News

Interest rates to farmers up 1.5% since end of 2015

The latest quarterly report by the Federal Reserve shows ag bankers are slowly raising interest rates on operating loans to farmers.

Lenders charged an average rate of nearly 5 percent this spring, up from 3.5 percent during the final quarter of 2015 when rates were at historical lows.

For a corn farmer borrowing $500 dollars to cover input costs for the upcoming growing season, University of Minnesota Extension ag business management instructor David Bau estimates the one and-a-half percent rate hike equals a per-acre increase of nearly $6 dollars.

“A lot of farmers borrow their input costs for the year, so that interest rate will tick up a little bit and increase their costs for borrowing.  So that will add a baseline expense they didn’t have before and there’s less money to go around this year (compared to) last year.”

The Fed report says while delinquency rates remain low, additional increases could put more pressure on some farm operations.

Bau tells Brownfield the list of ways to reduce expenses is getting short.

“Producers have already been doing a lot of managing for deferred sales (and) their equipment purchases have gone down dramatically.  They’ve turned away some of the land they’ve been renting at higher rates for cost control.”

The Federal Reserve anticipates further gradual increases to keep up with inflation.