The first half of 2026 passed quickly amid concern and confusion in the economy despite a bullish stock market. For its part, the agricultural economy remains bifurcated: The protein sector, led by beef, is performing as strongly as the stock market, while the grain and row crop sectors continue to struggle.
The current conflict in the Middle East is an unexpected development that was not forecast at the beginning of the year. Supply shocks related to oil and the drawdown of petroleum reserves are currently being felt more abroad than in the U.S. India has instituted rationing, and fertilizer use has been reduced there as well, which some estimates suggest could decrease global agricultural production by 3% to 5%.
Consumer sentiment sinks
Consumer sentiment, as measured by the University of Michigan, fell to an all-time low in the 44 range in May. Fuel prices, which are included in headline inflation along with other energy and food costs, are a critical factor affecting low- and middle-income consumers in the U.S. and globally.
Interestingly, higher-income households earning $175,000 or more also are quite pessimistic, despite their income and wealth levels. Consumer sentiment for this segment is in the low 60 range.
Travel could be inhibited by higher fuel and ticket prices, as well as possible fuel shortages, which may begin in Europe and eventually spread to the U.S. later in the summer.
Watch trade negotiations
A critical trade agreement to be negotiated in the third quarter of 2026 will be the U.S.-Mexico-Canada Agreement, or USMCA.
- Mexico sends about 80% of its exports to the U.S. About 16% of U.S. exports go to Mexico. This relationship is even more significant for ag products, making a long-term agreement extremely important.
- Canada also plays a major role in this integration, supplying substantial amounts of potash to U.S. agriculture.
- Supply chains among the U.S., Mexico and Canada are deeply integrated across technology, manufacturing and agriculture.
So, the outcomes of these negotiations could have far-reaching implications for businesses across all three countries. The specific provisions negotiated, not just the fact that the agreement is reached, will determine how significant those implications turn out to be.
Inflation pressures midterm elections
The Federal Reserve will continue to wrestle with the decision of whether to raise or lower interest rates. The new Federal Reserve chairman may introduce a revised approach to measuring inflation that reduces the impact of volatility and one-time factors, providing a rationale for rethinking how inflation is assessed. However, the general public is feeling the effects of inflation and may question the validity of the reported inflation figures.
The inflation data, along with the impact of higher interest rates on housing affordability, places significant pressure on middle- and lower-income households. These are the same households likely to favor lower interest rates as a way to improve housing affordability and economic opportunity, and this issue is expected to become a major topic in the fall 2026 midterm elections. Other sectors of the economy, however, may be less concerned about rate reductions and may place greater emphasis on controlling inflation, creating a challenging environment for both policymakers and voters.
Watch the bond and Treasury markets as indicators of the long-term cost of borrowed money and the impact of potential investment strategies amid the buildup of federal debt in the U.S. and abroad. The risk of a liquidity crunch in these markets may be an underestimated factor affecting both U.S. and global economic growth.