GRAND ISLAND, Neb. (DTN) -- Farmers in Nebraska and across the country are heading into harvest facing record-high diesel prices and other rising input costs that are eating into gains from higher corn and soybean prices.

Matt Jedlicka, a cattle producer and farmer in Colfax County, Nebraska, said Tuesday he called his local fuel supplier and was quoted $5.55 a gallon for farm diesel and $6 a gallon for highway diesel.

"We hit the $6 mark in Nebraska," Jedlicka said.

Jedlicka and other leaders of the Nebraska Farm Bureau spoke about challenges in the farm economy on Wednesday at the Husker Harvest Days farm show.

AAA shows the average retail diesel price in Nebraska on Wednesday reached a record $5.98 a gallon, up from $3.40 a gallon a year ago. Nationally, retail diesel prices averaged $6.31 a gallon, also a record.

The timing is especially difficult for farmers moving into harvest and cattle producers moving calves and yearlings this fall. Jedlicka said he already is seeing fuel surcharges added to trucking costs for cattle. He also expected to be harvesting high-moisture corn this week before rain delayed fieldwork.

"The higher fuel prices are really going to start hitting home soon," Jedlicka said.

FARM EXPENSES CLIMB

Abby Petersen, an economist and policy analyst for Nebraska Farm Bureau, said national farm production expenses are now forecast at $492.8 billion, a $15.1 billion increase from the estimate released in February.

Several major expense categories have moved sharply higher. Fertilizer, lime and soil conditioner expenses are projected to rise 15% to $39.6 billion, while fuel and oil expenses have jumped 28.8% to $21.6 billion. Livestock and poultry purchases are projected to increase 11% to $71.9 billion.

Marketing, storage and transportation expenses are forecast to increase about 12%, while interest expenses are projected to rise 2.8%.

Diesel prices alone have increased 45% since spring, driven by the current conflict with Iran, Petersen said.

Nebraska crop farmers were already facing estimated losses of $759 million on corn and $266 million on soybeans, Petersen said, and the increase in diesel prices could push those losses higher.

"We are looking at a rough year," Petersen said.

While the outlook has improved from projections earlier in the spring and summer as farm income has risen, farmers are still looking at losses.

"So, this means more strain on producers and yet another year of negative returns," Petersen said.

HIGHER CROP PRICES OFFSET BY COSTS

Corn and soybean prices have rallied, improving the revenue outlook for crop producers, but Farm Nebraska officials and farmers said those gains aren't necessarily translating into stronger profits.

Mark McHargue, president of Nebraska Farm Bureau, said stronger commodity prices are welcome, but a nearly 50% increase in an expense such as diesel still takes money away from farmers that otherwise could be reinvested in their operations.

"It's fortunate that we are seeing a price increase in our commodities. We need to continue to see that," McHargue said. "But, at the end of the day, any time the input goes up to the degree, almost 50%, that cuts into our profitability."

Lance Atwater, who farms with his family near Blue Hill, Nebraska, said farmers have become more aggressive about controlling expenses and using technology to improve efficiency. Still, farmers have little ability to eliminate major expenses such as seed, fuel, fertilizer, equipment and repairs.

"We have seen an increase in our commodity prices, but as those commodity prices have increased, we've also seen all the inputs increase," Atwater said. "So, in a way, it kind of washes out whatever margin was there."

NEBRASKA FARM BUREAU WARNS ABOUT TAXING INPUTS

At the same time farmers are confronting higher production costs, Nebraska Farm Bureau is preparing to fight any attempt by state lawmakers to remove sales-tax exemptions on agricultural inputs.

McHargue said Nebraska could face a budget shortfall approaching $1 billion when the state's current fiscal situation and the next biennium are combined. That could increase pressure on lawmakers to find additional revenue, including potentially broadening the sales-tax base. McHargue said Nebraska Farm Bureau would oppose removing exemptions for agricultural inputs such as seed, fertilizer and feed.

"If we tax our inputs, that will put us at a competitive disadvantage in Nebraska relative to the states around us," McHargue said. "And quite frankly, our inputs are high enough already."

Atwater said he calculated what removing exemptions for expenses such as seed, chemicals, fertilizer and agricultural equipment would mean for his own operation. He estimated he would pay 170% more in taxes on those purchases than he currently pays in property taxes.

"That is going to put young people and farmers in general out of business when you talk about 170% more in taxes," Atwater said.

Atwater said the issue is especially important for younger farmers who are already questioning whether they can continue operating with shrinking margins.

"I've had a lot of conversations with my peers this last year on the farm, and a lot of them have said, just given what's going on with commodity prices and input prices, asking the question, why are we doing this?" Atwater said.

McHargue confirmed Nebraska Farm Bureau's concern is specifically about the possibility of lawmakers removing existing sales-tax exemptions. He said a similar proposal surfaced a couple of years ago and estimated removing exemptions could cost agriculture hundreds of millions of dollars.

Nebraska Farm Bureau also will work to protect state tax credits that have offset a portion of property-tax bills, McHargue said. With lawmakers looking for ways to close the state's budget gap, he said those credits could become a target.

"There will be a target on those credits," McHargue said. "We will work diligently to ensure that those credits don't get swept into this general black hole of trying to fill the budget because that would be direct property tax increase."

MANAGING COSTS FOR 2027

The volatility is also making decisions for the 2027 crop more difficult as farmers normally begin looking for opportunities in the fall to lock in fertilizer prices. Atwater said his operation tries to reduce risk by contracting some fertilizer costs, but today's volatile energy and fertilizer markets make it difficult to know when to buy.

"This is why I tell people I don't have to go to Vegas every year because basically you can't predict it," Atwater said.

"What I thought I locked in this fall could end up and look like a bad decision come next spring," he added. "A lot of things are out of our control."

Farmers also are looking for ways to use fertilizer and energy more efficiently. McHargue pointed to advances in biologics, fertilizer management and irrigation technology as areas where producers may be able to trim costs.

McHargue said those farm-level decisions are part of a larger profitability challenge that will require policy changes as well. Nebraska Farm Bureau is pushing for year-round E15, expanded agricultural export markets, a new farm bill and reduced regulatory costs.

TARIFF PRESSURES

McHargue also criticized broad tariffs, saying they are not benefiting agriculture, while stressing the importance of trade for a state that exports significant shares of some commodities.

"Tariffs can be a tool, but these across-the-board tariffs just are not doing agriculture any good," McHargue said.

Also see, "Diesel Prices Pinch Farmer Profits as Harvest Looms," https://www.dtnpf.com/…

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

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