The latest Farm Journal Ag Economists’ Monthly Monitor shows a bit more pessimism from respondents on the current state of the ag economy as well as how the present compares to one year ago.
Farm Journal regularly reaches out to a vetted list of 80 ag economists from across the industry. Providing directional insights, 10 of the 16 economists who responded to the April survey believe the ag economy is in a worse state than it was a year ago. Slightly fewer than half expect conditions to be “somewhat better” in 12 months, while one-third still anticipate further decline.
“I just haven’t really changed my level of pessimism regarding this year. This is going to be a tough year. There’s no doubt about it,” says Michael Langemeier with Purdue University.
The conflict in Iran weighs heavy on economists’ minds; high fertilizer prices and high energy costs dominate concerns. This overshadows the previous looming concerns of the trade fragility and export deficit. The previously announced government payments are in the rearview mirror.
Wes Davis from Meridian Agribusiness Ag Advisors agrees that profit margins squeezed by high input costs are the top concern.
“When we talk about the more pessimistic view of the ag economy, fertilizer prices driven by the outbreak of war in Iran is certainly top of mind,” he says.
But Davis says there have been some positive tailwinds for commodity prices over the past few months, and there’s ‘no slowdown’ in demand for animal proteins.
“Those tailwinds continue to be present,” he says.
A Fundamental “Structural Shift”
Three-quarters of the economists believe U.S. agriculture is undergoing a permanent structural shift rather than a typical cyclical phase. They cite increased competition from Brazil, changing trade policies and the rapid adoption of artificial intelligence as factors reshaping the industry for the long term.
“I’m thinking of this one as the geopolitical and input reset,” Davis says. “What I mean by that is, where things go and how we interact with the global ag economy when this cycle or when this shift is over will be different. The way that farmers get their agrichemicals, their fertilizers, their vitamins/trace minerals for feed, their tractors will all be different.”
Davis brings up the farm bill as another example. He questions whether the structural shift in policy is moving away from supporting “commercial farm preservation” and more toward “rural economic development.” This distinction could change the long-term framing of ag policy.
While Davis’ perspective is in the majority, Langemeier offers a counterpoint. He says this today reminds him a lot of the 2014 to 2019 period when there were about six years in a row of relatively low crop margins.
“I know there are a lot of changes going on, and certainly we’re worried about the competitiveness of U.S. agriculture compared to Brazil, particularly for soybeans,” he says. “As one example, I think the AI developments actually could be positive, and so I don’t necessarily see why that would necessarily mean a structural shift that would be negative.”
Geopolitical Impacts on Input Costs
The conflict in Iran and broader Persian Gulf instability are identified as primary drivers of agriculture’s economic health. Economists are specifically concerned about how these tensions are “pinching margins” by driving up the costs of energy and fertilizer while commodity prices remain relatively low.
“The negative impact of the Iran conflict has been increased fertilizer and energy prices. I did some crop budget calculations: If you hadn’t bought your fertilizer and most of your fuel is yet to be purchased prior to the Iran conflict that’s a pretty large effect on corn break-even price. I calculate it to be 25 cents a bushel. And when your break-even price is already at $5, which is way above what the futures price adjusted for basis is this fall, that’s certainly not helping matters,” he says.
It’s not just fertilizer and fuel. It’s other input categories in row crop agriculture and livestock production as well.
Noting input prices are 15% to 20% higher than pre-COVID levels, Davis points out that prices for active ingredients have gone up 20% to 30% since the conflict in Iran started.
“This continues to exacerbate that question around how long are we going to continue to see input prices increasing?” Davis says. “The other things that are less talked about but are starting to show up in pricing data are things like low inclusion additives for livestock feeds, so things like vitamins and trace minerals are starting to show up in pricing increases as well as they are being disrupted in trade flow and a slowdown of exports from China.”
Langemeier adds to the question around input pricing increases, saying it’s unknown if the uncertainty and elevated costs will go into 2027.
Strategic Deferment of Capital Expenses
To manage tight margins, farmers are expected to prioritize paying down debt over investing in land, equipment/technology, capital improvements and labor. Machinery and equipment purchases are the top items likely to be reduced or deferred in 2026, with half of economists also warning that cuts to fertilizer and crop protection could start impacting yields.
“The number one thing as always is farmers want to be paying down debt,” Davis says. “Equipment is going to continue to be in a trough, and my expectation is that tractor sales year over year are still going to be 10 to 15% lower this year versus last year.”
He also foresees a continued transition to generic crop chemicals for the next two years.
Davis makes a distinction regarding which farms could survive this pinch on profitability. He describes a “tale of two economies” where disciplined farms with high liquidity can still find financing to grow, while those who grew aggressively at the peak of the cycle are facing a “pullback” from lenders. This adds a layer of nuance to the “commercial viability” discussion.
Langemeier provides a sobering warning about how farmers are managing the third year of low margins. He notes a trend of farmers starting to borrow against their land (non-current debt) to cover operating expenses — a pattern seen during the 2014 to 2019 downturn. He emphasizes the urgent need for “contingency planning” and a “Plan B” for debt repayment this fall.
“Usually, farms will try to cover their owner withdrawals and repay debt before they even think about making down payments on machinery. Capital expenditures always get squeezed when cash flow is tight. That’s just the way it works. We’re in one of those situations where capital expenditures are just going to be lower, primarily machinery and buildings,” Langemeier says.