Higher Costs to Test Rural Resilience
Published: Friday, October 23, 2026
In its latest Quarterly report, CoBank finds that elevated borrowing costs, tighter agricultural margins and surging infrastructure demands are testing resilience across the rural economy. In the background, artificial intelligence is augmenting tasks rather than replacing occupations. While these forces are creating new opportunities, they're also raising the stakes for businesses, producers and service providers deciding where to invest, adapt and compete.
Nearly four years after the public release of generative AI tools, evidence of a widespread labor market disruption remains limited. While AI adoption among businesses has expanded rapidly and more than half of workers are using AI in some capacity, its impact has largely been concentrated on specific tasks rather than the elimination of entire jobs.
According to CoBank's Knowledge Exchange, current data suggests that fears of an imminent AI-driven employment "apocalypse" have not materialized, and overall demand for workers remains largely intact across industries and demographic groups.
"Many workers are using AI to support specific activities, but the adoption remains relatively shallow," said Rob Fox, vice president of CoBank's Knowledge Exchange. "Most jobs depend on a broad combination of skills that AI cannot fully replicate. As a result, organizations have generally focused on redesigning workflows and retraining employees rather than reducing headcounts."
Several recent studies and employer surveys reinforce that conclusion. Relatively few companies report layoffs directly attributable to AI adoption. Instead, organizations are investing in workforce development and modifying job responsibilities. Most importantly, there is a notable gap between AI's impact on individual productivity gains and measurable business outcomes. While many workers report completing tasks faster, relatively few companies have realized significant improvements in profits or enterprise-wide value creation.
The labor market effects that are emerging appear more subtle than initially expected. Rather than causing large-scale unemployment, AI may slow hiring growth and reduce the number of entry-level opportunities. Recent college graduates may be particularly vulnerable, as employers increasingly use AI to expand the productivity of existing workers rather than hire new ones.
Economists have differing views on why intermediate- and long-term interest rates surged higher this year. Some attribute higher rates to persistent inflation and a resilient economy. Others blame government deficits, AI investment, reduced foreign demand for U.S. debt or declining confidence in economic policy. The competing explanations can largely be reduced to two related forces—investors expect short-term interest rates to remain higher for longer, while governments and corporations are asking markets to finance an ever-increasing level of outstanding debt. The Federal Reserve's recent interest rate projections or "dot plot," show the median participant sees the year-end 2028 Fed funds rate at 3.9% – the same as it is today. Combined with the ever-growing supply of government and corporate debt, longer-term rates are unlikely to decline anytime soon.
Midterm election pressures are limiting legislative progress as candidates focus on competitive races and voter concerns about affordability. In rural America, low commodity prices, high input costs, trade disruptions and Farm Bill delays are intensifying uncertainty for agricultural producers. Farmers and the broader agriculture industry remain hopeful that whatever the November election brings, the urgent need for stability will convince legislators to resume legislating. Meanwhile, opposition to data centers continues to grow as rural and urban communities alike question their energy demands, costs and local economic benefits.
Concerns over a shrinking U.S. harvest sent corn prices 20% higher last quarter. Tighter U.S. supplies, combined with a steep reduction in the European crop and fewer shipments out of Ukraine increase the likelihood of continued corn price volatility. U.S. soybean crush continues to climb to record highs, strengthening soybean basis throughout the country. China has returned as a steady buyer of U.S. soybeans and total export commitments to all countries are more than double last year's pace. U.S. wheat prices are among the highest in the world as the market rations scarce supplies. Declining wheat shipments out of Ukraine and Russia have led buyers to shift purchases elsewhere and lifted global prices.
However, higher commodity prices for corn and soybeans have not been enough to offset the run-up in fertilizer and fuel prices. Diesel prices are nearly 80% higher than last year and the additional expenses will become more pronounced during harvest. At the farm level, fertilizer expenses for 2026 are projected at a record $40 billion, up 15% from last year. Elevated agronomy and fertilizer prices are anticipated for this fall, but availability of crop inputs is not a concern. Ag retailers and farm supply cooperatives have been conservative in building inventory but are expected to have ample supplies.
Market incentives are driving additional demand for biofuels. The EPA's increase in renewable volume obligation for biomass-based diesel is fueling robust demand for domestic soybean oil. But despite 17 straight months of record domestic crush, imports are still needed to meet the higher RVO. Concerns over the handling of 2025 small refinery exemptions eased after the EPA announced plans to exempt 1.76 billion renewable identification numbers across 29 small refineries. The U.S. ethanol industry has seen margins swing dramatically higher with 45Z tax credit values. As production climbs to capture the tax credits, exports will be needed to absorb the additional ethanol supplies.
This summer's grilling season reinforced the uneven dynamics impacting animal protein markets. Beef remains constrained by cattle availability, pork has ample supply but needs stronger domestic uptake, and chicken is expanding production into a more price-sensitive environment. Summer demand was durable, but each sector faces a different margin challenge.
Cattle availability will remain one of the beef sector's biggest constraints. Scarce supply continues to favor cow-calf producers but raises procurement risk for feeders, packers, retailers and foodservice operators. A marginal increase in beef replacement heifers points to the earliest stage of retention, but rebuilding remains slow because of high replacement costs, drought risk and limited heifer availability.
Pork producers have benefited from lower feed costs but remain exposed to export concentration and uneven demand. Ahead of grilling season, the retail pork demand index fell to its lowest level since 2020, making exports critical to clear supply. USDA forecasts imply pork production moderately outpacing disappearance through 2026, a gap that showed up this summer when the cutout missed its normal seasonal rally. Broiler integrators have the clearest path to volume growth, but only if demand can absorb added production. Chicken remains well positioned on value, convenience and menu flexibility, but QSR sales gains appear more measured than headline growth suggests.
The U.S. dairy herd grew by 200,000 over the past 12 months, driven by strong producer returns for beef-on-dairy calves. Texas, Idaho, Kansas and South Dakota paced the herd expansion as U.S. dairy cow numbers moved to a 34-year high. While beef-on-dairy calves have dropped from a $2,000 high this May, the current $1,300 per calf remains far higher than the $200 level that prevailed prior to 2023. The extra dairy cows and resulting milk supply have put downward pressure on milk check revenue. As a result, beef revenue has become the key profit driver at the margin for producers with milk checks covering expenses.
A summer wave of produce-related foodborne illness materially weakened consumer trust, disrupted restaurant traffic and pressured grocery sales. Kroger indicated the lettuce recall due to Cyclospora contamination cost the grocery retailer more than $100 million in lost sales. The commercial effect extended beyond recalled products, as consumers reduced purchases across broader produce categories and avoided affected restaurant brands. Taco Bell's visitation decline peaked near 30% before improving to low double digits by late August. The impact of food safety issues on consumer trust presents a challenge that retailers, brands and suppliers will have to address. Recovery will depend on demonstrable food-safety improvements, transparent sourcing and targeted customer re-engagement.
Food inflation remains a central pressure point for packaged food companies, driven by elevated energy, fertilizer, raw material, packaging and tariff costs. According to USDA data, the average food bill will climb at least 3% through 2026 and another 2.4% in 2027. But that increase masks the cumulative effect. Overall food prices have jumped 30% since January 2020. Retail brands are firmly in reactionary mode, as reduced unit sales and limited pricing flexibility leave them with few options.
Supply chain costs are expected to continue increasing through the latter half of the year, with fuel costs alone poised to significantly impact margins. Consumers face those same inflationary pressures and will continue to focus their food and beverage behaviors on value and lower prices options. The only real positive for retailers and brands will be that consumers' shift toward food at home should continue.
Return to Top of Page