The Freight Goes Both Ways

This Week In Ag #183

History was made last week. For all the wrong reasons. Diesel fuel prices eclipsed $6 per gallon for the first time ever, as a national average. Prices have soared 61% this year. In California, the average price climbed above $8, with some stations reaching the pump limit of $9.99.

This could not have come at a worse time.

Harvest season is upon us. Large commercial farms run on diesel fuel. Harvesting machines, like combines and pickers, get thirsty. Fast. A high-capacity combine can hold over 300 gallons of diesel fuel. During peak corn shelling, they can burn 20-25 gallons per hour. So farmers are filling up every day. Then there are the tractors that support harvest by pulling grain carts, wagons and augers. If you till the soil, diesel consumption greatly increases. It’s not uncommon for grain and specialty crop growers to use 4-6 gallons of diesel fuel per acre.

Then you need to haul your crop to its destination. While most large grain farms utilize on-farm storage, they still need to transport the crop to an elevator, grain terminal or processing plant for sale. That requires burning diesel fuel in semi-trucks. These trucks typically haul 1,000 bushels of grain. That’s about 4-5 acres worth of corn. Depending on how much you farm and how much you yield, this amounts to numerous trips.

For on-farm use, farmers do catch a bit of a break by using red diesel fuel. That’s regular diesel fuel exempt from federal and state excise taxes, so depending on the state, it’s usually $0.30-1.00 cheaper. Red diesel is used in tractors, sprayers and harvesters (as well as construction and mining equipment) that perform off-road work. Unfortunately, farmers cannot use it in the semis that haul crops (but they can use it in their tractors to pull wagons). This off-road fuel is marked with a red dye to distinguish it from over-the-road fuel. This marker remains in fuel tanks permanently. If you’re caught using red diesel in your trucks, you’ll face steep fines. Farmers will dedicate specific tanks to hold red diesel fuel on their farms.

How long will these high diesel prices last? Likely well into the 2027 cropping season. The Iran War has led to many logistical costs, most notably in refining. Even if the war ended today and normalcy (whatever that is) resumes, we’re looking at well over six months to restore global refining capabilities.

On top of their own production and transportation costs, farmers also feel the impact of record diesel fuel costs in their input costs. Shipments of seed, fertilizer, chemicals and machinery require trucking to get these inputs and capital goods to the farmer.

Recent gains in the grain markets will likely be offset by these sharp and continued rises in diesel fuel costs. Making matters worse, last week’s USDA report – projecting soybean yields to be a whopping 0.1 bushel per acre higher than forecasted last month – dropped soybean prices 35 cents.

All of which continues to confirm John F. Kennedy’s famous words from over 60 years ago: “The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays the freight both ways.”