Silage harvest has begun in earnest in Colorado, and the choppers and trucks and pack tractors are all rolling and making east-slope mountains of cow chow. The silage will be used as part of cattle rations at dairies, ranches and feedyards across the area and the availability and growing conditions for silage and the state’s dairies and cattle feeding operations are no accident.
When Warren Monfort began feeding cattle in what we now know as a feedyard-type operation, it was north of Greeley where the corn grew, the arid weather was rarely severe on either end of the spectrum and the interstate highways provided access to markets. Monfort wasn’t wrong.
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This year has been a miserable moisture year, which has brought major implications for corn growers and producers of every other crop that is commonly grown in the state. As harvest begins, producers are spending considerably more to harvest a lower-yielding crop. That, of course, is the producers lucky enough to have a crop. Diesel fuel hovered just under $6 per gallon until late last week, when it jumped to $6.40 or better, breaking hearts and records.
Jed Sidwell at Ag Bull Media said the average combine burning red diesel for an average harvest season will burn an additional $7,500 in fuel compared to last year. Most silage harvest operations I’m familiar with run two or three choppers, 10 trucks, multiple pickups, diesel generators and two pit-packing tractors. That makes the numbers spinning at the diesel pump feel more like an auction, and spending an additional $500,000 on fuel becomes a reality in a hurry.
Ag producers are certainly not the only ones feeling the pressure of high-dollar diesel. The U.S. trucking industry should be on the top of all our Christmas card lists because that industry touches everything. Agricultural products, for example, utilize diesel from planting to produce section at the grocery store, including the fuel in the reefer keeping it cool en route. If you can order it online or buy it in store, it was on a truck at some point.
Growing up in the oil-and-gas business and reading BusinessWeek on my landman dad’s lap each night taught me several things. Global unrest and instability is bad for the economy and usually are reflected first in fuel prices. Refineries are a key link in the supply chain. Overregulation costs money. These are as true today as they were in 1984.
Decreasing supply and not demand, whether that is through the Saudis pinching off major pipelines or through the higher demand of harvest season, raises prices. In 2020, U.S. oil refineries were shuttered and now that demand has returned, the refineries are operating at 98% capacity and making a profit. They have no incentive to either reopen plants or invest billions and billions in new construction. Tax incentives aren’t adequate to tempt new construction, and if history holds true, when wars conclude, oil-and-gas prices drop and it may not pencil as well then.
The oil-and-gas refining business isn’t unlike the meat processing sector. Supply and demand still work as reliably as gravity, it takes broad shoulders to carry the financial risk and the industry is not immune to the whims and announcements of world leaders here and abroad. Oil-and-gas processors who removed processing capacity are posting record profits, unlike the meatpacking businesses who are paying out the nose for fat cattle from feeders who are losing millions.
Fuel is about one-third the price of food, so when diesel doubles, it results in a structural upset to American businesses and families. I don’t believe war is the cause of outrageous fuel prices, though it is an accelerant. The lack of refineries and a permanent increase to the floor price at the pump aren’t the sole cause but accelerants.
We’re too deep for this crisis to be resolved with a single announcement or investigation or reopening or tweet, but make no mistake, this is a crisis. Even if the president were to outlaw diesel exports to lower pump prices, it wouldn’t cause a magical drop back to normal. Normal is merely a setting on the clothes dryer. Such an announcement would starve developing countries and cause a kerfuffle in the markets, but until the basics of economics are happy, ain’t nobody happy.
Because I was raised right, I’m not a believer in overregulation or meddling in the markets, but I do believe those in the margins and the ones who can see the margins from where they’re sitting should be able to make a living and feed their children. Until the price of diesel drops, that’s going to be difficult for every American, margins be damned.
Rachel Gabel writes about agriculture and rural issues. She is assistant editor of The Fence Post magazine, the region’s preeminent agriculture publication.