DENVER, Colo. — The U.S. economy has continued to perform reasonably well despite a growing constellation of warning signs. Buoyed by an escalating stock market in January and February and massive investments in artificial intelligence, U.S. GDP likely grew above 2% in the first quarter as the unemployment rate held around 4.3% and consumers maintained spending growth above 2%. However, surging energy costs and extreme volatility in oil markets resulting from the ongoing Middle East conflict could shift the trajectory of the U.S. economy for the remainder of the year.
Despite historic levels of domestic oil production, U.S. fuel prices still react quickly to disruptions abroad, especially in the Middle East, the world’s leading region for proven oil reserves and spare production capacity. Increased exports of premium-priced U.S. light, sweet crude oil has created tight domestic links to the global market, meaning jumps in global replacement costs quickly flow through to U.S. pump prices.
According to a new quarterly report from CoBank’s Knowledge Exchange, rural communities are hit harder by rising gasoline and diesel prices because fuel is a larger and less flexible part of daily life and the local economy.
Farm and rural advocates continue their calls for swift and urgent action on a new farm bill, more aid and trade certainty. The 2026 Farm Bill passed the House Agriculture Committee on a bipartisan vote in March after over 20 hours of debate. Committee Chairman Glenn “GT” Thompson, R-Pa., hopes to continue to secure support from his most conservative Republicans, and to increase the number of House Democrats supporting the bill to ensure House passage when Congress reconvenes in mid-April. The so-called “skinny” farm bill contains over 800 pages of program and policy improvements that will be of assistance in the current agriculture economy. These programs were last updated in 2018, when the last farm bill was written.
Dairy outlook
For decades, U.S. dairy markets have been balanced for butterfat with excess protein destined for the export market. But the tide has turned and America may be structurally short on dairy protein moving forward. The changing dynamics between U.S. butterfat and protein production will cause more price fluctuation as dairy processors look to balance products in both domestic and international markets. As the transition unfolds, there will be more market volatility ahead. Dairy farmers and processors should consider hedging opportunities when market prices look favorable and cover expenses because small product movements could significantly move prices.
Meat and poultry products continue to resonate with consumers. Strong demand, especially for beef, is prompting optimism for the protein sector. Lower feed costs remain a favorable tailwind for livestock producers. However, cattle feeders are beginning to feel an outsized impact of further herd contraction. Cattle supplies remain limited and any herd growth over the next few years will occur slowly. U.S. hog margins remain firmly in the black. Iowa State University estimates indicate February marked the 23rd consecutive month of profitability for farrow-to-finish margins. Broiler markets are under pressure as ample supplies of meat and slow-moving markets form a headwind to margins nearby. However, more chicken features and promotions in the months ahead should boost disappearance.
Volatility in the energy markets provided grain farmers with new marketing opportunities, driving grain and oilseed prices up late last quarter. Soybean prices rose 11.8%, driven by the soybean oil rally. Corn prices climbed 4% and wheat prices rose 21.5%. USDA’s Prospective Plantings report indicated farmers will increase soybean acres by 4% compared to last year while slashing corn and spring wheat acres. Corn demand remains resilient, but planted acreage is set to fall to 95.3 million acres, down 3.8% year-over-year as farmers eye more profitability with soybeans. U.S. farmers plan to drastically cut wheat acres, which are projected to fall to the lowest since recordkeeping began in 1919.
Improved commodity prices are not anticipated to offset higher input and production costs. Fuel and fertilizer prices have increased 20% to 40% since the Iran conflict began, leaving buyers who delayed decisions more exposed. Ongoing supply chain disruptions for urea could re-create 2022-level fertilizer prices without 2022 crop price support. USDA had expected fuel, lube and electricity expenses to ease, but the sharp increase in diesel prices following the onset of the Iran war could add $2,000 in fuel costs per farmer and hundreds of thousands more for grain elevators.
