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Texas Agriculture Archive

March 7, 2003

High energy prices
put onus on irrigators

By Lana Robinson
Field Editor

Natural-gas prices soared 39 percent, Feb. 24, boosting May contracts to $6.84 (up 88 cents) and June contracts $6.36 (up 61 cents), according to Texas Farm Bureau Agricultural Marketing Education Director Bryce Myrick. Analysts say cold weather, predictions of more freezes, and reports of low storage levels spooked markets. By the next day, prices had retreated a little, but the threatened war with Iraq has kept crude oil, and energy prices in general, at higher-than-normal levels. Myrick says if high prices are sustained, irrigators will be in a heap of trouble.

"It's going to be a big issue for those guys around Lubbock trying to water this spring," Myrick said. It won't work at these prices. In fact, most agree that gas has nearly got to stay below $5 to make it work."

Texas Farm Bureau Vice President Lloyd Arthur of Ralls is one of those irrigators who would experience an exorbitant gas bill at those prices if he doesn't make adjustments. But Arthur's ceiling is even lower than $5.

"I always said if it got over $4.50, it's uneconomical to run. The area from Plainview north, where they plant a lot of corn, would likely plant cotton instead. I plant cotton to start with. I'd call it dryland and just irrigate under a pivot or drip. I will have to manage input costs more efficiently," he said.

Arthur also expects a hike in the cost of electricity, because generation in his area is natural-gas fired. In February, the West Texas cotton farmer attended an irrigators' meeting in which Atmos Energy, one of the largest natural gas distributors in the United States with 1.7 million residential, commercial, industrial and public-authority customers, informed irrigators that they were not renewing or extending natural gas contracts.

"Atmos is going on a monthly pricing," he said. "What scares me about that is we're using the gas before we know what it's costing us. We could get a shock when we get the bill. There are ways to get a price estimate, through the Internet or by calling their office. They figure pricing off the NYMEX (New York Mercantile Exchange), the futures trading, and then add 75 cents for their margin. That's what happened two years ago. Futures hit $10 during the January to March period, then the price came back down. It was still $5.85 and then it came on down to $3.85. I'm hoping the same thing will happen this year. There again, if it's over $4.50 come watering time, I'll have to start cutting somewhere."

When natural gas prices get too high, fertilizer plants stop producing fertilizer; either because they can't afford the natural gas, or because it's being sold off to higher bidders for other uses. This also affects farmers like Arthur.

"Liquid fertilizer, anhydrous liquid, is just now beginning to jump," Arthur said.

For nitrogen fertilizer, natural gas is 80 to 90 per cent of the cost of production. If the trend continues, farmers will see some very ugly prices in March.

"Diesel is another fuel cost that affects my operation. On Feb. 1, I bought a transport load of farm diesel for $1.04 a gallon. Now, it's $1.22, so you've got those variable costs to deal with."

Arthur also drives a diesel pickup truck, and said in February, prices varied from town to town between Waco and Ralls anywhere from $1.58 to $1.79.

The Crosby County cotton producer said rain could be a wild card. It was plentiful last fall, but behind now.

"We're in desperate need of rain. If we get timely rains, get planted, and then have timely rains in the summer, we can get by with just supplementing with irrigation, either through pivots or drip system. The old furrow type is out of the question. If we have nominal water, it will not happen, not with commodity prices at the level they are," he said.