Many of you who follow this column know that I frequently present programs with Eric Snodgrass from Nutrien, aka “Eric, the weather guy.” We both jokingly say that both weather and economic forecasts sometimes are more wrong than right. That appears to be the case for both the general and agricultural economies in 2026.
Here are two examples:
Interest rates bounce. At the beginning of the year, I predicted two to three interest rate cuts. However, the conflict in the Middle East ignited inflation. That, combined with loose monetary policy and deficit spending, pushed the Federal Reserve to reverse course.
On Sept. 16, the Federal Open Market Committee raised the federal funds rate a quarter point to a range of 3.75% to 4%, its first increase since 2023. Upward pressure on long-term 10-year and 30-year bonds, which is the result of deficit spending and global uncertainty created by massive debt buildups, will put pressure on long-term interest rates.
Agriculture rallied. The ag economy — particularly the row crop, grain and specialty crop sectors — looked bleak coming into the loan renewal season, with concerns mounting among agricultural lenders. Yet, discussions with producers and lenders indicate that government payments helped. In many cases, the anticipated refinancing of stressed loans, compounded by financial problems related to inflated cost structures, did not emerge.
2 economies
Today, there are two economies:
1. The general economy. Wage earners and those in the middle- and lower-income echelons are struggling with inflated costs.
2. Consumer spending. The stock market has propelled consumer spending through significant gains in asset values, fueled by the hype surrounding investment in artificial intelligence and its potential productivity gains.
Compare today against the 1970s
Many economic parallels can be seen between the current stock market and the land value boom of the 1970s. During that boom, Baby Boomer producers were in the midst of buying farms, with rapid expansion aspirations fueled by booming commodity markets and the influence of inflation on land values. Financial and economic decisions were less about profits and cash flow and more about gains in paper wealth propelled by financial leverage.
Fast-forward to today. The stock market here in the U.S. and around the globe is being influenced by leveraged funds and margin debt. According to “The Wall Street Journal,” borrowing by investors from their brokerages to buy securities is up 54% year over year to nearly $1.5 trillion. In other words, investors are borrowing against the value of their stocks to purchase more stocks in anticipation that values will go higher. Increases like this have not been observed since the dot-com bubble around the turn of the century.
Back in the 1970s, farm debt tripled as producers went on a borrowing binge to capitalize on land inflation, rather than focusing on earnings, profits and cash flow. Frequently, the five C’s of credit became collateral, collateral, collateral and collateral with a little attention to character — and limited emphasis on profits and cash flow.
Of course, this tumbled when interest rates increased and global agricultural markets weakened. Land values then corrected, falling 50% to 60% in some regions. Limited cash flow to service debt combined with the supply of land on the market exceeding demand helped create the farm crisis.
A parallel universe could emerge today from a convergence of events. Specifically, if expectations surrounding AI-driven investment and productivity gains are dampened, short- and long-term interest rates remain high or move higher, and investors unload stocks — particularly the Magnificent 7 and other technology stocks — the result could be a major, prolonged market correction.
What to watch
Most technology shifts throughout history have influenced consumer and investment behavior. We have seen these cycles with railroads, electricity, automobiles, agriculture, the dot-com era and real estate. Now, the AI boom appears to be the latest test case.
So, what should you watch in the months ahead? Keep your eye on margin debt, AI spending by the big tech companies and the Federal Reserve’s next move on rates. Any one of these could signal whether the parallel holds or breaks.
History does not repeat itself, but as I often tell Eric Snodgrass, it does tend to rhyme. Whether this parallel universe becomes our reality remains to be seen.