12/20/06 Economic analyst on energy prices

Farm and Ranch December 20, 2006 What can farmers and ranchers expect in the way of petroleum, diesel, and fertilizer prices down the road? Economic policy analyst Ross Korves provided his view at the recent Pacific Northwest Grains conference held in Portland. First Korves' view on crude oil. Korves: "My answer, real simple I think, the new equilibrium price for petroleum in the world is $50 a barrel, with some kind of a relationship between 40-60 most years." Natural gas is the major component in nitrogen fertilizer and Korves sees fertilizer prices remaining relatively high. Korves: "We are importing over half our nitrogen fertilizer now and that is going to keep going up. It is basic economics. It is just one of those things we just have to deal with." On a side note, Korves points out we have people talking about energy independence by using corn to make ethanol but we are having to import the fertilizer needed to grow the corn to make the ethanol. As for diesel prices, Korves says the U.S. is short diesel versus gasoline and the world is short diesel versus gasoline. Korves: "Eventually that can be corrected by the oil companies spending enough money to get more diesel and less gasoline. But that takes time. That takes money. They have been spending all their money getting the ultra-low sulfur diesel. And I think diesel will continue to run 30 or 40 cents above gasoline for the next couple of years. Maybe longer than that, until we get this thing back in line again." Korves provides economic analysis to Pro Exporter Network. He previously spent 25 years with the American Farm Bureau Federation. I'm Bob Hoff and that's the Northwest Farm and Ranch Report on the Northwest Ag Information Network.