With the November 2026 midterm elections front and center in the minds of White House politicos, the Trump administration has conveniently announced a $12 billion increase in ad hoc government payments to farmers.
One of the arguments for this move—largely intended to shore up support for the GOP in farm country—is that agricultural producers are experiencing losses that put farms at serious risk of financial catastrophes and widespread bankruptcies. An addendum to this debate includes the impacts on grain and oilseed farmers from President Trump’s second round of tariff-based trade wars.
Increasingly, however, evidence from the futures markets indicates that corn and soybean prices are improving. Thus, leaders of farm interest groups have also pivoted to argue that production costs are very high, leading to unsustainable losses for farmers.
From an investor’s perspective, the issue is important because if the farm lobby’s claims are valid, then, absent continued subsidies and relatively stable crop prices, on average the value of agricultural land used in crop production is likely to decline.
The evidence simply does not support the more bombastic assertions from farm subsidy advocates about recent increases and record levels for farm input prices and production costs. In fact, the data show that prices for most major inputs have either been stable or have declined over the past 24 months.
Let’s begin with the prices for three representative and widely used fertilizers: urea, potash, and Diammonium Phosphate (DAP). Prices for all three fertilizers peaked in the spring of 2022, partly because of supply chain impacts resulting from Russia’s Ukraine invasion. However, current prices for urea and potash, while higher than between 2015 and early 2021, are far from record levels. DAP is the one exception, with prices increasing substantially since early 2025, in part because the US typically imports over 10 percent of its phosphate needs from overseas countries subject to new Trump administration tariffs.
The story with respect to labor costs is somewhat different, according to a US Bureau of Labor Statistics–based index for average earnings by agricultural, forestry, and fisheries workers. Between January 2021 and the second quarter of 2023, such earnings increased by 22 percent as the impacts of the 2020 COVID epidemic and subsequent economic recovery played out in markets for semi-skilled workers. However, while the index has fluctuated since mid-2021, effectively those earnings have changed very little over the past two years.
Energy costs also make up a substantial share of on-farm production costs, roughly 15 percent of total cash outlays for crop farms. Think diesel fuel used for power-driven farm equipment.
As economic activity collapsed during the first year of the COVID pandemic, energy prices also fell to thirty-year lows, well under $3 a gallon for No 2 diesel. Despite a sharp rise to almost $6 a gallon after the Russian invasion of Ukraine, diesel prices have since fallen to just under $4—about 30 percent lower than their 2022 peak values.
Finally, farm interest groups have argued that increased borrowing over the past year is a clear sign of fiscal trouble on the farm, adding that borrowing costs are becoming unreasonably burdensome.
Recent data published by the Kansas City Fed show that higher levels of borrowing are concentrated in the livestock sector of the farm economy, a sector enjoying record prices for their animals. Further, interest rates charged on operating loans made to farmers have declined substantially from their peak level of 8.34 percent in the early fall of 2023 to 7.11 percent in October 2025. Interest rates on land purchase loans have followed a similar pattern.
By lowering costs, lower interest rates have made borrowing more attractive and are one of the reasons for recent increases in farm borrowing. While farm loan interest rates are much higher than in the 2010s, interest rate cuts engendered by the Federal Reserve over the past 12 months have translated into a 15 percent reduction in borrowing costs.
As the data show, with respect to input prices, the past two years have been relatively kind to farmers. Hired labor costs have been relatively stable, fertilizer and energy prices have fallen, and interest rates are 15 percent lower than two years ago. Thus, although input prices are higher than in 2021, the story that farmers urgently need financial help because costs of production have been surging over the past year or two does not hold water.
Investors in farmland should be more concerned about whether record levels of cattle prices will persist, grain and oilseed prices will increase from their current relatively low levels, and that the federal government will continue to send annual subsidies to crop producers in excess of $30 billion, as it is likely to do over the next 12 months.
The post Are Farm Level Production Costs Surging? Not So Much. appeared first on American Enterprise Institute – AEI.
