By Jason Vance

The Food and Agricultural Policy Research Institute released its 2026 agricultural outlook with a clear message: U.S. agriculture faces a period of tight margins, heightened volatility, and continued reliance on policy and global markets.

Presenting the report, FAPRI Director Seth Meyer—former chief economist at the United States Department of Agriculture—emphasized how quickly conditions can shift and how uncertain the current outlook remains.

“This is a 10-year baseline meant to guide policy analysis,” Meyer said. “But there are many factors—markets, policy, global events—that can move us off that path in a matter of months.”

Volatility Shapes the Outlook

Meyer pointed to energy markets as a prime example of instability. Oil prices have fluctuated sharply in recent months, with ripple effects across agriculture through fuel and fertilizer costs. Nitrogen fertilizer prices, in particular, have surged due to global supply disruptions and high natural gas costs.

“These input costs remain elevated even as commodity prices have come down,” Meyer said. “That’s the squeeze producers are feeling.”

He noted that while commodity prices spiked in 2022 due to global shocks—including war and production shortfalls—those prices have since eased. However, input costs have been slower to decline, creating a familiar cycle of compressed farm margins.

Crop Margins Remain Under Pressure

The outlook suggests modest price rebounds for major crops such as corn and soybeans, but not enough to significantly improve profitability. Meyer compared current conditions to the 2014–2019 period, when producers endured several years of weak margins.

“Prices may tick up slightly, but not to levels that restore strong returns,” he said.

Net returns for key row crops have steadily declined since their 2022 peak, and projections indicate little improvement in the near term. Cotton and rice producers face particularly difficult conditions, with weak prices and limited demand growth.

Acreage Shifts and Global Competition

FAPRI expects long-term shifts in U.S. crop acreage, with wheat continuing to lose ground to more competitive crops like corn and soybeans. Globally, the U.S. faces increasing competition—especially in soybeans—from countries like Brazil and Argentina.

“We’re seeing strong growth in South American production,” Meyer said. “That’s limiting U.S. export opportunities and reshaping global trade.”

Domestic soybean demand is expected to remain strong, however, driven largely by biofuel policy and increased processing capacity.

Policy Drives Demand

Biofuel policy—particularly renewable fuel standards—is playing a growing role in shaping agricultural demand. While ethanol growth remains constrained, biodiesel and renewable diesel are expanding due to policy incentives.

“Policy is a major driver of demand right now,” Meyer said. “Without it, the outlook would look different.”

Government payments are also expected to play a key role in supporting farm income in 2025 and 2026. Meyer noted that increases in farm program payments and disaster assistance are helping offset weaker market returns.

“If you look at farm income in the near term, a significant portion of the support is coming from government payments and the livestock sector,” he said.

Livestock Sector a Bright Spot

While crop producers face challenges, the livestock sector offers more optimism. Cattle prices remain near record highs due to tight supplies and strong consumer demand for beef.

However, Meyer cautioned that uncertainty remains around when the cattle cycle will shift toward herd rebuilding.

“There’s strong economic incentive to expand, but factors like drought and forage availability are slowing that process,” he said.

Egg markets, meanwhile, are expected to stabilize after sharp price spikes tied to avian influenza outbreaks. Dairy prices are also projected to recover modestly, supported by export demand.

Food Prices and Consumer Impact

Meyer highlighted that most food costs occur beyond the farm gate, with only about 12 percent of retail food prices tied directly to farm production.

“If we see food price inflation, it’s more likely driven by costs after the farm—labor, transportation, energy—rather than commodity prices alone,” he said.

Food-away-from-home prices, such as restaurant meals, are expected to continue rising faster than grocery prices, largely due to higher labor costs.

Outlook Hinges on the Unexpected

Looking ahead, Meyer stressed that the biggest factor shaping the farm economy may be the unknown.

Historically, major improvements in farm income have followed unexpected shocks—such as droughts, trade shifts, or geopolitical events—that tighten supplies or boost demand.

“What gets us out of this environment is usually some external shock,” he said. “Until then, we’re likely to remain in a period of tighter margins.”

The 2026 FAPRI outlook underscores a cautious near-term outlook for agriculture, with resilience depending on producers’ ability to manage costs, adapt to policy changes, and navigate an increasingly complex global market.