Rising gas prices hit drivers, farmers hard - During the peak growing season, Valley farmers are spending $80 to $100 more a week to run equipment.

By Cathy Grimes of the Walla Walla Union-Bulletin

May 1, 2004

Walla Walla, WA - Consumers are digging deeper into their pockets to cover what have become almost daily hikes in the price of gasoline and diesel.

For most drivers, the skyrocketing prices mean paying $2 to $8 more per fill-up, increasing commute costs and potentially crimping vacation and weekend getaway plans.

But the increase comes during peak growing season for Walla Walla Valley farmers. Fuel accounts for about 8 percent of their production costs. Rising gas and diesel prices mean shelling out an additional $80 to $100 each week to run tractors, trucks and other equipment.

``People are trying to get in their crops,' said Walla Walla wheat farmer Jim Kent. ``It's pretty hard right now and there's nothing you can do about it.'

``It's another component added to the cost of work,' said Tom Waliser, manager of Pepper Bridge Vineyards and past chairman of the Washington Association of Wine Grape Growers.

Industry analysts report April posted some of the highest increases of the year. Prices rose about 20 cents per gallon for all grades of gasoline and diesel during the month. The increase pushed the average price of regular gasoline to more than $2.01 per gallon in Washington state, 20 cents higher than the national average.

That national average hit a new record Friday, when the American Automobile Association reported gas prices more than 27 cents higher than the same date in 2003.

Analysts expect no relief for the next four months.

``The summer outlook is these prices will be sustained,' said Rayola Dougher, senior policy analyst for the American Petroleum Institute in Washington D.C. ``In fact, they could increase a few cents per gallon.'

Price hikes at the pump are directly related to the soaring price of crude oil on the international market, according to Dougher. Friday, crude oil sold for $37.38 per 42-gallon barrel, a jump of more than $10 over December 2003 prices.

``For every $1 increase per barrel, figure on an increase of 2.5 cents per gallon,' Dougher said of the relationship between crude oil and gasoline prices. ``It's lock step. It's almost one-on-one.'

Dougher said the increasing prices are linked to rising demand for a limitable supply of crude oil.

The U.S., which imports 60 percent of its oil, is competing with Asia, Europe and other markets where demand outstrips supplies and production. Several oil producers, including OPEC, the Organization of Petroleum Exporting Countries, have capped output to maintain price levels.

Political instability in oil-producing countries and limited inventories at U.S. refineries also influence fuel prices, she said.

``We're all getting what we need, but it's right at the margin. Our inventories are low,' she said. ``There's been a surge in demand, but no surge in supply.'

The combination of factors means farmers must plan on spending about 20 percent more for fuel than last year.

``This is going to affect all your farmers,' Washington State University agricultural economist Herb Hinman said. ``They work on such fine margins as it is. They can't pass on the increase.'

Hinman said farmers use 200 to 400 gallons of fuel weekly during summer months. Grain and feed crops are the most machine and fuel intensive. Touchet hay farmer Larry Pierce estimates his fuel costs are about $10,000 each season to keep tractors, cutters, balers and trucks in operation.

But Waliser said vineyard owners and orchardists are equally machine and fuel dependent.

``When you have a permanent crop you have to maintain the environment above and below the ground,' Waliser explained. ``It's 12 months of the year.'

Analysts note Western farmers will be hit harder than those in the Midwest and other farming regions, where diesel prices range from $1.65 to $1.82 per gallon.

``One trend we've seen for quite some time is that West Coast prices are higher than the rest of the country,' said Spokane AAA public affairs director Dave Overstreet.

Dougher concurred, saying most gas and diesel is refined elsewhere in the country, with Western consumers picking up the tab for transportation and refinery costs.

But Dougher said consumers and farmers should not shake their fists at oil and gas companies. First-quarter 2004 earnings statements for all major oil companies show an average profit margin of 6.7 percent.

``They're making about 7 cents on the dollar,' she said. ``Most of what they're earning they're pumping back into production. But the companies are so large, their revenues are in the billions of dollars. Even 6.7 percent can look huge in those terms.'

Service station owners and dealers have slimmer profit margins, she said, often below 5 percent.

``There's downward pressure on prices. They have to stay competitive,' she said. ``What's happening is the dealers and stations are losing money.'

Area farmers said they are hopeful they can absorb the current fuel price spikes and ride out the summer without sustaining losses.

``There's nothing you can do at the farmer level,' said Kent. ``It really just cuts into the bottom line.'

``It's not like it hasn't happened before,' Pierce said. ``Hopefully this is short term and by next fall or a year from now it will be a lot better.'