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High energy costs taking toll on Iowans

Tuesday, October 4, 2005

Uncertainty about the rising cost of everyday items in the wake of the Gulf Coast hurricanes has many Iowans rethinking their spending plans.

Julie Herold was hoping this year would be the year she could replace her 20-year-old carpeting. The retired teacher instead will spend that money on gasoline, natural gas and any other expense on the rise.

"I am extremely apprehensive to take on any additional expenses because of these basics. Yeah, it's holding me back," she said.

Sheryl Campbell, 52, has been a bicycle rider for decades. But she never considered riding her bike to work until now. "I felt it would really be silly to drive my car 10 minutes to work at $3 a gallon when I could ride a bike just as easily," Campbell said.

David Swenson, a researcher at Iowa State University's economic departments said high prices will create behavioral changes.

"The first thing people do whenever they are concerned about price increases is they say, 'Can I do without?' "he said.

The most obvious increase is for energy. The hurricanes slammed the Gulf Coast oil and natural gas industries, leading to $3 per gallon gasoline and forecasts of huge hikes in winter heating costs.

The Iowa Utilities Board estimates natural gas costs could rise 31 to 44 percent this winter, depending on how low the mercury drops. The board attributes about 7 percent of the hike to the hurricanes.

Meanwhile, farmers in much of Iowa are watching a bad year get worse as drought, high fuel prices and low commodity prices run headlong into the disruption caused by the hurricanes.

"You've got to find some place to cut back and we don't know where we're going to cut back anymore," said Ken Rowenhorst, an Orange City farmer and seed corn dealer.

The hurricanes increased costs that were already high and helped to push low corn prices even lower.

"All those pressures seem to be coming to bear in a fairly significant reversal of incomes in a pretty short period of time," said Terry Francl, a senior economist for the American Farm Bureau Federation.

But the level of distress varies sharply from region to region.

Corn production is down 30 to 40 percent in the east-central and southeast parts of the state, but statewide production is only off 5 percent, according to a federal estimate. Most of the north and central parts of the state are unscathed.

"It depends on where you are," said Bob Wisner, an Iowa State University Extension economist.

But the rising cost is undeniable. Nationwide, farmers' spending for fuel and oil is up 31 percent from last year and spending for fertilizer is up 16 percent, according to an estimate by Francl.

However, Francl doubts that this is the beginning of a farm crisis. He thinks there may be a short period of high costs and low commodity prices, but nothing like financial disaster of the 1980s.



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