KC Fed economist offers cautiously optimist ag outlook

The farm economy is showing signs of financial strain that are not evenly distributed, but overall the ag sector is “stable” and farmland remains an attractive investment. The ag economy may be coming to reflect the general “K-shaped” economy, where some are doing very well and others are distressed.

That was the cautiously optimistic view presented by Nate Kauffman, senior vice president of the Kansas City Federal Reserve, an economist and Omaha branch executive. He is also executive director of the Fed’s Center for Agriculture and the Economy. The center was set up to increase public access and transparency.
 A question-and-answer session was hosted after the presentation by Brad Lubben, an Extension associate professor, policy specialist and director of the North Central Extension Risk Management Education Center in the department of agricultural economics at the University of Nebraska-Lincoln.

Kauffman’s Feb. 12 webinar presented a United States Agriculture Economic Update, focusing on Midwestern ag industries.

“On the surface, economic conditions appear strong, but with notable disparities and risks,” Kauffman said. The U.S. Department of Agriculture’s Economic Research Service released on Feb. 5, showed that U.S. net farm income is forecast to decline slightly in 2026 to $153.4 billion, a 0.7% drop from 2025, while 2025 estimates were revised downward to $154.6 billion. Net cash farm income for 2026 is projected to rise to $158.5 billion, supported by a $13.8 billion increase in government payments, despite declining market-based receipts.

Kauffman noted government payments, including ad-hoc payments represent a larger share of farm income. He also said, surprising no one, that the cattle market is carrying most of ag’s good news. For producers in general, input costs remain high, even if their upward growth has moderated. While the cattle market is particularly strong, row crop prices remain “stable,” if “subdued.”

His charts showed a 100% increase in cattle prices from 2019, while crop prices increased only modestly, with some keeping up with inflation.

Low cattle inventories are supporting continued high beef prices, and several factors are slowing herd growth, he said. While other commentators have noted challenges like the threat of the New World screwworm, he said the hesitation of cattle ranchers to invest in herd expansion deals in financial reality.

Producers have to think not just about cattle prices today, but about what they could be three years from now, he said. Beef production is declining, but still above production costs and partly because individual animals are heavier, he said.

Global crop production weighs down prices

Kauffman said the stocks-to-use ratio of corn tells the price story. Over the past 15 years, he said, there has been a 50% increase in global corn production. Crop profit opportunities remain “narrow.” Ad hoc payments and other support offer modest near-term support—especially bridge payments—but uncertainty remains about whether they will be continued.

Nevertheless, the overall farm picture remains stable, he said. Demand for operating loans is increasing, and there has been a slight uptick in loan extensions and rollover of farm debt.

“There’s a small increase in delinquencies, but it doesn’t compare with the situation prior to the pandemic,” he said. Loan delinquencies are something of a “backward look,” as it is in the interests of both lender and borrower to avoid default or delinquency as long as possible.

Likewise, there is a decrease in capital spending. Loan repayment rates are worse in crop production sectors and are not evenly distributed among all crop types.

Land values remain firm

But farm real estate values remained firm through the end of 2025. Because rural land values remain strong, producers who own their own land remain good credit risks. Capitalization rates or rates of return for farmland investors remain around 3% now, as opposed to 5% 15 years ago. Still, that’s enough to attract some investors who still see land as a preferred asset class. It’s not just rural land that is increasing in value—all assets are increasing in value, including houses and stocks.

“The question is, who owns the assets?” he said.

Kauffman does see a potential for more farm consolidation as those doing well buy more land from those in distress. Those who rent, or younger farm entrants who have not had time to build up hard assets or working capital during the “good years” from 2020 through 2023, may experience more financial stress, Kaufman said. There’s been a “slight retreat” among farmers buying farmland, from about 80% of all buyers just after the pandemic to around 70%.

Bank debt portfolios show “significant” financial stress for around 10% to 15% of producers—”But that means 80% are still stable,” he said. Interest rates on farm loans have declined slightly, but “remain a significant headwind.” Some long-term rates haven’t moved much, or at all.

So what does all this mean for younger farmers, Lubben asked the Fed economist. Kauffman noted that farming is much more specialized now. “Owning your own farm is not the only way to enter the ag world,” he said, with ag services being diversified. He noted that it’s much harder to automate cattle herding compared to poultry, and that labor issues in cattle raising are also hampering herd expansion, as are water issues.

Lubben asked what the demand driver for crops is: “the domestic market for food and fuel,” was Kauffman’s answer. Lubben said in the next few weeks, farmers will be making decisions about crop planting and insurance. While prices have been on a downturn since 2022, that was a record year. Kauffman noted the 2019 outlook was bleak, including for cattle; then the COVID pandemic happened.

The webinar was recorded and is available at https://www.kansascityfed.org/center-for-agriculture-and-the-economy/.

David Murray can be reached at [email protected].