Marked diesel: the lifeblood of the agriculture industry

May 01, 2024

“Diesel has long been the lifeblood of farming, powering tractors, trucks and other essential farming machinery,” says Azam Nikzad, market analyst/coordinating researcher with the Alberta government. “Marked diesel plays a crucial role in farming economics. Fuel purchases are one of the expense items for all farmers. In Alberta, machinery fuel expenses totaled approximately $1.06 billion in 2022, representing 6.3% of total farm operating expenses.”

Over the past decade, the price of diesel fuel has shown a consistent upward trend. The rate of increase has accelerated in the last 5 years, with an average annual increase of 8%. This acceleration surpassed the 5% of the past decade. The year 2022 marked the peak of this trend with the highest annual increase at 33.7%, closely followed by 33.3% in 2021. 2023 saw a reversal with 14.3% annual decrease in diesel prices. However, the prices increased in March 2024 by 5.9% compared to January 2024, but there was a slight decrease from February to March.

“Diesel fuel prices closely follow crude oil prices,” explains Nikzad. “Over the past decade, approximately 64% of the variation in diesel fuel can be explained by changes in Western Canadian Select (WCS) crude oil. Other factors that play a crucial role in influencing diesel prices are global supply and demand dynamics.” 

Certain events have reduced diesel fuel supply and altered the market landscape. Russian sanctions interrupted established trade patterns and fostered market uncertainty, leading to higher prices. OPEC also curtailed its crude oil output. The U.S. policy encouraging lower-carbon alternatives is driving refineries to adapt by shifting operations towards renewable diesel production. 

Moreover, 2020's low-sulfur regulations in marine fuels spiked demand for compliant diesel. Recent tensions between Iran and Israel also have stirred volatility in crude oil markets. Escalating tensions risk further unsettling supply, which may further drive prices higher. 

“Most diesel on farms is used for off-road applications to power farm equipment. The Alberta Farm Fuel Benefit provides a provincial fuel tax exemption of 9 cents/litre on marked diesel. The program lowers fuel costs to farmers and helps our agriculture industry remain competitive within North America. Farm fuel is also exempt from carbon taxes to help farmers reduce operating costs.” 

Renewable diesel, a second-generation biofuel, is produced through a different process than biodiesel and can be used directly without blending. Interest in renewable diesel centres mostly around addressing environmental concerns and its potential to lower the carbon intensity of the fuel. Renewable diesel can be made from a variety of feedstocks including canola oil.

For example, Alberta recently announced support for the largest renewable diesel facility in Canada as Imperial qualified for the Agri-Processing Investment Tax Credit program. When production begins in 2025, Imperial’s new facility will convert locally sourced biofeedstocks like canola oil into lower-emission renewable diesel, creating new demand for Alberta producers.

“The demand for higher capacity farm equipment with greater horsepower continues to increase. Even with potential alternatives such as electric and hydrogen powered engines on the horizon, diesel will continue to be the main power source for agricultural equipment for the foreseeable future,” says Nikzad.

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