Agribusiness and Farmers Thank Santa for Lower Oil Prices

Christmas may be over, but family farmers — and big agribusiness like ConAgra, Cargill and ADM — found a big present under the tree this season in the form of lower oil prices.

Commodity prices have been insanely volatile over the past 18 months. Prices for soft white wheat, for example, spiked as high as $15.12 a bushel in January 2007, only to collapse to around $4.70 by mid-October. As one farm economist noted this fall, that’s twice the volatility we saw on Wall Street during the same period.

Last week, prices were hovering in the $5.50 to $5.80 range, which is about $2 a bushel above the norm for the past 20 years. But as recently as six weeks ago, farmers and farm economists were warning that a tightening was coming to the Farm Belt, because growers would need at least $6.50 or $7 a bushel just to break even.

The reason? High oil prices. Not only does farm equipment require a whole lot of fuel — combines and tractors are built for performance, not fuel economy — but key “inputs” like pesticides and fertilizers typically are derived from petroleum or natural gas. With oil trading over $100 a barrel for most of 2008, the prices of those inputs shot up, even as grain prices started to slide. Throw in the credit tightening, which hits farmers as hard as any other small business operator, and things were looking pretty scary back around Halloween.

But since then, oil prices have collapsed. It’s trading around $35 a barrel today — nearly $110 below the mid-summer peak. That’s going to make a huge difference for growers, and could even spill over to help implement dealers like John Deere, and provide a much-needed boost to the economic fortunes of America’s heartland.