By Frank Giles
Diesel has been called the lifeblood of the U.S. economy. It fuels the farms that feed America and the trucks that deliver food across the nation. Diesel powers trains, ships and so much more, so it is little surprise recent spikes in prices and inventory concerns have the agriculture industry worried, along with many other sectors of the economy.
It caught the public’s attention when headlines ran that there was only a 25-day supply of diesel in the United States. Some folks took that number literally that all the diesel fuel engines would stop running 25 days from when they read that news. It is not quite that dire, since the supply figure is more of a moving scale of what’s in storage, not a literal countdown.
But the 25-day supply figure should still send up warning signals. Stocks of diesel and other distillate fuel oils were just 106 million barrels on Oct. 21, the lowest for that time of year since the U.S. Energy Information Administration (EIA) started collecting weekly data in 1982.
Prices reflect the low inventories. Diesel has been running well over $5 per gallon for weeks. That is more than a dollar and a half higher than the year before.
According to Alix Miller, president of the Florida Trucking Association, the problem is impacting trucking companies large and small.
“Diesel fuel is the lifeblood of our industry and our second largest expense only following labor, so the historic high prices we have seen this year have a tremendous impact on trucking companies of all sizes, but particularly on smaller ones (91% of trucking companies operate six or fewer trucks),” Miller says.
CONTRIBUTING FACTORS
There are several factors in play that impact diesel from both the supply and the demand side of the equation. The American Farm Bureau Federation (AFBF) released a detailed report looking at these factors in November.
One of those factors is the ban of U.S. imports of petroleum, coal and natural gas from Russia in response to its invasion of Ukraine. While Russia only accounted for 3% of crude oil imports in 2021, it accounted for 20% of U.S. imports of petroleum products. These unfinished oils and fuel oils are used as a supplement to crude oil in the refining process.
The unfinished oils are an important source for diesel production in the United States.
In addition, the Russian invasion has created significant disruptions of global markets for crude oil and petroleum products, which have had ripple effects in the U.S. market.
Refinery production also is down, tightening the supply. Since 2019, U.S. diesel production capacity has dropped by about 180,000 barrels per day, which is equivalent to about 4% of current diesel production. This was due in part to plants shutting down during the pandemic.
Several of the plants that closed are now being converted to cleaner-burning renewable diesel, but those facilities are not yet producing fuel. In the fall, plants conduct yearly maintenance, which lowers supply, but refiners have mostly finished this process, so that capacity is coming back online.
DEMAND DYNAMICS
The demand dynamics for diesel and gasoline are different. Gas prices tend to rise in the summer when people head out for vacation. Demand for diesel rises in the fall and winter from increased demand for trucking, farming and heating.
In addition, demand for trucking and diesel fuel spiked as the country increased online commerce during the pandemic and as the economy emerged from the pandemic. Last year, about 128 million gallons of diesel were consumed daily in the United States. All of these factors lead to higher prices, especially when supply is constrained.
Low levels in the Mississippi River also are aggravating the situation as barge traffic is being converted to trucks and rail, increasing diesel demand. A looming U.S. rail strike that was sidelined by Congressional action and the President’s signature would have made matters worse.
According to the AFBF report, the supply and demand scenario will continue to keep inventories tight and prices elevated. The EIA predicts national diesel prices to average $4.86 per gallon in the fourth quarter of 2022 and $4.29 per gallon in 2023. That’s an optimistic outlook, maybe overly so, according to the AFBF analysis. Growers and transportation companies should plan for higher prices in the near- and mid-term.
POSSIBLE SOLUTIONS
In November, AFBF President Zippy Duvall sent President Biden a letter calling for more action to bolster domestic supplies of diesel. In the letter, he noted: “While geopolitical challenges, worldwide demand for distillates and seasonality play a role in energy supply and prices, so does public policy. That is why the American Farm Bureau supports increased domestic energy production, including more drilling, extraction and refining of our energy resources. By displacing imported petroleum, increased domestic production will enhance U.S. security and bring more supply online, reducing costs to all Americans.”
There have been some calls to restrict diesel exports to bolster domestic supply. But that comes with a set of problems of its own, including alienating U.S. allies during a time of war.
That leaves refining capacity here in the United States, which has fallen by 2 million gallons of diesel per day since the start of the pandemic. We’ve not built a major refinery here since 1977. Chances are that’s not likely to change anytime soon.
In the meantime, Miller says we need an “all of the above” strategy when it comes to diesel.
“In the short term, just having refiners resume a more normal production cycle, along with other market adjustments should help boost diesel inventories,” Miller says. “It also means ramping up domestic oil production in the near-term, investing in alternative fuels such as renewable diesel and renewable natural gas and advancing the increased use of heavy-duty electric vehicles where technologically feasible and economically viable.”
Keep Those Engines Purring
While growers can’t control diesel supply and demand dynamics, which are creating high prices, they can control some things on the farm to make equipment more efficient.
“The most important thing is for farmers to avoid unnecessary operations and activities. Examples include unnecessary tillage, non-optimum travel and transport paths, and long-term idling,” says John Schueller, a professor of mechanical engineering and agricultural engineering at the University of Florida. “It is also important to use the right-sized tractors and equipment, neither too big nor too small.
“Other than remembering to keep the radiators clean and the fuel and air filters changed, there is not much to be done to improve the fuel consumption of modern computer-controlled engines. It may help a little to shift up and not operate at the fastest engines speeds. But even with today’s high cost of diesel fuel, it is most important to do the farming right to produce the most high-quality crops.”
Karl Renius, former professor at Technical University Munich, Germany, and author of Fundamentals of Tractor Design, is considered a top authority on equipment operation and efficiency. Here are a few of his tips to consider that can help reduce fuel consumption:
● Prevent idling because engine and auxiliaries need energy, most of it wasted. And idling is not good for engine life.
● Prevent high engine speeds and try to get high power at medium speeds.
● If standard tractors are used for heavy tillage, use those with mechanical front wheel drive. In this case, front ballast can be necessary (a must in case of heavy rear-mounted implements).
● For field operations, adjust tire inflation pressure properly to the working conditions.
● For field speeds above about 6 mph, remove ballast from the tractor to increase traction, increase net-traction coefficient and increase traction efficiency. This creates slightly higher slip but is overridden by reduced motion resistance. Farmers often cannot believe this, but it is physics, according to Renius.
● Look for tractors and implements which use electric power for lower levels.
● Keep the cab air conditioner temperature not much lower than the outside temperature and avoid running the air vent too high, which is easier said than done in Florida.
● If you intend to buy a new or used tractor, first study the results of DLG-PowerMix, the world’s best evaluation of total tractor energy efficiency.
● Always consult tractor and other equipment operation manuals for tips on optimizing performance.