Fuel Costs Add Pressure Through Transportation Surcharges

High fuel prices are creating another financial headache for farmers through transportation surcharges that can ultimately reduce the price producers receive for their crops.

Diesel prices above six dollars a gallon are already putting pressure on farm budgets, but higher fuel costs also raise expenses for railroads, ocean vessels, and other transportation providers. Those added costs will make their way back to farmers through a lower price at the point of sale, particularly in the competitive global soybean market. Transportation providers generally have three choices: pass higher costs to customers, absorb them, or pass them back to suppliers through lower prices.

For agriculture, the third option is often the most likely. Shippers risk losing international customers if they raise prices too much, as buyers can turn to competing suppliers such as Brazil. That makes fuel surcharges another leak in farmers’ profitability and adds to the urgency producers feel for relief at the pump.