Higher Oil Prices May Create Opportunities for Grain Farmers
It is no secret the Federal Reserve and many financial pundits would like to see lower prices of goods and services to stabilize the economy. A farmer’s livelihood has always been impacted by government, economics and weather. But lately many would argue the weather might be the most predictable.
Oil producing countries around the globe, along with the Organization of Petroleum Exporting Countries (OPEC), forecast tight production during the summer driving season. Oil prices have increased accordingly as of late, which may add additional price pressure to many of the goods and services used everyday by consumers and producers in the US economy. When you look deeper into any challenges, opportunities can be found.
First, there is a positive correlation between corn and soybean prices to the price of oil, so an increase in oil prices could help lift prices for grain and oilseed producers. Over time this correlation looks very convincing, but may not be reliable in the short-term. Use this information with caution in your grain marketing decisions.
Second, the push for lower prices has contained costs in many areas, including natural gas and corn and other main inputs for ethanol production. Contained production costs at ethanol plants, along with presumably higher gas prices this summer, creates an opportunity for this country to produce record amounts of relatively inexpensive ethanol. Soybeans have a similar story with new crush plants leading the way for record output.
My choice at the gas pump has been to fill up with E15 whenever I can because of the lower price, keeping valuable dollars closer to home while dodging the influence of the geopolitical tensions around the globe. Apparently, I am not alone. According to Growth Energy, a biofuels advocacy organization, over 3,400 gas stations chose to carry E15 and over 100 billion miles have been driven with the fuel blend.
Is it possible relatively high oil prices alongside lower grain and oilseed prices will spur an opportunity in this country for ethanol? The EPA has given the greenlight to eight Midwest states to sell the fuel blend year-round beginning in 2025.
I also look forward to the day that I can find 100% renewable diesel near me to put in my tractor and use sustainable aviation fuel on my next flight across the country. These industries are still in their relative infancy and should continue succeeding in the current environment. So maybe it is the economist in me that believes lower prices are going to cure the lower prices. More likely, “it’s just like the weather, if you don’t like it today, just wait a day and it will change.”
Contact a grain team member for more.
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