Farmers Will Feel Interest Rate Pinch

May 19, 2000

The interest rate increase announced by the Federal Reserve earlier this week will be felt by farmers and ranchers, says Bob Stallman, president, American Farm Bureau Federation. Farm operating loans would move beyond a 10% interest rate, he adds.

Following the rate increase announcement, several banks increased their prime rate to 9.5%. "This will likely push many farmers’ operating loans to well above 10%, rates not seen by many farmers and ranchers since the early 1990s," said Stallman.

The prime rate is the most often quoted rate, but many farmers borrow for operating and intermediate loans at rates one half to one percentage point higher than the prime, he added. "If interest rates for all operating and intermediate loans were to eventually increase by a full percentage point, that would add an additional $800 million in interest expenses for farmers and ranchers," said Stallman.

A producer wanting to borrow $200,000 to buy land or to refinance existing land loans would pay an extra $2,000 a year if long-term interest rates increased just 1%, according to Stallman. Farmers and ranchers already face $2.6 billion of additional expenses because of higher fuel costs compared to last year, he added.

"Our biggest concern is the longer term," said Stallman. "The Federal Reserve gives every indication of planning to continue to increase interest rates for the indefinite future until the economy performs the way they believe it should. This will only squeeze capital-intensive businesses like agriculture all the more. All of agriculture will feel the effects as loans are renewed over the next year."