Diesel Prices Hit Record High, Choking Farm Margins

The average price of U.S. diesel reached an all-time high of $5.94 per gallon on Wednesday, up four cents from the prior record set just two days earlier, according to automobile club AAA.

This surge in diesel prices is particularly concerning for farmers as they prepare to fire up fuel-hungry equipment for round-the-clock harvest work this fall. Ag economists are predicting another downturn for key crops this year due to soaring costs for crop inputs like fertilizer and the recent spike in diesel prices.

‘The rise in diesel fuel is going to probably eat up what was able to be made there in the margins,' said Bradley Guse, Wisconsin-based director of BMO's Agribusiness Group. ‘It’s nice to see the bounce in the corn market and bean markets, but it’s really hard to get excited about it when it’s not going to mean anything to the bottom line.'

The multiplier effect of diesel prices is significant, with farmers paying twice: first through their own equipment and again through higher freight and supplier charges. If corn, soybean, or wheat prices fail to rise alongside operating costs, higher diesel expenses translate almost immediately into weaker margins per acre.