Canadian farm input costs, specifically diesel fuel, could be headed higher in the New Year.
Effective Jan. 1, a new International Maritime Organization standard to reduce pollutants will require all large ocean-going vessels without exhaust scrubbers to run on ultra-low sulphur diesel fuel – the same kind that is used on most Canadian farms. That additional demand from the Maritime industry is expected to tighten supplies and force diesel prices higher, making it more expensive to fuel tractors and other farm equipment.
“At the turn of midnight, we’ll see a tremendous increase in demand for those diesel products,” said Patrick DeHaan, head of petroleum analysis with GasBuddy.
Although Canadian refineries are working ahead to meet the expected increase in demand, DeHaan said an open-ended question looms, regarding if there’s enough supply to meet that demand.
“That’s a point of contention for prices,” he said.
The U.S. Energy Information Administration (EIA) said in report in March that changes in fuel prices because of the new Maritime standard would begin to be seen as early as mid-to-late 2019, with the effects on prices to be most acute in 2020, and then to moderate afterward.
“The change in sulfur limits has wide-ranging repercussions for the global refining and shipping industries as well for petroleum supply, demand, trade flows, and prices,” the report said.
Any increase in diesel costs would hit Canadian farmers hard, given already rising costs and tightening margins. Statistics Canada reported earlier this year that Canadian farm operating expenses (after rebates) increased 6.5% in 2018 to $50.6 billion, with fuel costs alone up more than 18% after a 9.3% hike in 2017. The larger expenses played a role as national realized net farm income fell 45.1% in 2018 to $3.9 billion, the largest percentage decrease since 2006.
Meanwhile, higher diesel prices could also weigh on commodity prices, given that it figures to cost more to ship grains to overseas customers.
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