Consumers adjusting as gas prices rise

For Kate Rundell, the run-up in gas prices over the last couple of months has meant an end to casual runs into Fargo from her home in Barnesville, Minn.

"I commute 60 miles round trip daily, so it makes a huge impact on my finances" she said, as she gassed up her vehicle last week at the 13th Avenue South Sam's Club in Fargo.

Vacations are still in the cards, but there could be cutbacks elsewhere in the budget to make that happen, she said.

"We used to travel everywhere" on the weekends to eat out or shop. Now, it's more like once a month. she said. "I think twice about coming to Fargo on the weekends"

The spike in fuel prices - a product largely of increased demand worldwide and, to a lesser extent, unrest in the Mideast - is causing area residents to readjust their spending.

Economists say the U.S. economy is better-prepared to handle this price spike than it was in 2008, when the economy was in recession and oil prices topped $140 a barrel. The feeling is that the recovery likely won't be derailed unless prices rise further and remain high.

Cole Gustafson, a professor of agribusiness and applied economics at North Dakota State University, said the state's oil and ethanol industries help to moderate prices.

"If we didn't have those fuels, we would be facing more steeply rising costs," Gustafson said.

That has made North Dakota unique, he said. Rising energy prices have hit the pocketbooks of the state's residents but also provide residents with income and tax dollars. "It's really mixed," he said.

Transportation

One factor that will affect all of North Dakota is the rising cost of transportation. Many products are brought in by truck or railcar, Gustafson said.

Daniel Tramp is one of those who may soon have to pass on his fuel costs.

At the Petro Travel Center in south Fargo, Tramp recently topped off the two tanks on his semi truck before getting ready to drop a load at the Coca-Cola plant in Moorhead.

The South Dakota man has been a trucker for 20 years, and he bought his own rig last fall.

"It's scary," he said of the recent diesel fuel price hikes. "Everybody's cutting back. It's very shaky. I'm nervous."

In November it cost him $450 to fuel his rig. Wednesday, the bill was $625.

"Right now, I'm eating every price increase," he said. He's lost money on some loads. A load of beer cost him $200. He's worried that high fuel prices could force a lot of independent drivers off the road. But he's hanging in there.

"I don't know if anything is going to force me out," Tramp said.

Tourism

This could be a big year for "staycations," Gustafson said.

"People will visit local attractions rather than pay higher airfares," he said. "I think there's some opportunity."

The head of North Dakota's tourism efforts agrees and said the state is positioned to appeal to those staying close to home.

Sara Otte Coleman, head of the tourism division for the Department of Commerce, said ads stress the state's affordability and free attractions. Most of the media buys are in Minneapolis, Milwaukee and Winnipeg. The Canadian dollar is strong, and U.S. gas is relatively cheap, making a trip to North Dakota a bargain, she said.

Another positive note: Coleman said the United States Travel Association travel forecast calls for a 1.6 percent increase in leisure travel.

Agriculture

Energy is not a major factor in determining the cost of food on grocery store shelves, Gustafson said. Much of that cost is due to marketing. He said the psychology of energy prices might allow some firms to raise their prices higher than needed to cover increased raw material and transport costs.

But the fuel to plant and harvest and for anhydrous fertilizer are significant input costs for farmers.

Tom Lilja, executive director of the North Dakota Corn Growers Association, said producers will be squeezed if fuel and fertilizer prices continue to rise.

Many farmers lock in some costs by buying fuel in bulk early and contracting to sell some of their crop at a set price to hedge against volatility, he said.

David Kragnes, who grows corn, soybeans, wheat and sugar beets near Felton, Minn., bought his fuel in December.

"I look pretty smart at the moment. Doesn't always happen for me," he said. He figured his fuel costs are $30 an acre. But if fuel gets to $4 a gallon, that could jump $10 an acre for area farmers, he said.

"That gets pretty dramatic if you look at all the acres in the valley," Kragnes said.

"As a group, at the moment, farmers are deeply concerned," he said. "If the commodity prices drop off and the fuel and fertilizer don't drop, we get caught in a ratcheting squeeze."

Airlines

Much of the travel in and out of Fargo's Hector International Airport is tied to business, said airport authority Executive Director Shawn Dobberstein.

He said fuel costs were a major part of discussions at a recent conference in Austin, Texas.

If oil hits $140 a barrel as it did in 2008, that could pose the same problems for air carriers as it did then, he said. It could mean trouble for small operators and may have bigger airlines redeploying planes to more profitable markets.

"It's an ongoing concern," he said.

Local businesses are adjusting.

Ahron Walter, chief financial officer for Appareo Systems in the NDSU Technology Park, said shipping costs haven't risen greatly, but airlines have raised ticket prices two to three times in the last few months. While teleconferencing and other technologies cut costs, "with business, it's always nice to have face to face" negotiations, he said.

It will take a serious downturn in the economy before Microsoft in Fargo clamps down on travel, said Katie Hasbargen, senior communications manager.

"With something that fluctuates as often as gas prices, we don't typically see that," she said.

Wind and ethanol

The wind energy industry has been stagnant, "but that could certainly be jump-started again" if energy prices stay high, NDSU's Gustafson said.

The federal government must play a part to spur that investment, said an official from DMI Industries, the West Fargo wind tower manufacturer.

Belinda Forkness, marketing manager for DMI, said the firm works on a much-longer lead time for orders than the latest oil price spike can affect. All of this year's production is planned, she said.

"If the high gas prices continue, it generates growing bipartisan support in the Senate and the House for policies that benefit from wind ... we would see a benefit from that," she said.

Continued high fuel prices could bring more demand for the product made at Tharaldson Ethanol in Casselton, N.D.

One limiting factor to the cost of producing ethanol is the cost of corn. As long as corn prices remain high, it keeps the market tight, said Russ Newman, vice president of development and government affairs.

"However, we can still be (competitive) provided the gas prices follow," he said.

"We're slowly seeing more demand," Newman said, thanks to blender pumps that allow consumers to pick anything from E-10 to E-85 ethanol blends for flex fuel vehicles.

Readers can reach Forum reporter Helmut Schmidt at (701) 241-5583