High diesel costs hurting farmers and ranchers

Record high prices for unleaded gasoline are getting much of the attention from the public and politicians across the country right now, but an even bigger financial impact is being felt by truckers and farmers in South Dakota who are paying far more at the pump than usual for diesel fuel.
Employees and business owners in both industries rely heavily on diesel fuel to do their jobs, and the high prices are pinching their incomes and profits. Industry experts say that higher fuel prices in trucking and farming are often passed on to consumers, who are already paying more for a wide range of goods and foods at a time when inflation is pushing up prices.
As diesel prices continue to shoot up, both trucking industry associations are calling for national legislation to help reduce the financial toll on truckers, and farmers are looking for ways to keep costs down and minimize their financial risk. Operators in both industries are seeking ways to reduce spending on fuel and to cut back on fuel use when possible.
As of June 21, the average diesel price in South Dakota was $5.39 per gallon, below the national average but up almost 42% compared to a year ago, according to the American Automobile Association. The highest recent national average price was $5.81 on on June 19.
A mid-June report from the  U.S. Energy Information Administration showed on-highway diesel prices ranging from a low of $5.37 in the Gulf Coast region to a high of $6.88 in California. The Midwest average price was in the middle at $5.63.
High costs for diesel fuel are also adding to growing financial uncertainty for South Dakota farmers, who already faced delayed planting from storm damage in some portions of the state and drought conditions elsewhere that continue to threaten crops and livestock.
Off-road diesel, which is not taxed and is used for agricultural and industrial purposes, has also topped $5 a gallon, meaning farmers are paying more than ever to run tractors, combines and sprayers and to transport equipment or goods.
“I’ve been farming for about 36 years, and I don’t remember fuel ever being this expensive,” said Scott VanderWal, president of the South Dakota Farm Bureau.
Tough financial
road for truckers
The average 18-wheel tractor-trailer’s fuel tank holds between 120 and 150 gallons, and some rigs have two tanks. With today’s inflated prices, truck drivers are paying about $700 to $900 per tank to fill up from empty, forcing some to spend almost $2,000 for one day of driving.
Corey Stabnow, a 23-year veteran of the trucking industry and owner of Thunderfoot Xpress in Britton drove in mid-June to California to pick up a load of honeybees to transport to North Dakota.
“This trip I’m running right now will probably be close to $6,000 in fuel. A year ago, I could do this route for a little over [$3,000],” said Stabnow.
Stabnow started his business in 2011, and recalled that diesel prices then were in the upper $3 per-gallon range, a fraction of the current prices at the pumps
“This is the highest I’ve ever seen in the industry,” he said.
Stabnow said he tries to combat the higher costs by finding the lowest prices along his routes beforehand, and he tries to avoid fueling up in where he knows costs are high. He said he’s trying to avoid the pumps in California, where diesel is currently averaging $6.99 per gallon, according to the American Automobile Association.
With more money being spent on shipping and delivery and inflation sitting at 8.6 percent as of May, some of the higher transportation costs may be transferred to consumers, the American Trucking Association said in a June 2 blog post. According to the ATA, inflation and costs will continue to rise unless the price of diesel fuel falls.
Fuel surcharges added to delivery costs aim to help cover unforeseen price increases, though many truckers don’t receive payment until 30 days or more after delivery, leaving them to cover costs with reserve funds or operate on lines of credit. Additionally, these charges often don’t fully cover the increases, only around 60 percent to 70 percent of the increase.
The increased costs have the potential to be devastating to small trucking companies. The American Trucking Association reported that 97 percent of trucking companies run 20 or fewer trucks, and many in South Dakota are locally owned and operated.
Logan Schaunaman is one of these owner/operators. He began his business, Schaunaman Trucking, out of Sisseton in November 2021 as a solo operator.. Fuel prices have gone up around $1.50 since he started, leaving him with at least a $1,000 bill each time he fills up. Lately, he’s had to fill up twice a week for the loads he carries.
“Without diesel, I can’t move,” said Schaunaman. “Rates have gone up too, so it compensates for higher fuel prices, too.”
Drivers at larger firms are somewhat protected from higher fuel costs, Schaunaman said.
“Owner/operators are probably a little more difficult to keep running at this time, whereas bigger companies probably have contracted fuel, so they contract fuel at a price that isn’t going to move, where owner/operators have to fluctuate with the prices going up and down,” he said.
Farmers strategize to keep fuel costs down
During the harvest of 2020, it cost VanderWal about $585 to fill the tank of his diesel combine at his farm in Volga, eight miles west of Brookings. At the current price of diesel, it would cost him nearly double that amount this year – more than $1,000 – and the tank lasts about one day.
