CoBank Quarterly: Rising food prices squeeze household budgets, constrain consumer spending
U.S. consumers are trading down, cutting discretionary purchases and buying fewer groceries in response to higher food prices
DENVER, July 08, 2026 (GLOBE NEWSWIRE) -- Price increases across most food and beverage categories are tightening household budgets and prompting consumers to make wholesale changes in how they shop. A growing number of Americans are trading down to lower cost food options, reducing discretionary purchases or buying fewer groceries altogether.
According to a new quarterly report from CoBank’s Knowledge Exchange, inflationary pressures and shifting consumer buying patterns are rippling through the U.S. food chain, reshaping strategies for retailers, manufacturers and suppliers.
“While May’s increase in the food price index was tepid, overall food prices are up 2.7% from May 2025 and roughly 26% higher than five years ago,” said Billy Roberts, food and beverage economist with CoBank. “Cumulatively, food price increases are proving to be the definitive, everyday stressor for consumers and they’re responding decisively by choosing lower cost options like private label brands, shopping at discount retailers or simply buying less.”
The change in consumer behavior hasn’t gone unnoticed by manufacturers and retailers. Large grocery retail chains are unveiling price rollbacks and value positioning to maintain traffic and protect market share. Meanwhile, food and beverage manufacturers are emphasizing affordability through pricing adjustments, promotions and productivity gains aimed at offsetting rising input costs.
According to market research firm Numerator, 4 out of 10 consumers cite rising prices as their top concern for the year ahead. Cost pressures building across everyday goods are straining some demographics more than others, a disparity likely to persist while gas and energy prices remain elevated. Nonetheless, inflationary pressures, including those triggered by the war in Iran, are continuing to impact many sectors of the U.S. economy.
U.S. Economy
Interest rates have moved meaningfully higher since March, reflecting a convergence of geopolitical shocks, inflationary pressures, expanding corporate debt issuance and worsening federal deficits. When the year began, the consensus expectation was for a gradual easing of interest rates. The collective opinion now is that rates will remain “higher-for-longer.” Recent inflation reports show broad-based price pressures in energy, services and housing, suggesting inflation is more entrenched than policymakers thought. Members of the Federal Open Market Committee who earlier signaled a bias toward easing interest rates, recently pivoted to a more hawkish stance. The majority now see the possibility of rate hikes if inflation remains unabated. Even if headline inflation moderates, the Fed is likely to proceed cautiously.
U.S. Government
Agricultural issues have taken center stage in the halls of Congress and throughout the countryside in recent weeks. The USDA released its reorganization plan, New World Screwworm has returned to the U.S. for the first time in 60 years, and debate on the farm bill is heating up. Three months ago, most of Washington failed to fully appreciate the strength of the agriculture community. But that dynamic changed when Midwestern members made demands on the farm bill and E15 in exchange for ending legislative logjams on other issues. The agricultural industry hopes for swift action on these and other key issues as the farm economy continues to deteriorate. Affordability issues are being discussed at every kitchen table in America, and many producers are concerned about their futures.
Grains, Farm Supply & Biofuels
Favorable growing conditions throughout the Corn Belt have eased concerns of a smaller corn harvest this fall. Barring any adverse weather, corn prices are likely to stay depressed into harvest season due to ample global supplies. Surging soybean oil prices have sent crush margins for processors to record highs and lifted the U.S. crush pace to breakneck speed. High diesel prices following the Iran war have given biofuel feedstocks like soybean oil additional price support. Heavy rains following a historic drought thwarted the U.S. winter wheat harvest. The U.S. winter wheat crop is expected to be the smallest since 1965 with harvested acreage for all wheat figured to be the lowest since 1877.
Shrinking farmer margins may reduce the volume of crop inputs moving through agricultural retailers. With lower commodity prices projected in 2026, producers will be focused on protecting yields while limiting input spending. USDA projections show elevated production costs are becoming structural, with per-acre costs expected to remain elevated into 2027. Farm supply cooperatives and ag retailers should prepare for more cautious fertilizer and chemical buying, but they have opportunities to provide insights to farmers on how to maximize yields.
The EPA delivered an agriculture-friendly renewable volume obligation mandate in March, significantly increasing the volume of bio-based fuels required for U.S. gasoline and diesel. But the real test will be whether the refining industry can meet the ambitious targets. The RVO for 2026 and 2027 jumps 67% and 70%, respectively. This year’s level of blending will determine if the EPA can continue to take the RVO on an upward trajectory. Even as U.S. renewable diesel and biodiesel utilization improves, production remains below mandated levels.
Animal Protein & Dairy
Animal protein markets are increasingly out of sync with shifting consumer purchasing. Demand remains resilient, but supply responses vary sharply by species. Consumers are signaling a willingness to pay higher prices for beef despite limited supply, while lower-cost pork and chicken alternatives have not fully absorbed the available production. A cost-per-gram comparison may help explain the tension. If pork, chicken or eggs offer more affordable protein, the key question is why consumers are not shifting more aggressively toward those products. The answer likely reflects more than price alone, including taste, quality perceptions, meal preferences, convenience and food service menu dynamics.
