As 2025 draws to a close, the heavy clouds of oversupply that have loomed over the American Heartland for the past two years appear to be breaking. According to the latest year-ahead outlook from CoBank’s Knowledge Exchange, the cyclical price bottoms for corn, wheat, and soybeans have likely been established. While the market remains well-supplied, the "arduous work" of low prices has finally begun to stimulate the demand necessary to clear inventories, setting the stage for a more stabilized agricultural economy in 2026.
The implications for the financial markets are significant. For much of 2024 and 2025, grain prices traded below the cost of production, squeezing farmer margins and weighing on the broader agribusiness sector. However, CoBank’s report suggests that the market has transitioned from a period of "supply discovery" to one of "demand expansion." This shift is expected to be fueled by a surge in domestic biofuel production, a resilient livestock sector, and a strategic pivot in export markets, offering a glimmer of hope for investors who have weathered the recent agricultural downturn.
The Bottoming Process: How We Reached the 2026 Pivot
The road to this stabilization was paved by record-breaking harvests and intense global competition. Throughout late 2024 and the first half of 2025, U.S. farmers produced massive yields that, when combined with bumper crops from South America, pushed commodity prices to multi-year lows. By mid-2025, the market was essentially "flushing out" excess supply, a painful process that forced many producers to sell at or below break-even levels. CoBank analysts noted in their December update that these low prices have finally done their job: they have discouraged over-planting and incentivized industrial and international buyers to step back into the market.
The timeline leading to this outlook was marked by several key shifts. In early 2025, the "supply abundance" phase peaked, leading to a period of "slow farmer selling" as growers opted to store grain in hopes of a price rebound. By the third quarter of 2025, the stabilization began to take hold as domestic crush capacity for soybeans expanded and export demand from Mexico reached record highs. The report highlights that while we are not entering a "super-cycle" of high prices, the floor is now firmly beneath the market, providing a more predictable environment for the 2026 planting season.
Key stakeholders, including the U.S. Department of Agriculture (USDA) and major cooperatives, have been monitoring these developments closely. The initial reaction from the industry has been one of cautious optimism. While the "hard choices" for farmers regarding acreage allocation remain, the end of the downward price spiral allows for more accurate financial planning. Market participants are now shifting their focus from "how low can it go" to "how much demand can we capture," particularly as the regulatory landscape for biofuels becomes clearer.
Winners and Losers: Processors vs. Producers
The transition to a demand-driven market creates a distinct set of winners and losers across the public equity landscape. Among the primary beneficiaries are the major grain processors and value-added manufacturers. Archer-Daniels-Midland (NYSE: ADM) and Bunge Global (NYSE: BG) are well-positioned to capitalize on the "crush margin"—the profit earned from processing soybeans into oil and meal. As domestic demand for renewable diesel and Sustainable Aviation Fuel (SAF) continues to grow, these companies are shifting from simple grain merchants to critical energy feedstock providers. Bunge, in particular, is expected to see tailwinds in 2026 as it fully integrates its acquisition of Viterra, aiming for significant operational synergies in a stabilizing market.
On the livestock side, the low-price environment has been a boon for protein producers. Tyson Foods (NYSE: TSN) and Pilgrim’s Pride (Nasdaq: PPC) have seen their input costs for feed—the largest expense in poultry and pork production—plummet. Tyson’s chicken segment is projected to reach record operating income in 2026, as cheap corn and soybean meal bolster margins. Conversely, the beef sector remains a challenge; while feed is inexpensive, the U.S. cattle herd remains at historic lows, meaning Tyson’s beef segment may continue to face supply-side headwinds despite the favorable grain outlook.
The outlook for the "input" side of the sector is more nuanced. Fertilizer giants like CF Industries (NYSE: CF) and Mosaic (NYSE: MOS) face a complex 2026. While lower grain prices typically discourage fertilizer application, CF Industries has successfully pivoted toward low-carbon ammonia for industrial and marine fuel uses, insulating itself from pure agricultural volatility. Mosaic, meanwhile, reports a tightening global potash market driven by strong demand in Brazil and India, which may offset any reduction in U.S. corn acreage. However, equipment manufacturers like Deere & Co (NYSE: DE) may continue to see sluggish demand as farmers remain disciplined with capital expenditures following two years of suppressed income.
