Beige Book Signals Mounting Financial Stress Across Farm Country as Input Costs Surge

Federal Reserve districts report rising agricultural loan delinquencies, fertilizer inflation and export challenges

The Federal Reserve’s May Beige Book (link) offers one of the clearest indications this year that U.S. agriculture is entering a more challenging economic environment. While crop conditions are generally favorable and commodity prices have improved modestly, agricultural producers across several Federal Reserve districts reported mounting pressure from higher fuel, fertilizer and transportation costs. At the same time, Federal Reserve contacts noted rising agricultural loan delinquencies and increasing concerns about producer margins. 

The report’s national summary was notable for its assessment that agricultural conditions were either unchanged or weaker across most districts. Unlike manufacturing, which benefited from defense spending and data center construction, agriculture was repeatedly cited as a sector facing higher costs with limited ability to pass those costs on. The Beige Book specifically highlighted rising fuel and fertilizer expenses as major concerns and noted that agricultural loan delinquencies were increasing in several districts.

•Higher energy prices emerging as agriculture’s biggest headwind. A common theme throughout the report was the impact of higher oil prices and transportation costs stemming from the conflict in the Middle East.

Several districts reported that rising diesel prices were cascading through the agricultural supply chain. Fertilizer manufacturers, grain handlers, exporters and farm operators all reported higher operating expenses.

The Cleveland Fed said agricultural contacts were experiencing “cost spikes for fertilizer and petroleum-based products” due to geopolitical disruptions. Retailers in that district also cited higher beef prices, reflecting rising costs moving through the livestock sector.

In New England and New York, contacts noted that elevated fertilizer prices were contributing to higher food costs, particularly for fresh produce. A food manufacturer in New York reported that higher energy costs were increasing expenses for packaging, ingredients, equipment and transportation simultaneously.

The Richmond Fed reported that skyrocketing bunker fuel costs were beginning to affect export competitiveness, particularly for lower-value bulk agricultural commodities. One port contact said exporters in the Southeast were withholding shipments because fuel surcharges had rendered some cargoes uneconomic to move.

That observation may be particularly significant for grain and feed exporters. Transportation costs are often a decisive factor in export competitiveness, especially when U.S. commodities are already facing stiff competition from South America and the Black Sea region.

•Fertilizer inflation raising questions about 2027 production costs. The Chicago Fed’s report contained perhaps the most revealing commentary regarding producer sentiment.

Growing impact if current conditions persist. While farm income expectations for 2026 were unchanged, contacts emphasized that fertilizer costs remain elevated and could become a much larger concern if current conditions persist into the fall fertilizer purchasing season.

One agricultural contact said producers were purchasing diesel fuel “hand to mouth” rather than locking in larger supplies because of price uncertainty. That comment suggests producers are becoming increasingly defensive in managing working capital and operating expenses.

The district also reported a modest acreage shift from corn to soybeans because soybeans require less fertilizer. While the shift was not described as large, it reflects how producers are already adjusting cropping decisions in response to changing input economics.

If fertilizer costs remain elevated through harvest and winter purchasing periods, those economics could become a more important factor in 2027 acreage decisions.

• Specialty crop producers face additional risks. Fruit producers appear particularly vulnerable.

New York apple growers warned that sharply rising fertilizer prices may force reductions in fertilizer applications this season. Growers said that combined with an early heat wave and a damaging late frost, reduced fertilizer usage could contribute to a significantly smaller harvest.

The comments highlight how rising input costs are not merely affecting profitability but may begin influencing production decisions and yields.

• Farm credit conditions show early signs of deterioration. Perhaps the most important development for policymakers and lenders was the Beige Book’s discussion of agricultural credit.

The national summary noted that agricultural loan delinquencies are rising in several Federal Reserve districts. While the report did not indicate widespread credit distress, the reference stands out because loan quality concerns had largely been absent from Beige Book discussions during the period of elevated commodity prices following the pandemic.

The combination of higher interest rates, elevated operating expenses and uneven commodity returns appears to be creating stress for some borrowers.

This trend bears close watching because farm balance sheets generally remain stronger than during the 1980s farm crisis, but working-capital erosion has become a recurring concern among agricultural lenders over the past two years.

• Agriculture losing ground to data center economy. Another notable theme was the contrast between agriculture and sectors benefiting from the rapid expansion of artificial intelligence infrastructure.

Across the Cleveland, Chicago, Richmond and other districts, manufacturers tied to data centers, power generation and defense spending reported robust demand and expanding investment. 

Meanwhile, agricultural machinery manufacturers reported weaker domestic demand. The Atlanta Fed cited one agricultural equipment manufacturer that reported strong global sales but weaker U.S. sales because of increased competition and softer demand for agricultural products domestically.

Similarly, the Chicago Fed reported declining sales of fabricated metals to agricultural customers even as defense and data center-related demand expanded.

Bottom line: The Beige Book does not suggest an agricultural downturn is imminent, but it does indicate the sector is becoming increasingly squeezed between rising input costs and uncertain revenue prospects. Commodity prices have improved enough to prevent a broad deterioration in farm income expectations. However, the report suggests producers are becoming more cautious, lenders are beginning to see signs of credit stress, and higher fuel and fertilizer prices are emerging as the dominant risk factors for the remainder of 2026. With fertilizer purchasing decisions for the 2027 crop year approaching later this year, many contacts indicated that the persistence of current energy-related inflation could have lasting implications for acreage decisions, production costs and farm profitability.