With escalating gas prices, I'm betting agriculture will quickly start feeling the need to pinch and save, if it hasn't already.
April 25, 2011
Have you noticed how much it costs to fill up these days? In most states, gas prices have risen more than $1 per gallon since spring 2010, with the average cost per gallon somewhere north of $3.85. In a few places, it already costs well over $4 per gallon to fill up. Meanwhile, diesel in most states already costs significantly more than $4 per gallon.
For the general population, these near record gas prices are very bad news. Already, analysts are saying that consumers are altering their general spending habits and summer vacation plans because of them.
And I'm betting agriculture will quickly start feeling this need to pinch and save, if it hasn't already. Let's face it - ag retailers use lots of gasoline and diesel fuel during the spring and summer months, moving crop inputs and performing custom application work. Higher fuel prices will inevitably cut into their margins.
But what will be interesting to see is how ag retailers respond to this situation. I remember back in the heady, big profits days of 2006, 99% of CropLife 100 retailers said that the then higher fuel prices were negatively impacting their bottom lines. However, somewhat surprisingly, more than 50% of this group didn't increase their prices to grower-customers the following season as a way to recoup these losses.
Here in 2011, the world of agriculture is a much different place. Commodity prices are at near record highs and there seems to be plenty of money in the pipeline on the grower side of the equation. Likewise, ag retailers have enjoyed steady sales growth since the Great Recession of 2008 and 2009. In theory, higher service/input costs to offset fuel prices shouldn't present too much of an issue for the marketplace.
But time will tell . . .