Lower Oil Prices and Ag’s $30,000 Windfall

oil prices jpeg
I recently heard a statistic from the United States that 2000 acre grain farmer in the Eastern corn belt would save $30,000 worth of diesel fuel in 2015 versus 2014 because of the declining price of oil.  That is the kind of statistic that I can really latch onto.  $30,000 isn’t chump change; it’s a major infusion of capital back into the farm.

Of course since then I’ve been wondering how true it is and whether you can correlate that figure by the factor of your own acreage.  That would save me about 13 or $14,000 US next year.  That’s a nice down payment on the little Kubota tractor I was using last spring.  It has made me wonder just how different things might be next year because of the price of oil.

It shouldn’t be too much of a surprise what is happening.  Visit your local gas station in southwestern Ontario and many of us are filling our tanks for just a little bit more than half what we were four months ago.  The Bank of Canada describes it a little bit differently.  It said in a recent release that the most immediate impact of lower oil prices would be a boost to consumer’s disposable income and spending.  They said that lower oil prices would benefit manufacturing as well as lowering costs, boosting jobs and giving Canada stronger growth.

If you are in Eastern Canada its music to your ears.  We’ve watch for many years now as the wealth of Canada has shifted to Alberta.  Of course our friends in Newfoundland were part of that to.  Unfortunately for our Western cousins and for those in Newfoundland harder times are brought by lower oil prices. For our Canadian government looking forward this will surely be quite a challenge.  No federal budget projections were made when oil was $48 a barrel.

Of course the question is how long will low prices persist?  I tend to think they will bounce back because eventually Saudi Arabia will want to make even more money.  Needless to say, the Bank of Canada has said that the gains from lower oil prices will eventually be reversed over time because of lower incomes in the oil patch and along the supply chain throughout the rest of the country.  Ontario might’ve lost manufacturing through the years but supplying the oil patch with equipment in Western Canada has picked much of that up.  It definitely puts the Canadian economy in a state of flux.

The impact to agriculture may come much later.  Yes, I’m still looking for my share of that $30,000.  Hopefully that will come true.  In the meantime this year it looks like we’ve got lower corn and soybean prices again, but as farmers we are used to that.  In agriculture changes are our only constant.  What might be more telling is what happens later this year in the United States when the US Federal Reserve may shoot the first volley in the interest rate hike parade.

Simply put our American friends have finally got their economy humming again.  US Economic growth is rising and capital from around the world is rushing to the American dollar.  At a certain point the US Federal Reserve may raise interest rates in 2015.  In fact even the rumor of them doing that would send the US dollar to even greater stratospheric heights.  The antithesis of that will be in Canada where a higher US dollar will put the loonie even farther down.  That’s a good thing for Eastern Canada and a very good thing for Canadian agriculture.

Of course it usually isn’t that straightforward.  Economies can get messy when politics is involved.  It even gets worse when you have some type of unexpected Tuesday event like a terrorist strike or a war, which comes out of nowhere.  We have not had that for quite some time. However, it will happen and when it does it will be like mad cow all over again.

So the road ahead with oil and our economy will surely be eventful and not all bad.  Of course one thing I have left out is that upcoming federal election in Canada.  Yes, it is that time again.  With an election this year you can bet our federal government will be delving into the economy trying to make things work even better.  The price of oil is not cooperating, but that will never trump a politician getting in front of the cameras talking about spending money.  It is what it.

So let’s all hope we get a piece of that $30,000.  Somewhere along the line when oil was over $100 a barrel I thought I was being taken advantage of.  So at least for the moment I’ll take it.  Many other Canadians will surely take it too.

Comments are closed.