Gibbs raced to pay off the bulk of his loan by liquidating his crop, rather than store it and sell for potentially higher prices next summer. Now, his interest rate is 7.35%, and he expects it could reach 8% by year’s end – a 142% increase in eight months. Rising fertilizer and chemical prices forced him to borrow more to cover those expenses, even as Farm Credit continued to increase costs each time the Fed hiked rates. Ohio corn and soybean farmer Chris Gibbs signed up for a $70,000 operating loan on May 1 with a 3.3% variable interest rate with his local lender at the Farm Credit System, a government-sponsored enterprise. In agriculture, the pinch is already here: The average interest rate of all farm operating loans is 4.93%, according to the latest Kansas City Fed data. Inflation is still high, however, and demand is strong, and Fed policymakers have signaled they will continue raising rates until they see broader evidence of their effect. The short-term federal funds rate is now in a range of 3.75% to 4%, from a range of 0% to 0.25% in early March, just before Fed policymakers began raising rates. Federal Reserve started raising short-term rates to quell surging inflation. That's exactly what happened when the U.S. Variable-rate financing carries lower rates than fixed-rate financing, but exposes borrowers to the risk of higher costs if rates go up.

Most farm operating loans tend to be variable, rather than fixed.

The average interest rates of such loans are the highest since 2019, the data shows. The average size of bank loans for operating a farm has surged to a near five-decade high in outright dollar terms, according to Kansas City Fed data. farm sector’s interest expense - the cost of the debt they carry - is seen to surge nearly 40% from 2021 levels, way higher than other top industries LIQUIDITY WORRIESįarmers are taking on bigger loans due to higher costs, despite the financial burden it puts on their operations.

Big farm mobile harvest yeilds