05/28/2026
Adjusting for Higher Costs in 2026
James Mitchell, University of Arkansas
The Iran war and the ongoing trade uncertainty and tariffs are beginning to show up more clearly in the broader economy. April headline inflation increased to 3.8%, the highest level since May 2023. Even after removing food and energy, the most volatile categories, core inflation still measured 2.8% in April, the highest level since September 2025. Recent inflation estimates coupled with poor consumer sentiment have everyone looking over their shoulder at what could come next. For agriculture, these developments matter because higher fuel, fertilizer, and transportation costs eventually work their way into the cost structure of nearly every operation.
One of the more immediate sources of heartburn is diesel fuel prices. There are a couple of ways individuals could adjust custom rates or production budgets to account for higher diesel prices. The most straightforward approach would be to look at how much diesel prices have increased and what percentage diesel has historically represented of total production costs for that specific operation.
One example is examining what you may be expected to pay for custom rates on cutting, raking, and baling hay. In Arkansas, the most recent week of data shows diesel prices averaging $5.11 per gallon compared to $3.21 per gallon during the same week last year, an increase of roughly 59%. The 2026 Arkansas hay planning budget estimates that diesel accounts for approximately 5% of total operating costs on a per-bale basis. Using that relationship, an individual charging $30 per bale for 1,000-pound round bales with net wrap could adjust their rate upward by approximately 3%. The calculation is relatively straightforward: a 59% increase in diesel prices multiplied by diesel’s 5% share of total costs equals a 3% increase in total operating costs. Applying that adjustment would increase the custom rate from $30 per bale to approximately $30.90 per bale.
The more important issue is that diesel is only one factor contributing to higher production costs. Many producers are also facing higher machinery costs, parts, labor, interest expenses, and fertilizer and chemical costs depending on the operation. Fuel tends to receive the most attention because it changes quickly and is highly visible, but it may not be the largest contributor to total cost increases over time. That means simply adjusting for diesel alone may understate the true increase in operating costs for some producers.
Note: $30 per bale is the midpoint from the University of Missouri Custom Rate Survey updated in March 2026.