If you have followed the news this year of the Federal Reserve, interest rates, inflation, and prices, you may have come to the following conclusion: everything is going up. Per a recent survey of more than 300 Ag lenders, interest rates are the top concerns of Ag lenders throughout the country. Read the full report here.
As of last Wednesday, the Federal Reserve (the Central Bank of the United States) has again raised interest rates 75 basis points, or three-quarters of a percentage point. This is the fourth such event of the Fed raising interest rates by 75 basis points this year. The Fed is targeting a range of 3.75-5 percent for its key benchmark borrowing rate. If you are interested in a historical chart of the Fed Fund rate you can learn more here.
Inflation is caused by an increase in the supply of money. This will lead to prices increasing across sectors. Another way to look at interest rates for loans is that they are the price for access to money (or capital). Since there have been injections of money into the economy over the last few years, interruptions to the global supply chains, and overall global strife, prices for commodities have risen, providing farmers higher returns in commodity sales. The recent events on the global and agricultural economy and their effects have shifted the concerns of Ag lenders to farm expenses (livestock feed, fuel, and inputs).
Takeaways from the Ag Lender Survey
The Ag lender survey results reported that land values have continued to rise throughout 2022. They have also reported higher values of cash rent for tillable acreage. And overall, a majority of respondents reported that overall farm profitability increased in 2022 over 2021. Lenders also reported that the demand for agriculture production loans increased in 2022. With an increase in prices of inputs, lenders surveyed expect increased demand for production and operating loans over the next year.
An exciting item from the survey is that lenders found increased interest from borrowers in alternative ag practices and financing for those needs. These include sustainable and regenerative agriculture practices such as: livestock grazing, reduced-till or no-till farming, precision ag tools, and cover crops.
As interest rates continue their volatility it is important to shop around for the best operating loans for you. See your rates today with a Tillable operating loan.