Jack Davis, a South Dakota State University extension agent who specializes in crop business management, said corn farmers spent about $26 an acre in fuel to plant and harvest crops in 2021, and the record going back to 2008 was $35 an acre in 2012. Under current market conditions, farmers could pay more than $50 an acre for diesel.
“For a thousand-acre farm, that’s about $25,000 more a year if it stays this high,” said Davis.
Fertilizer is also more expensive under inflationary conditions, with less oil being imported and refined since Russia’s invasion of Ukraine in February. High costs and supply concerns are felt by other industries, but agriculture has less market flexibility to mitigate the damage, according to VanderWal.
“We’re price-takers,” said the third-generation family farmer, who raises soybeans and does custom cattle feeding. “We don’t have the ability to pass on our costs. When the price for diesel and fertilizer go up, we just have to absorb that and hope that the crop markets are high enough to make up for it.”
One silver lining for farmers is that commodity prices are soaring, with corn selling at $7.85 a bushel on June 20, up from $6.15 on the same date last year. Soybeans remain strong at $17.02 a bushel, the highest price since 2012.
For Walt Bones, a former state secretary of agriculture who runs a diversified crop and livestock operation in Parker, just southwest of Sioux Falls, seeing a vibrant market on the back end means less gloom and doom, even with an operation that uses more than a thousand gallons of diesel a day during spring planting and fall harvest.
“I’ve always said that in ag, our margin is pretty fixed,” said Bones, this year’s recipient of the Governor’s Ag Ambassador Award. “Some years we might handle a lot more money to make the same amount of money. This year, it appears that even with all the costs and inflation out there, some of that can be transferred to what we’re getting paid for our stuff.”
Taking advantage of the market means forecasting what commodities will be worth at harvest time and, in some cases, locking in prices in advance. The problem is that as input costs such as fuel prices shift, even the best planning becomes speculative.
“There are external things you can’t predict,” said Heather Gessner, an extension field specialist at SDSU. “When is Ukraine going back into the world market and exporting all the things they used to export? If I knew, I would pull out my crystal ball and share it with everybody. The best farmers and ranchers can do is figure out their break-even price and use marketing tools that are available to manage their risk.”
Bones, a fourth-generation producer, points to the negative aspects of market volatility, such as a sinking stock market, but also notes that farmers can use price trends and cycles to their advantage.
“There are opportunities to potentially lock in a higher price for what they sell and lower for what we use for inputs,” Bones said. “Volatility does present people with opportunities if you know your costs and play it to your advantage. There’s an old saying: You never go broke making a profit.”
For many farmers, though, the challenges of this spring go beyond market numbers. Radical weather swings made normal operations a problem, including a derecho that struck eastern South Dakota on May 12 with winds that exceeded 100 mph.
On VanderWal’s property in Volga, the roof flew off the bale barn and one of the damaged trees fell on a house. Sporadic rain showers also caused delays with spring planting, and partially flooded crops were an issue in the northeast part of the state.
“It’s been a rough spring,” said VanderWal. “We finished planting corn just before Memorial Day and beans seven or eight days later. We usually like to be done with everything between the 15th and 20th of May.”
VanderWal, who also serves as vice president of the American Farm Bureau Federation, blames policy stances from President Joe Biden’s administration as partly to blame for rising fuel costs. He’d like to see less restrictions and more impetus for American oil and gas companies to activate their permits to perform onshore drilling.
“It’s not a good thing to rely on other countries for energy supplies, especially countries that might turn out to be your enemies,” said VanderWal. “It would be nice if the administration would reach out to energy producers and let them do what they do best.”
Biden sent a June 15 letter to U.S. oil refining companies asking them to increase production, saying that “historically high refinery profit margins being passed directly onto American families are not acceptable.” Still, most forecasts call for gas prices to keep rising this summer. In late June, Biden also asked Congress to suspend imposition of federal taxes on gasoline and diesel fuel until September to lower fuel costs for drivers.
The president’s push for renewable energy to phase out fossil fuels makes it difficult to persuade oil and gas producers to ramp up production, said Bones. While ethanol and biodiesel are positive steps, a shift to electric vehicles seems a long way off from the perspective of corn farmers or cattle producers in the Upper Midwest, he added.
“When you have a big job to do, whether it’s harvesting or planting or transportation, it helps to run on gas,” said Bones. “It seems that electric vehicles have a place, but I don’t think it’s out here in flyover country.”