Farmers Brace For Higher Costs
The war in Iran hikes prices for key agricultural inputs.
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With the fall harvest now fast approaching and spring planting looming on the horizon, farmers must navigate several challenges that threaten their short- and long-term prosperity.
Production costs will reach a record high of $492.8 billion this year, a 4.5% increase from 2025, spurred primarily by higher prices for fuel and fertilizer stemming from the ongoing Iran war.
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Diesel prices have surpassed previous highs and currently average $6.23* per gallon nationwide (*prices correct at the time of writing). That’s a 60% increase in average per-acre fuel costs from 2025, when diesel prices were under $4. It also adds to the cost of transporting commodities. Trucks account for 83% of agricultural freight movements by tonnage and 56% of agricultural freight ton-miles.
Fertilizer prices have fallen from their peak in April, when they spiked amid supply disruptions. But they’re up nearly 50% from a year ago and are expected to remain elevated through 2028. Supplies of phosphate fertilizer are especially tight. 17% of U.S. imports originate in the Persian Gulf, and China, the world’s largest phosphate producer, has restricted exports. Federal investment has helped encourage the construction of several new fertilizer production facilities, but they will take time to come online.
As a result, net farm income will decline by $4.3 billion, or 2.6%, this year, despite forecasts of higher cash receipts for major crops than in 2025. Corn receipts will increase by 11.3%, soybean receipts by 10.0% and cotton receipts by 12.5%.
Farmers also face a complicated trade outlook amid ongoing tensions over tariffs with key countries and mounting competition from foreign rivals. U.S. agricultural exports started the year on an upswing, boosted in part by China resuming purchases of farm goods. Case in point, Beijing bought $141.1 million of soybeans in July after purchasing none in July 2025. The Chinese government has agreed to buy at least $17 billion of U.S. farm goods annually through 2028. Agricultural exports to Europe have also jumped under a new transatlantic trade framework.
But several factors could put those gains in jeopardy. A trade dispute with Canada has so far spared agricultural commodities from tit-for-tat tariffs. But they will likely be subject to duties if the conflict continues to escalate. Plus, the tariffs have already snarled cross-border supply chains for farm machinery.
At the same time, the U.S. must deal with growing competition from Brazil, which is currently on track to dethrone America as the world’s top agricultural exporter. Brazilian farmers generally have lower production costs than their U.S. counterparts, with a climate that allows for multiple planting and harvesting seasons annually. They also give major agricultural importers a second option when at odds with the U.S.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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