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The Outlook for Interest Rates in 2026

Although it may be a new year, it brings many old questions, including how the Federal Reserve will manage interest rates in 2026. The Federal Reserve adjusts the federal funds rate, the rate at which banks in the Federal Reserve System lend to one another. Their objective in adjusting rates is to 1) keep inflation low and stable and 2) maintain full employment in the economy. After swiftly raising the federal funds rate in 2022 to combat inflation, the Federal Reserve began lowering its target rate slowly in the second half of 2024. The federal funds rate held steady for most of 2025; however, the Federal Open Market Committee (FOMC), the group within the Federal Reserve that sets interest rates, resumed rate cuts at its September meeting. The FOMC implemented additional cuts at its next two meetings in October and December.

Additionally, at the December meeting, the FOMC released its latest economic projections and monetary policy expectations. These projections summarize the views of the thirteen FOMC members on economic growth, unemployment, and inflation, as well as their views on appropriate monetary policy in both the short and long term. Table 1 summarizes FOMC members’ projections for 2026. While FOMC members largely agree on how the economy will perform this year, they differ on how the federal funds rate should change.

Table 1. 2026 Economic Projections of FOMC Members as of December 30, 2025

	Median (%)	Central Tendency (%)¹	Range (%)
Change in Real GDP	2.3	2.1 – 2.5	2.0 – 2.6
Unemployment Rate	4.4	4.3 – 4.4	4.2 – 4.6
PCE Inflation	2.4	2.3 – 2.5	2.2 – 2.7
Federal Funds Rate	3.4	2.9 – 3.6	2.1 – 3.9

¹The central tendency represents the range of projections, excluding the 3 highest and 3 lowest values.

How the FOMC manages the federal funds rate in 2026 will depend on how inflation and unemployment change. All else equal, if inflation rises again, the FOMC is more likely to maintain or raise the federal funds rate. On the other hand, if unemployment increases, the FOMC is likely to lower the federal funds rate and may do so more rapidly than it currently plans. If we take the FOMC’s median projection as its most likely course of action, we expect the FOMC to make a single quarter-point cut to the federal funds rate in 2026. While it may implement this cut early in 2026, during its January or March meeting, it’s more likely that a single cut would occur in the third or fourth quarter of 2026. This would imply a 3.5-3.75 percent federal funds rate to start the year, with a cut to 3.25-3.5 percent at some point between June and December.

Figure 1 uses data from the Dallas Federal Reserve’s Agricultural Survey to illustrate how the FOMC’s actions affect agricultural lending rates. Ag lending rates tend to move with the federal funds rate and are about 4-5 percentage points higher on average. If this relationship continues, a single quarter-point cut would imply average ag lending rates in the Dallas Federal Reserve District in the mid-to-upper 7 percent range for operating loans and in the low-to-mid 7 percent range for intermediate and real estate loans. However, the actual rate a borrower receives will depend on their relationship with the lender and their perceived creditworthiness.

Figure 1. Agricultural Lending Rates by type and the Federal Funds Rate, 2022-2025

References

Board of Governors of the Federal Reserve System (US), Federal Funds Effective Rate [FEDFUNDS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/FEDFUNDS.

Board of Governors of the Federal Reserve System (US), Agricultural Survey, retrieved from the Federal Reserve Bank of Dallas; https://www.dallasfed.org/research/surveys/agsurvey.

Board of Governors of the Federal Reserve System (US), December 30, 2025: FOMC Projections Materials, Accessible Version. Retrieved from: https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20251210.htm.

Wright, Andrew. “The Outlook for Interest Rates in 2026.” Southern Ag Today 6(6.1). February 2, 2026. Permalink

February 2, 2026

The European Deforestation Regulation and the Impact on Southern Agriculture

The European Deforestation Regulation (EUDR) has been postponed once again for another calendar year, but effects of the regulation are already being seen with Southern agricultural and timber lands. Forestland owners in the south are being told they may need to sign an attestation stating they will not convert their timberland to pasture or row crop production after timber is harvested. Failure to sign the attestation may bar a landowner from selling their timber if that product could end up in the European Union (EU). Because many larger timber and paper companies do business with the EU, this regulation could greatly limit the number of potential timber buyers in a geographical area or eliminate them entirely.

The EUDR is a regulation passed by the EU back in May 2023. The stated goal of the regulation is to reduce the EU’s impact on global deforestation and degradation by prohibiting the importation into the EU of certain products produced on land deforested or degraded after Dec. 31, 2023.

The products of importance to southern agriculture consist of wood, cattle, and soybeans. Companies importing these goods to the EU will need to certify that their products do not contribute to deforestation or degradation of forested lands. Companies that are in violation of the new regulation are subject to potentially stiff financial penalties, including confiscation of the product being sold, up to 12 months of exclusion from the EU public procurement process, and fines up to 4% of the company’s total annual EU turnover from the preceding year after the fine is assessed. With penalties this large at stake, companies are looking for ways to comply with the EUDR, and the burden is being shared with southern landowners.

