Agricultural bankers are slowly raising the interest rate on loans to farmers and ranchers, with the largest increases on the short-term operating loans that account for 60 percent of new, non-real estate farm loans at the banks, said the Ag Finance Databook published by the Kansas City Federal Reserve Bank. “Although farm debt also has continued to rise alongside higher rates, the increase in interest expense has remained relatively small.”
For a corn farm in the Midwest, the higher interest rate translates to an additional expenses of less than $3 an acre, compared to $12 an acre in 2015, before rates began to rise, said the Kansas City Fed. “In the context of production, this increase in interest expense amounts to less than one bushel of corn per acre.” The USDA estimates that growers averaged a record 176.6 bushels an acre in 2017 with a crop expected to fetch a season-average price of $3.35 a bushel.
Lenders charged an average 4.9 percent on operating loans this spring, up from a low of 3.5 percent during the final three months of 2015, according to the Federal Reserve survey of bankers. “Additional increases in rates could put more pressure on some farm operations but delinquency rates on farm loans remained low through 2017,” the Fed survey said.
Higher interest rates “are likely to have placed some downward pressure on the value of farm real estate,” which is the largest asset of most farmers, said the Kansas City Fed. However, over half of loans made in recent years for purchase of land carried very low and fixed rates so the higher rates have limited impact.
Farmland values have remained generally steady. Values declined in the central and northern Plains as last fall entered winter. They increased slightly in the Midwest. Iowa showed the largest gain, up 3 percent from a year earlier.