With American inflation at 40-year highs, the Fed continues to warn of rate increases through the end of 2022. Since March 2022, the target fed funds benchmark rate range has increased to 3.75 – 4.0%. Median projections are expected to be 4.4% by the end of 2022.
While the frequency of interest rate increases can be daunting, farmer survey data has indicated growers are most concerned with the high cost of inputs and machinery this season over the cost of borrowing. Perhaps farmers recognize today’s rising-rate environment is nowhere close to the 1980’s, where the fed funds rate shot up to the mid-teens. But interest rates have a unique relationship to agriculture. With leverage a necessary component of operating, rising input costs are bolstered further by rising rates.
Ag economists are not showing much concern for these dynamics today – there are several fundamentals backstopping the ag economy, including 1) increasing demand for farmland, 2) higher cash rents YoY, and 3) strong farm net income gains. Meaning that while farmers are experiencing the very real pains of rising costs, underlying farmland valuation increases are bolstering the ag economy.