Rumley, Rusty. “The European Deforestation Regulation and the Impact on Southern Agriculture.” Southern Ag Today 6(5.5). January 30, 2026. Permalink

January 30, 2026
A Weaker Dollar Can be Good News for U.S. Crop Exports

A substantial share of U.S. agricultural production is sold overseas (Figure 1). Exchange rates, therefore, play a central role in export competitiveness and, indirectly, in domestic price prospects. For crops with heavy export exposure, the value of the dollar is not just a macroeconomic headline; it is part of the demand curve faced by Southern producers.

The economic intuition is straightforward. Most globally traded agricultural commodities are priced in U.S. dollars. When the dollar strengthens, foreign buyers must use more local currency to purchase the same dollar-priced commodity, which tends to soften demand at the margin and place downward pressure on prices. When the dollar weakens, U.S. supplies become cheaper in foreign-currency terms, export bids often improve, and U.S. crops become easier to place in global markets. This helps explain why the dollar and broad commodity prices frequently move in opposite directions, even though exchange-rate effects can be offset by other market forces.

In 2025, the exchange-rate environment turned more supportive for U.S. agriculture. After rising 7.1 percent in 2024, the nominal broad dollar index declined 7.2 percent over 2025 (Figure 2). Over the same period, major U.S. agricultural customers experienced notable currency appreciation against the dollar: the euro strengthened 12.6 percent, and the Mexican peso appreciated 12.7 percent (Figure 3). These movements improved foreign purchasing power for U.S. shipments and helped support U.S. crop exports. At the same time, Brazil’s real appreciated by roughly 11 percent, which can tighten Brazilian exporters’ local-currency margins and reduce their ability to price aggressively, all else equal.

Empirical research supports this channel. Shane et al. (2008) find that a 1 percent decline in the trade-weighted dollar is associated with roughly a 0.5 percent increase in the value of U.S. agricultural exports. Exchange rates, however, rarely operate in isolation. Weather outcomes, yields, freight costs, geopolitics, and policy shocks can dominate price formation in the short run (an important lesson from the post-2022 period).

For Southern producers, the dollar’s decline in 2025 is a constructive signal for export-oriented crops because it supports international competitiveness without requiring lower farm-gate prices. The main limitation is timing: exchange-rate effects pass through bids, basis, and contracting practices unevenly, so benefits can vary across regions and marketing windows. Even so, the directional effect is favorable.

If global conditions remain orderly and U.S. interest rates drift lower, the dollar may stay softer and continue to support the export channel; renewed risk aversion, however, could reverse this trend and reintroduce headwinds. For export-dependent Southern crops, monitoring exchange-rate conditions alongside basis and contract timing remains an essential part of marketing discipline.

Figure 1 – Exports account for a large share of output in several U.S. crops

Note: Export share is calculated as exports divided by total production. Estimates correspond to USDA 2025/26 marketing-year projections released in January 2025.
Source: U.S. Department of Agriculture, World Agricultural Supply and Demand Estimates (WASDE), January 2025

Figure 2 – The U.S. dollar declined in 2025

Note: Nominal Broad U.S. Dollar Index, Index 2025-01-02=100, Daily, Not Seasonally Adjusted. A decline indicates a broad-based depreciation of the U.S. dollar against major trading partners.
Source: Federal Reserve Bank of St. Louis (FRED): DTWEXBGS

Figure 3 – U.S. dollar weakened against key agricultural trading partners in 2025

Note: Percent change over 2025 (end-to-end). Exchange rates are expressed as local currency per U.S. dollar (Negative values indicate a weaker U.S. dollar).
Source: Federal Reserve Bank of St. Louis (FRED): DEXBZUS, DEXCHUS, DEXMXUS, DEXCAUS, DEXJPUS, DEXUSEU. For the Euro, we convert FRED’s DEXUSEU (USD per EUR) to EUR per USD as 1/DEXUSEU

References

Federal Reserve Bank of St. Louis. (2026). Federal Reserve Economic Data. FRED. https://fred.stlouisfed.org/. Accessed January 23, 2026

Shane, M., Roe, T. L., & Somwaru, A. (2008). Exchange rates, foreign income, and U.S. agricultural exports. Agricultural and Resource Economics Review, 37(2). https://ageconsearch.umn.edu/record/45666/files/shane%20-%20current.pdf

U.S. Department of Agriculture, Office of the Chief Economist. (2025, January). World Agricultural Supply and Demand Estimates (WASDE). https://www.usda.gov/oce/commodity/wasde. Accessed January 23, 2026.

Clemets Daglia Calil, Yuri. “A Weaker Dollar Can be Good News for U.S. Crop Exports.” Southern Ag Today 6(5.4). January 29, 2026. Permalink

January 29, 2026
Coming off record peanut production, where do we go in 2026?

