BOONE, Iowa (DTN) -- The late-summer rally in grain prices is beginning to pull some farmers back into the black, improving the outlook for farm margins as high fertilizer and fuel costs continue to squeeze producers heading into harvest and planning for the 2027 crop.

Farm leaders and agricultural economists at the Farm Progress Show pointed to stronger corn, soybean and wheat prices changing the financial outlook from just a few months ago. The rally is giving producers opportunities to lock in positive margins, but those gains continue to be tempered by higher fertilizer and energy costs.

Dave Walton, an eastern Iowa farmer and vice president of the American Soybean Association, said the change in grain prices has already altered the financial picture on his farm.

"We've flipped from red to black with this last run-up from the market," Walton said. "I probably aggressively marketed a little more new crop than I would have normally, just because I know that I can lock it in, and I don't want to go back to red again."

Still, Walton added, "The margin squeeze is still real."

Walton has been getting fertilizer quotes as he plans for fall and said prices for most products remain difficult to pencil out. Diesel costs are also $2 a gallon higher than last year as farmers begin filling tanks ahead of harvest, according to AAA.

Marc Rosenbohm, an economist with Terrain Ag, also has been tracking estimated operating margins for both the 2026 and 2027 crops. He said the picture has improved considerably, particularly for soybeans.

"For both the '26 and '27 crop, we're looking a lot better than we were in the past," Rosenbohm said. "Soybeans look better than corn at the moment."

"We're starting to turn the corner," he added.

The important calculation for farmers isn't simply whether fertilizer, diesel or other inputs are expensive, Rosenbohm said. It is how those costs compare with the prices farmers can receive for their crops. Input prices remain largely in a holding pattern, he said, but grain prices recently have moved faster than costs.

"That's really what's important for farmers -- how those relate to one another, because input prices at any given price level can be cheap or expensive, depending on what the grain prices are," Rosenbohm said.

That improvement is giving farmers opportunities to protect margins rather than simply waiting to see whether commodity prices continue higher.

Scott Metzger, an Ohio farmer and president of the American Soybean Association, said producers are in a considerably better position than they were a couple of months ago.

"It's nice to see the price rally we've had," Metzger said.

Metzger grows corn, soybeans, double-crop soybeans and wheat. His operation has used the rally to price some wheat as far out as 2029, with prices above $7 a bushel for each of those crop years.

In Iowa, financial adviser and a retired Iowa State University Extension specialist Steve Johnson said farmers are also using stronger grain prices to lock in costs.

Johnson said some producers have been selling $5 corn and using the proceeds to prepay anhydrous ammonia. "They're using their own money. They're selling $5 corn and buying $680 anhydrous prepaid," Johnson said.

Johnson said farmers increasingly make seed, rotation and input-purchasing decisions in late August and September rather than waiting until winter or early spring.

"These guys are on a treadmill, and the treadmill says, 'Book ahead -- propane, fertilizer and fuel,'" Johnson said.

Johnson pointed to University of Illinois projections suggesting fertilizer costs for corn following soybeans could increase by roughly $33 an acre. He expects anhydrous ammonia and energy, including diesel, to remain significant challenges.

Walton is seeing much the same situation on his farm near Wilton, Iowa. At the moment, Walton said nitrogen prices haven't come down enough to offer the typical late-summer buying opportunity.

"We're looking at 32% and also anhydrous, and neither one of them are really a reasonable buy right now," Walton said. "They haven't come down. Like you said, usually that August, early September time frame, we get pretty good pricing on it. It just wasn't there."

Higher phosphorus prices also have farmers looking harder at nutrient efficiency, Walton said, although he cautioned there isn't yet a "magic bullet" allowing producers to substantially reduce fertilizer needs.

Walton also pointed to concentration in the fertilizer industry as contributing to the problem.

"It all boils back to we need more competition in the marketplace," Walton said. New fertilizer-production projects could eventually help, he said, but additional production remains years away.

Despite those costs, stronger commodity prices can compensate for some production problems.

Walton said soybeans on his farm look above average, while corn is more variable after excessive rain likely caused nitrogen losses in some fields. He expects corn yields to be below the past couple of years but still near average.

The calculation he watches, though, is revenue per acre.

"Even though the yield's down, the price is up, so the revenue is still kind of holding steady, or maybe up just a little," Walton said.

RISKS REMAIN FOR THE RALLY

Whether those improved margins hold will depend on several market and policy developments this fall.

Rosenbohm said USDA's September yield estimates could create pressure, particularly for corn, if yields come in above what the market currently expects. South American planting decisions and growing conditions will also influence soybean prices as the market weighs expanding global demand against the possibility of additional production.

China remains another major factor. Walton said ASA leaders are closely watching whether China follows through on soybean purchase commitments.

"We need to see beans on boats headed west to China," Walton said.

Soybean farmers are also watching EPA's handling of small-refinery exemptions under the Renewable Fuel Standard.

Metzger said ASA is pushing EPA to fully reallocate volumes exempted for small refineries. Failure to provide 100% reallocation could mean roughly a 20-cent-per-bushel hit to soybean farmers, he said.

Rosenbohm also identified the refinery-exemption decision has a potential downside risk for soybeans.

For now, though, the combination of stronger grain prices and opportunities to market future production has given farmers something they had been missing: a chance to lock in margins.

The improvement does not erase elevated production costs. But after several years of tightening margins, Rosenbohm said some of the conditions needed for a recovery are finally falling into place.

"We kind of framed it as, here's some boxes we need to check in order to get things turned around," Rosenbohm said. "And I think we finally started to check some of those boxes."

Also see, "USDA Official: ARC, PLC Payments Will Be Significantly Higher and on Time," https://www.dtnpf.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

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