Barring another major disruption, gasoline and diesel prices are expected to hold steady in 2006, according to a University of Nebraska-Lincoln ag economist. However, producers are being urged to budget more money for gasoline and diesel expenses as world demand for energy grows faster than crude oil is being produced.

Unleaded fuel soared to more than $3/gallon in many parts of the U.S. in 2005, and diesel to around $2.75 in many areas. Prices have dropped, but hay producers shouldn't expect big price declines in 2006. Even before hurricanes Katrina and Rita hit the Gulf States last fall, crude oil prices and wholesale gasoline prices were increasing, says Dennis Conley, University of Nebraska ag economist. The hurricanes damaged many Gulf Coast oil refineries, creating severe shortages and spiking prices. The amount of carryover in the world market is still at all-time low levels in terms of production capacity, according to Conley.

Limited supplies and reduced refining capacity mean even a minor disruption in 2006 will send prices soaring again. Conley says gasoline and diesel prices are following similar patterns. Crude oil, diesel and gas prices are all trending upward. However, world demand should decline somewhat in 2006 as high prices force people to try to reduce the amount of gas they buy, Conley states.

While most fuel prices are trending higher, natural gas prices should go down in 2006. "When the hurricanes hit, natural gas went up to $14 per million cubic feet because they disrupted wells, pipelines and delivery," Conley says. "Now, natural gas is down to $12 per million cubic feet, and the projection for 2006 is around $8 per million cubic feet." Conley says it is difficult to project how natural gas prices will impact nitrogen fertilizer prices. He expects fertilizer prices are still going to be higher in 2006 than in 2005.

Source: University of Nebraska.