The export market for U.S. dairy products continues to gain momentum with cheese and butter setting the pace. Through April, U.S. cheese exports totaled 523 million pounds, a 25% increase over the first four months of 2025. Butter and anhydrous milkfat exports during the same period totaled 134 million pounds, an 88% increase year-to-date. Cheese and butter have been extremely valuable as export products given the higher levels of butterfat in U.S. milk. Butterfat production has been improving so fast on U.S. dairy farms that some dairy processors have placed caps on butterfat levels for payment in milk checks.
Cotton, Rice & Sugar
Cotton prices rose 8% last quarter amid the complicated backdrop of a strengthening U.S. dollar, shifting interest rate expectations and volatility across the broader commodity complex. U.S. exports remain strong, as global cotton demand is shifting back to the U.S. due to tightening world supplies. Cumulative cotton shipments are running ahead of USDA’s projected pace with Vietnam leading demand. USDA estimates global cotton production will fall 5% year-over-year, driven by lower yields following last year’s record output. With global consumption expected to exceed production, world cotton stocks are on track to fall to the lowest in eight years.
U.S. planted rice acreage plunged to the lowest level in more than 50 years this spring due to dismal prices and record-high input costs. USDA estimates long-grain rice acreage at 1.4 million acres, down 34.1% year-over-year. Long-grain rice exports have stumbled under the weight of a global rice surplus. But a recent bump in export demand to the Middle East is stirring hopes of a recovery in exports. Anticipation of a smaller world crop and strong global demand is awakening a price recovery with rough rice prices on the CME climbing 20.7% last quarter. Optimal domestic yields and a sustained price recovery will be needed for U.S. rice farmers to return to profitability.
Sugar prices are caught in a tug-of-war between ample global supplies now and fears of rising demand causing a global deficit later in the year. World raw sugar prices were down 5.1% for the quarter with abundant stocks in Brazil and India following record harvests. But U.S. raw sugar prices rose 2.9% last quarter on the reduction in U.S. production and growing domestic demand. Domestic sugar deliveries are rising for raw cane and refined beet sugar as high fructose corn syrup and other artificial sweeteners are being replaced with natural sugar. Combined, U.S. beet and cane sugar production is projected to fall 5% year-over-year.
Specialty Crops
U.S. tomato prices rose nearly 40% between January and April, the biggest three-month increase since 2006. Wholesale prices for Roma tomatoes, largely grown in Mexico, and Florida's mature green tomatoes hit their highest peak in 25 years. While crop damage caused by weather disruptions are largely to blame for soaring tomato prices, U.S. duties on Mexican imports compounded matters. After the U.S. withdrew from a deal allowing duty-free imports of tomatoes from Mexico, U.S. tariffs on tomatoes ballooned from $16,424 in 2024 to $4.6 million in 2025. Throughout the produce aisle, consumer interest in organic products remains steady, but premium prices in a challenging economic environment for younger consumers could signal challenges for the category.
Energy, Utilities & Digital Infrastructure
Global energy shocks are impacting the everyday realities of rural households, businesses and electric cooperatives. As concerns about fuel prices, strategic oil reserves and energy security ripple through the economy, rural communities often feel the effects first and most acutely — in transportation costs, power affordability and supply chain expenses. Even with a political resolution to the war in Iran and a reopening of the Strait of Hormuz, rebalancing oil market fundamentals will be difficult, and prices may continue to reflect that tightness. Rural America remains particularly exposed to lingering aftershocks of the oil market turmoil.
Utility supply chains remain tight as aging infrastructure replacement, grid hardening and rising load growth continue to push demand beyond supply. While some supply constraints are easing, longer lead times, higher costs and inflation continue to challenge the industry. Over the last quarter, the headline Producer Price Index rose sharply with the May figures showing a 6.5% increase year‑over‑year, the largest jump since Russia’s invasion of Ukraine in 2022. Electric distribution is the first point of impact for load growth, electrification and reliability, so the sector is getting hit earlier and more continuously than transmission or generation.
The AI infrastructure buildout is placing tremendous pressure on supply chains that support fiber, optical networking equipment and other critical communications infrastructure. The surge in hyperscaler demand could not have come at a worse time for broadband operators, particularly those participating in the BEAD program. The combination of higher costs and longer lead times for fiber and other key components increases the risk that operators may struggle to meet construction schedules and deployment milestones. With no meaningful slowdown in hyperscaler investment currently in sight, supply chain constraints could persist well into 2027 and potentially beyond.
Read The Quarterly. Each CoBank Quarterly provides updates and an outlook for the Macro Economy and U.S. Agricultural Markets; Grains, Biofuels and Farm Supply; Animal Protein; Dairy; Cotton and Rice; Specialty Crops; Food & Beverage industries and Rural Infrastructure.
About CoBank
CoBank is a cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving almost 80,000 farmers, ranchers and other rural borrowers in 23 states around the country. CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.
Corporate Communications CoBank 800-542-8072 news@cobank.com
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