2026 begins tough. As always, the beginning of each year brings new opportunities to set goals and renew commitments, both personally and professionally. I’ve already written my bucket list for 2026 and hope you’ve done it as well. This is also an ideal time to focus on business planning. Although management planning is important every year, this year it is critical.
On December 15, the USDA released valuable insight, through the Farm Prices Paid Index and Farm Prices Received Index (2011=100). The report showed that in October the prices paid index rose to 154, while prices received index fell to 12. In simple terms, compared with 2011 production costs are about 50% higher, whereas the prices farmers received are only around 21% higher, resulting in a gap of 34.1 index points. Although it does not measure profits directly, the gap provides a clear idea of farm operating margins. In this column, I’ll share key const management consideration that may be helpful for business planning.
In the cattle market, we continue to expect high prices, as I mentioned in previous columns. Tight cattle supply and robust beef demand are the main price drivers. With reductions in cow culling and increased heifer retention, we expect to see signs of herd expansion throughout 2026 and 2027. However, re-building takes time and will be gradual. In 2025 heifer retention was 16% lower than 2014, the year of the most recent herd expansion. At the end of January, upcoming USDA reports will provide updated information on how many heifers were retained.
1. Meanwhile, cow-calf operations will focus on selling calves. Ranchers’ income will benefit from high prices, whereas increased cow and heifer retention means lower sales volume. Therefore, cow-calf producers should focus on three key cost areas to improve efficiency: Overhead costs, such as labor or machinery. If current capacity is not sufficient for a larger herd, additional investment may be required, increasing overhead costs.
2. Forage/feeding costs, which are the major operating costs. An effective grazing management program can significantly reduce feeding, machinery and labor costs.
3. Cow depreciation, one of the most complex cost components. With heifer purchase or development costs currently at peak levels, cow depreciation is expected to increase and affect future budgets.
Regarding crops, the scenario is different. On January 12 the World Agricultural Supply and Demand Estimates report was published, and its projections shifted the outlook toward a less favorable commodity environment. For corn and soybeans, we expect larger production, supply, and stocks. For wheat, estimates show a slight increase in supply, a decline in feed and residual use and higher stocks. Additionally, soybean exports forecast has decreased. All of these factors place downward pressure on prices, while some input costs continue to rise.
According to Terrain Ag projections, fertilizer costs are expected to increase in 2026 due to multiple factors, including high demand, tight Urea and UAN supply, and geopolitical conflicts. Additionally, tariffs may push some input prices higher. Even though several key fertilizers and machinery are protected under the United States-Mexico-Canada Agreement, certain equipment and specialized pesticides from other countries face higher tariff rates. An article from North Dakota State University notes that pesticide prices could increase around 25% whereas machinery and equipment (repairs) costs may rise between 13-16%.
Marc Rosenbohm, author of the Terrain Ag article, estimates production cost increases of approximately 4% for corn and 6% for soybeans. However, these are only expectations, and no one can be sure about the future. What is clear is the persistent gap between the farm prices paid and prices received indexes. Although these indicators don’t assess farm profits directly, they clearly show financial pressure on farm operations.
Determining goals and developing a well-informed business plan that adjusts management decisions with those goals will be ideal in 2026. Producers should stay informed about markets and pay close attention to inputs that may become more expensive. Markets are multifactorial and largely outside of our control.
Therefore, I highly encourage focusing on the factors within managerial control and using available resources as efficiently as possible. Do not hesitate to contact the experts with questions. The OSU Extension team and I are always willing to help.
Article by Alberto Amador, West Area Ag Economics Specialist
