Diesel prices adding to farmer anxiety

CHICAGO — Along with the price and supply of ammonia, the price and supply of diesel fuel is one of the factors that is adding to farmer anxiety.

And the one thing that could ease that anxiety isn’t likely to happen anytime soon, according to one ag industry analyst.

“Who wants to have a refinery in their town? Put up your hand. No one?” Dan Basse, an ag industry economist and president of AgResource Inc., asked an audience of seed industry executives and staff at the recent American Seed Trade Association’s Corn, Sorghum, Soybean and Seed Industry Expo.

Basse outlined two of the major factors that are causing anxiety for U.S. farmers, despite consecutive years of record profits in the U.S. ag industry.

“The price of ammonia has shot up. It’s starting to shoot up again. The only good news on the ammonia front is if we look out, the amount of ammonia used to produce a bushel of corn, it’s coming down,” he said.

“So, every farmer is farming better, relative to ammonia, where it sits today. But again, this is a very high cost, which is unlikely to drop significantly as we look at the year ahead.”

Then he turned to the other farm necessity — fuel.

“And then, you talk about diesel,” he said.

There is a bit of good news on the price front.

“I’m here to tell you that the price of diesel, as we see it today, will come down modestly. But any big, big break in the diesel market means we need to have one thing,” Basse said.

That one thing is the thing that nobody wants in their town — a new petroleum refinery.

“The U.S. has not built a new crude oil refinery in 48 years. And so, if we need more diesel, we only can get it from one other source, which is heating oil. We either crack for heating oil or we can crack for diesel,” Basse said.

The early record cold spells that swept across the United States in late 2022 meant that refinery operations turned to heating oil production and away from diesel production, leading to shortages and higher prices.

“When you look at where diesel fuel stocks are today, you can see they’re sitting at multi-year lows. It’ll take a long time to rebuild those diesel supplies,” Basse said.

“At the end of the day, this diesel shortage is going to be with us until we can get more refinery capacity.”

Even if a new refinery were to be announced, the diesel market would not see any immediate impact, he said.

“To build a new refinery would start somewhere in the vicinity of $40 billion to $60 billion and take over five years. So, it’s well down the road,” he said.

“It’s not going to be happening any day soon. This means that we’re going to have to import more product from abroad.”

Basse added later, in talking about the expansion of sustainable aviation fuel, that further investment by the petroleum industry in new drilling or refining capacity may be a long time coming — and may not happen at all.

“The investment in the oil patch is not where it needs to be. I need more capital investment in U.S. petroleum production, but it’s not happening,” he said.

“Who wants to invest in petroleum or the old fossil fuel industry when the administration is against it?”

While the focus and push toward electrification by environmentalists and by the Biden administration continues, the European Union has eased off on the accelerator to electrification and is moving in a different direction.

“We cannot meet the U.S. energy needs as it sits today. This is why countries like the EU have gotten away from thinking about green fuels. They want to move right over to hydrogen. They think hydrogen will be the next opportunity,” Basse said.

“We in the United States are still holding onto electrification and not seeing enough investment in the oil patch.”

He emphasized that the lack of investment in the U.S. petroleum industry offers the opportunity for further and continuing energy price increases.

“We believe that to get to where we need to be in energy, the investment in the United States oil patch needs to be close to $290 billion by 2028, which is just not happening today,” he said.