Farmers and ranchers are feeling the strain of rising fuel prices as they attempt to compensate for the higher costs associated with producing food and fiber. According to USDA projections, the price of gasoline will rise by 34% in 2022 compared to the price in 2021. In their most recent Market Intelligence report, economists from the American Farm Bureau Federation investigate the causes of the recent spike in fuel prices, but their results may not come Where did all the sudden price increases come from? The Russian invasion of Ukraine back in February is a major factor. With Biden's ban on buying oil from Russia, fuel prices have gone through the roof because Russia is a major source of fertilizer and oil for the US. U.S. domestic output has dropped due to the conflict in Ukraine, and global demand for crude oil is rising. Diesel was $5.718 per gallon in June, up $2.432/gallon (74%) over June 2021's $3.286 per gallon is rising. Diesel was $5.718 per gallon in June, up $2.432/gallon (74%) over June 2021's $3.286 per gallon. Current diesel prices are more than double what they were in 2020.  

Biden’s Gas Tax Holiday Solution

The federal gas tax is used to fund infrastructure, including roads and transit systems, but on June 22, President Joe Biden called for its suspension. Americans would save 18 cents a gallon on gasoline and 24 cents a gallon on diesel. The White House has proposed a "gas tax holiday" of three months' duration, as advocated by President Biden. Experts believe the idea has little chance of passing Congress as it stands.  

How much of an impact do rising fuel costs have on commodity prices?

Commodity price rises are being partially offset by these rising costs for many farmers. Many in the agricultural industry are worried they won't even break even, let alone earn a profit. The toll isn't simply being felt on the farm, either. The rising price of fuel and gasoline, among other inputs, has an impact on the entire food supply chain, from the farm to the supermarket, driving up fuel prices for everyone.  

Bottom Line 

Farm and ranchers are feeling the pinch of the ever-increasing cost of fuel and other supplies. The fundamentals of supply and demand for crude oil are raising the price of diesel and gasoline. The price level may continue to climb if the United States is unable to boost output and does not import sufficient amounts to fulfill the rising demand. In addition, rising demand could put pressure on the limited domestic refining capacity for those crude oil supplies, driving up prices. It will be interesting to watch domestic production to see if the United States can go back to its peak production level of about 400 million barrels per month. There are two requirements for this. Refiners require a business environment that fosters predictability and enhances the domestic capacity to supply, while domestic crude oil producers need regulatory flexibility. Fuel supplies may be impacted by the forthcoming hurricane season if storms strike places that refine diesel or contribute to offshore production. Due to the very supply-sensitive nature of market, a single slip-up might have a significant impact on already high fuel prices.