The Biofuel Pivot and the Regulatory Landscape
The wider significance of CoBank’s outlook lies in the fundamental restructuring of U.S. agriculture around the "green energy" transition. No longer is the market solely dependent on the "China trade" or traditional food demand. Instead, the expansion of renewable diesel and SAF has created a massive, domestic "sink" for vegetable oils. This shift was accelerated by the "One Big Beautiful Bill Act" of July 2025, which, while reducing some credit values, provided the long-term certainty of the 45Z Clean Fuel Production Credit through 2029.
This regulatory clarity is a game-changer. The EPA’s anticipated 2026-2027 Renewable Volume Obligations (RVO) are expected to be the boldest yet, potentially increasing biomass-based diesel mandates by over 30%. This policy shift ensures that even if global export markets fluctuate, domestic demand for soybeans will remain robust. Historically, such shifts in demand drivers have led to lasting changes in crop rotations; just as the ethanol mandate transformed the corn market in the early 2000s, the SAF and renewable diesel boom is now doing the same for oilseeds.
Furthermore, the geopolitical landscape is evolving. While China remains a "wildcard" due to its increasing reliance on Brazilian soybeans, the U.S. has solidified its position as the primary supplier for Mexico and Southeast Asia. This diversification of the export portfolio reduces the "single-buyer risk" that has plagued the sector since the trade wars of the late 2010s. The industry is moving toward a model where domestic industrial use and regional trade corridors provide the primary support for prices, rather than speculative global buying.
Future Outlook: Acreage Wars and Strategic Pivots
Looking ahead to the 2026 planting season, CoBank predicts a significant "acreage war" between major crops. Because the current price ratios and demand profiles favor soybeans, it is expected that soybeans will pull acreage away from corn and wheat. For farmers, this is a strategic pivot born of necessity; soybeans typically require lower upfront input costs than corn, making them a more attractive option in a "bottoming" market where capital is tight.
In the short term, investors should watch for the finalization of the EPA’s RVO mandates in early 2026. Any deviation from the "bold" mandates currently expected could cause temporary volatility in soybean and heating oil futures. Long-term, the challenge for the sector will be infrastructure. While the demand for SAF is skyrocketing, the "bottleneck" remains the logistics of moving feedstock to refineries and the finished fuel to airports. Companies that invest in this middle-market infrastructure are likely to emerge as the next generation of agricultural leaders.
Another potential scenario involves the weather. After two years of generally favorable conditions contributing to the oversupply, any significant weather disruption in 2026—such as a return of La Niña—could cause prices to spike quickly off these newly established bottoms. Since the market is no longer "searching for a floor," it is much more sensitive to supply shocks than it was a year ago.
Conclusion: The Investor's Watchlist
CoBank’s latest outlook marks the end of a grueling period of price discovery for the U.S. grains and oilseeds sector. The key takeaway is that the "cycle of abundance" is maturing into a "cycle of demand." For the market, this means less volatility on the downside and a gradual rebuilding of producer profitability. The agricultural sector is no longer just a bet on the weather; it is increasingly a bet on the global energy transition and domestic industrial capacity.
Moving forward, the market will be characterized by a "wait and see" approach regarding the 2026 acreage mix. Investors should keep a close eye on the quarterly earnings of ADM and Bunge for clues on crush margin sustainability, and on Tyson Foods for signs of a turnaround in the beef cycle. The "bottom" may be in, but the climb back to peak profitability will require disciplined management and a keen eye on the regulatory signals coming out of Washington.
As we enter 2026, the agricultural sector stands at a crossroads. The transition from oversupply to demand-driven growth offers a more stable, if not immediately explosive, path forward. For those watching the markets, the focus should remain on the "three Ds": Demand (biofuels), Diversification (export markets), and Discipline (acreage management).
This content is intended for informational purposes only and is not financial advice
