold winter, it could cause natural gas prices to go higher.”

Overall, Basse looks for inflation to remain a major issue in the United States for some time to come, which could trigger the Federal Reserve to continue increasing interest rates down the road.

“The Fed may have one or two rate hikes to go, but it may not happen until 2024,” Basse said. “By raising rates, the Fed is compressing demand.”

Basse questions whether the Fed can get inflation back to its target of 2%.

“I believe the central bank will struggle to get inflation back to 2%. That target is unrealistic in this market as too many things are short,” he said. “I think we’ll have to live with inflation between 2.75% and 3.5%.”

The situation could cause the dollar index to weaken over time. If that happens, the commodity markets could find some strength amid new sales opportunities in the world market, Basse said.

This story was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association.