President Donald Trump’s executive order on Emergency Tax Relief on Diesel Fuel, signed on Oct. 5, eases restrictions on the use of red or dyed diesel, which is exempt from the federal excise tax, for on-road vehicles without penalties.
That will lower prices on average by 24.4 cents per gallon. But how much will that really help farmers?
Most farmers already use off-highway or red-dyed diesel and don’t pay the taxes, but there will be some savings, according to economists.
“Farmers already have about a 50- to 55-cent discount they’re not having to pay right now, so what would this really help?” Gregg Ibendahl, an extension farm management and agricultural finance specialist at Kansas State University, says. “It’ll help farmers to some degree because they probably actually run some semis across the road to haul grain and livestock and such. So there’s a little bit of benefit for farmers.”
Plus, the administration is just delaying the tax payment.
“I don’t think the administration is actually forgiving the tax part of it,” Ibendahl says. “I think it’s just the penalty part they’re waiving because Congress, I think, actually has to revote that tax.”
Independent Truckers to Benefit Most
So independent truckers will see the most benefit, and some analysts say the move could backfire.
“Now, in reality, is it going to have a desired effect on changing supply and demand? Not to what is expected,” says Darin Newsom, senior market analyst for Barchart Inc. “If you lower the price of a cheaper product to begin with, that’s going to increase the demand for that cheaper product. And it can actually raise the price at a time when you cannot increase supplies, because you have little reserve crude oil to turn into diesel.”
Several states have recently taken emergency steps to allow on-road use of dyed diesel. Plus, states exempt farmers from an average diesel tax and fees of another 35.5 cents per gallon, which lowers the combined federal and state burden by nearly 60 cents per gallon.
“We still have the state side of taxes,” Ibendahl says. “A lot of states have already waived those as well here, too.”
Kansas State analysis shows farmers use about four gallons of diesel to grow an acre of corn. So the savings is welcome.
“It was a $2.50-per-gallon run-up in the diesel fuel price, so you’re talking maybe an extra $10 or $15 per an acre to grow a crop, but that’s really, you know, it doesn’t seem like much,” Ibendahl says. “You put that over 2,000 acres, you know, you’re talking an extra $30,000.”
And that’s not an expense farmers can pass on, so it cuts into already tight margins.
