U.S. farms face diesel cost surge as Iran war squeezes fuel supplies

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US farms face diesel cost surge

Highlights

Diesel prices hit record highs in Midwest states in May, with Wisconsin at $5.873, Indiana at $6.167, and Illinois at $6.14 per gallon.
The national average diesel price has surged over 40% since the Iran war began, while grain prices have dropped, eroding farm profitability.
U.S. distillate fuel oil inventories dropped by 2.1 million barrels to 100.8 million barrels in late May, reaching their lowest level since May 2003.

Diesel spike raises planting and operating costs

As reported by Reuters, diesel prices in several Midwestern states reach record highs in May as farmers intensify planting and spring field operations. AAA data show Wisconsin diesel at $5.873 per gallon, Indiana at $6.167 and Illinois at $6.14 in mid-May, while Ohio and Michigan also post records.

The national average diesel price has climbed more than 40% since the Middle East conflict began, while global crude prices have risen about 30% since late February. Because most U.S. farm machinery runs on diesel, growers have limited ability to switch fuels and remain highly exposed to price swings.

Glenn Brunkow, who raises soybeans and cattle in Kansas, says the increase is a major unplanned expense. Ben Klieve, an analyst at Benchmark, says fuel costs that previously accounted for about 3% to 4% of average Illinois row-crop input costs, or roughly $16 to $23 per acre, could now rise to 5% to 6%, or about $30 per acre at the midpoint if diesel stays near current levels.

Farm margins weaken as supply risks persist

Klieve says the operating backdrop is especially difficult because grain prices have fallen sharply in recent weeks and are below levels seen before the Iran war, even as diesel and fertilizer costs remain elevated. That combination further erodes farm profitability at a time when many growers are already contending with drought, high expenses and fallout from U.S. trade policy.

Some farmers are already changing field plans to conserve fuel. Indiana grower Tom Murphy says he delayed tilling newly rented fields and completed only one of five planned fields to stretch roughly 6,000 gallons of diesel purchased in December, while Nebraska farmer Don Bloss says he is paying higher trucking rates to move corn 80 miles to market.

Analysts warn prices may rise further if the conflict continues to constrain global fuel supplies. U.S. distillate fuel oil inventories fell to a 23-year low in May, according to the U.S. Energy Information Administration, with stockpiles dropping by 2.1 million barrels in the week ended May 22 to 100.8 million barrels, the lowest level since May 2003.

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