Diesel Costs Eat Into Farm Safety Net

OMAHA (DTN) -- Commodity farmers facing high diesel costs this harvest will get some needed support as their commodity program payments start to arrive.

USDA projects payments from the Agricultural Risk Coverage and Price Loss Coverage (ARC/PLC) programs will come in at $13.4 billion, while total government payments will top $47.36 billion, which is nearly $19.5 billion more than in 2025.

USDA last week boasted ARC/PLC would come in at $13.8 billion, but USDA lists $13.4 billion in total payments on its website, then noted a factor of a 5.7% sequestration that should put the actual payments closer to $13.1 billion. That's still the highest level since ARC/PLC were created, driven by changes last year in the One Big Beautiful Bill Act.

One caveat here: ARC/PLC payments are based on market prices for the 2025-26 crops and are not directly tied to higher expenses. Still, a check showing up in the bank account now helps absorb the impact of those high costs.

COMPARING DIESEL PRICES TO ARC/PLC

USDA's latest net farm income and expenses report shows projected fuel and oil expenses for farmers will rise from $16.8 billion in 2025 to $21.6 billion in 2026, an increase of 29%. USDA left blank individual line items for diesel, gasoline, LP gas, natural gas, oils and lubricants for 2026. Overall, USDA stated fuel costs were up $4.8 billion compared to a year ago. USDA's latest forecast on expenses was also released in early September before diesel prices peaked.

The ARC/PLC payments can offset some of the increase in diesel prices, but the payments won't make up for overall higher expenses for the 2026-27 crop. USDA forecast that fertilizer, fuel, marketing, storage and transportation costs account for $11.1 billion in higher costs for 2026. Overall, total production expenses for 2026 are forecast at $492.8 billion, up $21.2 billion from last year, a 4.5% increase.

Ten states with the highest diesel expenses, using 2025 data multiplied by an additional 29% for higher diesel fuel costs for 2026:

-- California, $1.19 billion

-- Texas, $905 million

-- Iowa, $830 million

-- Minnesota, $731 million

-- Illinois, $633.4 million

-- Nebraska, $614 million

-- Kansas, $472 million

-- North Dakota, $464.1 million

-- Wisconsin, $421.7 million

-- South Dakota, $399.6 million

Ten states with the highest ARC/PLC payments this fall:

-- Texas, $1.24 billion

-- Iowa, $1.02 billion

-- Arkansas, $941.9 million

-- Illinois, $937 million

-- Kansas, $842 million

-- Nebraska, $832.5 million

-- North Dakota, $721.2 million

-- Minnesota, $674.6 million

-- Ohio, $544.3 million

-- South Dakota, $463.1 million

Farmers in some states will bear the higher fuel costs without much comparable support. Farmers in California, for instance, face the highest fuel costs in the country, but many of the state's specialty crop producers don't have access to ARC/PLC payments. California farmers are projected to receive $242.6 million in ARC/PLC payments while diesel costs will be at least $1.19 billion. That translates into a -$947.4 million disparity.

On the flip side, ARC/PLC payments in Kansas have a $370 million positive benefit over diesel costs, while Texas farmers see a $335 million gain and Illinois farmers see a $304 million net gain.

ANALYSIS OF COST IMPACTS VARY

Estimates of the impact of higher diesel prices vary widely, depending on which farm operations and fuel expenses are included. For corn, estimates range from an additional $7.98 per acre for harvest diesel to nearly $20 per acre for broader fuel-related production costs.

An American Farm Bureau Federation analysis also highlights the disproportionate impact on specialty crop growers that don't receive ARC/PLC payments. AFBF estimated apple growers are paying an additional $57.59 per acre and almond growers are paying an additional $18.67 per acre compared with $7.98 per acre for corn and $3.56 per acre for soybeans. Cotton farmers are paying an extra $5.28 per acre while rice farmers face an additional $14 per acre.

A Reuters article last month cited a Purdue University economist who estimated fuel costs at $7 higher per acre for soybeans, and $11 per acre for corn.

The Kansas City Federal Reserve examined diesel prices in late September and estimated higher fuel-related expenses for corn were about 11 cents a bushel, while corn prices were up 80 cents a bushel. Using the USDA projected yield of 181.5 bushels per acre, that 11 cents a bushel translates to roughly $19.97 per acre.

A report from Agricultural Economic Insights examined the cost of grain hauling during harvest. The higher diesel prices effectively take off about 11 cents per bushel on a 60-mile round trip to the grain elevator. That difference can influence local basis and delivery decisions. "This illustrates how one factor can change the attractiveness of alternative grain bids and the overall success of a grain marketing plan."

Farm Bureau analysis: https://www.fb.org/…

USDA ARC/PLC payments: https://usda.azureedge.us/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

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