DENVER — 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.
Impact of artificial intelligenceNearly 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.
U.S. EconomyEconomists 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. U.S. GovernmentMidterm 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. Grains, Farm Supply & BiofuelsConcerns 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.
Animal Protein & DairyThis 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.
Specialty CropsA 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. Cotton, Rice & SugarFears of a shrinking U.S. cotton crop drove prices to their highest level in 18 months last quarter as record heat raised questions over West Texas cotton yields. USDA currently forecasts the U.S. cotton crop falling 5% year-over-year. Demand for U.S. cotton has been resilient, but inflation and expectations of higher interest rates cloud the outlook. Inflation-weary consumers are trading down or delaying spending on clothing and apparel. Further interest rate increases threaten to raise consumers’ borrowing costs while strengthening the U.S. dollar and discouraging U.S. cotton exports. The U.S. rice harvest is expected to be the lowest since 1990 following a 25% reduction in rice acreage this spring compared to last year. Rice prices have sharpened in response, with rough rice futures up 41% year-over-year. Large carryover stocks from last year’s bigger harvest will provide a supply buffer for long-grain rice millers. Globally, concern is building over farmers reducing rice acreage this fall in Brazil, the U.S.’s top export competitor for rice. Buyers also fear global supplies will constrict next quarter amid smaller harvests in India and Southeast Asia as El Niño causes difficult growing conditions across key rice-producing regions. Despite rising imports, U.S. sugar prices climbed to the highest level in 19 months last quarter because of robust deliveries and tightening production prospects. Sugar beet plantings fell to the lowest since 1950 with freezing temperatures and drought conditions crimping yields. In Florida, mealybug infestations lowered production expectations for sugarcane. The widening spread between No. 16 U.S. raw sugar prices and the cheaper No. 11 world raw sugar contract continues to pull imports into the U.S. despite long-standing Tier 2 tariffs on out-of-quota sugar. Food & BeverageFood 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. Digital Infrastructure, Utilities, Power & WaterCompetition in the broadband market continues to intensify. Satellite internet, once considered too expensive and slow to compete with terrestrial networks, is starting to emerge as a legitimate option for some rural communities. Starlink’s subscriber and revenue growth has been impressive, and Amazon’s Leo could offer a very competitive offering when it begins a full-scale launch next year. For smaller and rural broadband operators, there is an effective playbook for defending market share that centers around brand, customer service and community relationships. The critical message for smaller operators is that while deep-pocketed national operators may outspend local providers, they cannot “out-local” them.
After more than a decade of flat demand, the U.S. has entered a new era of electricity growth. While commercial customers accounted for roughly 65% of demand growth since 2021, the story extends well beyond data centers. Residential and industrial demand each contributed roughly 17% of total growth. This perfect storm of demand growth is creating both opportunities and challenges for utilities across the U.S. as they adapt to a fundamentally different environment. Even utilities without significant data center development are seeing rising load, requiring greater investment in generation, transmission and distribution infrastructure.
The Federal Electricity Regulatory Commission is pressing grid operators to move faster as power demand surges. With thousands of generation and storage projects waiting to connect to the grid, FERC is implementing generation reforms under Order 2023 and requiring regional grid operators to speed connection for new large loads under Section 206. While the moves are designed to reduce process delays and identify viable projects sooner, faster approvals to connect does not guarantee that new power plant projects will be financed, permitted or built. The larger challenge is aligning interconnection reform with transmission development, generation investment, permitting and cost allocation.
Cybersecurity threats are increasingly testing safeguards designed to protect U.S. drinking water systems. The challenge is especially acute for smaller utilities with limited staff, tight budgets and older technology. Existing federal water safety rules cover larger systems, but weak compliance and exemptions for small systems leave a major regulatory blind spot. Recent cyberattacks appeared to focus on smaller water systems, many of which may lack the funding to close the security gap. New cybersecurity mandates will only work if they come with funding, technical assistance and shared support for securing operational technology.
Read The Quarterly. Each CoBank Quarterly provides updates and an outlook for the Macro Economy and U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Cotton and Rice; Specialty Crops; Food & Beverage industries and Rural Infrastructure.