In 2025, U.S. peanut planted area reached its highest mark since 1991, at 1.95 million acres, as was confirmed by the recently released Crop Production Annual Summary. This increase in peanut acreage was driven by a 70,000-acre jump in Georgia and a 45,000-acre increase in Texas. Mississippi was the only major peanut-growing state that had a decrease in peanut planted area compared to 2024. At the end of the 2025 growing season, 97.6% of the area planted was harvested, which was the highest rate since 2014.

Figure 1: 2025 Peanut Yield by State (lb./acre) and Percent Change from 2024

Data source: USDA-NASS. 2025 Crop Production Annual Summary.

The U.S. had a middling peanut yield, averaging 3,767 lb. per acre (Figure 1). While this yield was 1% higher than 2024, it falls about 130 lb. per acre below the previous five-year average. Georgia – the leading producing peanut state – averaged 4,050 lb. per acre, which marks a 7% increase from last year’s value, but still 12% below the high in 2012. Alabama, Florida, and Mississippi observed similar yield increases. Oklahoma had a small increase of just 2%, but the second-highest yield on record for the state. In contrast, Texas had a significant decrease in yield, at 2,450 lb. per acre, the smallest state yield since 1995, when Texas farmers produced 2,000 lb. per acre.

Figure 2: Peanut Production, Disappearance, and Ending Stocks by Year

Data Source: USDA-ERS. Oil Crops Outlook: January 2026.

Overall, peanut production was lower than expected by about 110 thousand tons from what was forecast in September (Rabinowitz, 2025). However, at an estimated 3.59 million tons in 2025, total production was still up 11%, and edged out the 2017 total of 3.56 million tons for the highest on record (Figure 2). While total peanut disappearance is forecast to increase 6% for the 2025-26 marketing year, it is expected to fall short of production, leading to a 24% increase in ending stocks. As we look into 2026, peanut prices are lower than last year, but competing crops’ prices are not looking any better. Corn prices are slightly lower than they were last year in mid-January, with September futures prices down to around $4.40 per bushel. December cotton futures are in the 68-cent-per-lb range, similar to this point last year. As a result, I expect that we will see another sizeable peanut planted area in 2026.

References

Rabinowitz, Adam. “Will the 2025 Peanut Crop Set a New Record?” Southern Ag Today 5(44.3). October 29, 2025. https://southernagtoday.org/2025/10/29/will-the-2025-peanut-crop-set-a-new-record/

USDA-ERS. Oil Crops Outlook. January 14, 2026. Available at: https://usda.library.cornell.edu/concern/publications/j098zb08p

USDA-NASS. Crop Production Annual Summary. January 12, 2026. Available at: https://usda.library.cornell.edu/concern/publications/k3569432s

Sawadgo, Wendiam. “Coming off record peanut production, where do we go in 2026?” Southern Ag Today 6(5.3). January 28, 2026. Permalink

January 28, 2026
Any Herd Expansion from Heifers?

USDA’s Cattle on Feed Report, released on Friday, January 23^rd, contained the estimated number of heifers on feed.  The breakout of steers and heifers on feed is released quarterly.  Many have been looking closely at this statistic for evidence of a significant herd expansion starting.

Heifers on feed totaled 4.435 million head, down 140,000 head, or 3.1 percent, from last January 1.  The number of steers on feed also declined by 3.2 percent.  Heifers represented 38.73 percent of the total cattle on feed, hardly different from last year’s 38.70 percent.  It was the fewest January 1 heifers on feed since 2019.  Arizona, Colorado, Oklahoma, and Texas had fewer heifers on feed, with Colorado having the largest decline of 85,000 head, followed by Texas, down 55,000 head.  The decline in the heifers on feed in those states is interesting in that those states would have been most impacted by the border closure with Mexico.  Other states either reported no change or, in the case of Nebraska, 10,000 more heifers on feed.

Spayed heifers imported from Mexico contribute to the total number of heifers on feed.  The January Cattle on Feed report is the first full month of comparison to a year ago, with no cattle imports in December 2025 and 2024. Approximately 145,000 fewer spayed heifers were imported from Mexico in the months leading up to January 1, 2026, compared to January 1, 2025.  So, the decline in heifers on feed could largely reflect fewer imports rather than a significant decline in domestic heifer feeders being placed.

While the decline in heifers on feed suggests some heifers held for herd rebuilding, the reduction in supplies from Mexico and heifers as a percent of all cattle on feed indicates little herd rebuilding from additional domestic heifer retention, yet. It is likely that the inventory report released on the 30^th should indicate more heifers held for beef cow replacement.

The rest of the cattle on feed largely lined up with expectations.  Marketings were up about 2 percent, with one more slaughter day during December, daily average marketings were below a year ago.  Placements were 5.4 percent below a year ago.  The total number of cattle on feed was down 3.2 percent a year ago.  Supplies should continue to tighten this year and into next year, as well.

January 27, 2026