Global oil prices have been in a bit of a free fall lately thanks to a supply glut fueled by American shale gas production and a difference of opinion between oil producing countries about cutting production to put an end to the downward trend.
There is both good and bad news for agriculture with plunging oil prices. The good news, after years of higher oil prices, is lower input cost.
“As oil prices pull down it does have a tendency to put downside pressure of all energy inputs,” said Bob Young, senior economist with The American Farm Bureau Federation. “Whether that be for the direct purchase of energy to run the tractor, to heat the barns or the house and even fertilizer prices will be affected if prices stay this low or lower for the next several months.”
That would leave more money in producer and consumer pockets, but Young warns that the new is not all positive.
“When we do talk about lower gasoline prices we also talk about a lower margin on ethanol sales,” Young said. “But overall I think you would have to view this as a positive thing for U.S. agriculture.”
And while lower fuel prices may be of limited help with $3.50 corn prices, Young sees livestock producers already reaping gains from lower feed cost, being helped more. But the bigger picture for oil drilling and exporting could be dimmer.
“We may choose to back off on our drilling and some folks may be asked to consider capping some wells and giving the drills a rest,” Young said. “Internationally there are some countries that depend on oil being right around that $100 a barrel range in order to support some of their domestic programs that may now start to come under some pressure.”
And sinking oil prices signals a slowing global economy, particularly in countries including Venezuela, Iran and Saudi Arabia, Young said. It also could mean less demand for some U.S. farm exports, including meats.
