Rural Issue

Higher interest rates could add more pressure on ag economy

The Federal Reserve  says additional interest rate increases could put more pressure on some farm operations.

The latest quarterly report by the Fed shows ag bankers are slowly raising interest rates on operating loans to farmers, but current delinquency rates remain low.

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.”

AUDIO: Interview with David Bau

 

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