Rising interest rates are hitting producers where it hurts this year
Making a living by working in agriculture can be difficult, and rising interest rates do not ease that burden.
The Minneapolis Fed shows depending on the loan type, those rates have climbed rapidly over the last year. They warn conversations with lenders this year could be difficult because two years ago, operating loan interest was around 4 percent. This year, it could be pushing 9. Their recent study showed smaller, less profitable producers are usually the ones taking the biggest hit.
“We did some research here at the Fed recently, and we took a look at how the smaller producers versus larger ones have different operating costs, different interest expense costs, and what we found is that the smaller producers are generally the least-profitable producer. What we saw is that they pay up to 2.5 times more in interest expenses than the most profitable producers. That’s about 10 percent of the crop that goes to interest expenses per year,” said Tate Berg.
The Fed warns if the rate hikes continue, it is bound to affect the entire farm economy. They say farmland values could decrease along with producers second-guessing capital investments.