Interest Rates & the Risk for Farmers

The Federal Reserve has continued to raise rates with another increase

expected to come from their last meeting of 2022, held during the middle of

December. This will be the sixth time in 2022 that rates have hiked causing some

concern for farmers in coming years.

The total debt of farms has almost tripled in the past 20 years according to data

from FBFM, mostly due to rising asset values, specifically farmland. As we have

seen locally, the value of farmland is substantially increasing year after year. This,

coupled with rising interest rates, will make it even harder for young, beginning or

small farmers to grow their operations as they are often priced out when trying to

buy land. Jason Henderson, a Dean at the College of Agriculture at Purdue

University said it best when he said, “A series of economic forces—high prices for

commodity crops like corn, soybeans, and wheat; a robust housing market; low

interest rates until recently; and an abundance of government subsidies have

converged to create a perfect storm for farmland values.”

Of the total debt of farmers, approximately 29% of all farm loans are farm

operating loans. With almost all farm operating loans renewing annually, these

interest rates are not locked in for long periods of time as we see with land loans.

This means that the interest paid on operating loans will increase the most in the

short term compared to other types of loans (equipment, land, homes, etc.). Of

course with the increased input costs that we are facing, more operating money is

needed than in years past.