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Plunge in Oil Good for Consumers and Ag

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Low gas good for Ag

BobYoungAFBPlunging oil prices in the U.S. are a pleasant surprise for motorists and it’s mostly good news for American farmers too. American Farm Bureau senior economist Bob Young says the good news after years of higher oil prices is lower input costs.

“Whether that be for the direct purchase of energy to run the tractor or heat the houses with the animals in it, as oil prices pull down it does tend to put downside pressure on all the energy inputs. So some of those energy related, some of those fertilizer inputs etc. might also be affected if these prices stay down for the next several months as well.”

That leaves more money in producer and consumer pockets. But Young says on the negative side, “As we do talk about lower gasoline prices that does lower the margin on ethanol sales, so it might end up with some impacts on that side of the house. But I think overall you have to view this as a positive thing for US agriculture.”

And while lower fuel prices may be of limited help with $3.50 corn prices, Young says livestock producers already reaping gains from lower feed cost will be helped more. But the bigger picture for oil drilling and exporting could be dimmer.

“We might back off on our drilling, even suggest that maybe the time has come to cap some wells. We know that it’s down there so let’s just let it sit down there for awhile. Internationally too you do have some countries that are dependent on oil being up at that $100 a barrel range in order to support some of their domestic programs and they’re going to come under some pressure.”

Those countries include Venezuela, Iran and Saudi Arabia. Sinking oil prices also signal a slowing global economy and, Young says, the prospect of less demand for some U.S. farm exports, including meats.