If you have followed the news this past year of the Federal Reserve, the fed fund rate has been continually going up. But with news this week of a slowdown in the fed fund rate increases, interest rates are trending downward. 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 Wednesday, February 1, 2023, the Federal Reserve (the Central Bank of the United States) has again raised interest rates 25 basis points, or one-quarter of a percentage point. After four such events of the Fed raising interest rates by 75 basis points last year, this is the first time they have increased by 25 basis points. The Fed is now targeting a range of 4.5-4.75 percent for its key benchmark borrowing rate. On this most recent update from the Fed, operating loan and mortgage interest rates have seen their first decline in almost a year. 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 an AFF operating loan.