Farmers can expect to see red diesel prices continuing to slide with the likelihood that it will be “many months” before oil prices rise again as higher-cost oil producers are gradually driven out of the market, according to National Farmers Union (NFU) economist Anand Dossa.
“While there is a time lag in how falling oil prices filter through to the red diesel market and the wider supply chain, farmers may see prices slide in the coming months,” commented Mr Dossa in his latest blog on the NFU website.
Even so, he warned, despite farmers benefiting from lower fuel prices, the easing of costs will not be enough to offset the commodity price slides being experienced by many producers.
What we have to bear in mind is that the industry has seen falling farmgate prices across all sectors in 2014.
“The rapid fall in global oil prices seems to have taken many by surprise,” he said. “The price of crude oil has declined sharply over the past seven months, creating a list of winners and losers’. Since June prices have more than halved and Brent crude oil has now dipped well below $50 a barrel for the first time since May 2009.
In looking at the potential impact on farming costs of this slide, he focused first on the direct influence being felt in red diesel prices.
“In December 2014, the average price for red diesel was down 1.99p per litre, to 57.18ppl, the lowest price since October 2010,” he said. “Compared with December 2013, red diesel prices are down 16.9%.
“However, fuel only represents around 4-5% of the average farm input costs and fertiliser is around 8% of the total costs, in comparison to, say, feed which can be more than 50% in the livestock sector. Much reduction in electricity prices is also unlikely, since these are only distantly linked to the cost of oil.”
While lower oil prices may bring some cheer for farmers, he concluded, the real focus of attention needed to remain on tackling the pressures farmers face with the current volatile market and ensuring that the right conditions are there for farmers to invest for the future.