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Variable rate farm loans reflecting rate hike

An economist says farmers will see the latest rate hike by the Federal Reserve reflected in their operating loans. 

Senior rural economist Matt Clark with Terrain tells Brownfield most operating notes come with variable interest.

“Every time the Fed bumps up 50 basis points or 75 like they did last year, or just 25 this go around, those operating notes almost always reset up or down with the Fed,” he explains.

As the Fed has raised rates over the past 22 months, so have the rates for farmers to operate. Clark is a former Fed employee and follows USDA’s interest expense ratio to see the impact on farmers.

“Right now it’s at .06, which may sound small, but that’s really about the highest it’s been since the early 90s, almost 1990, around that time before you start running into a ratio that’s high,” he says.

Higher levels of the ratio suggest a higher interest payment burden relative to production.

Clark recommends farmers meet with their lender to pencil out where a fixed rate is most affordable and lock it in just as they would futures contracts for their commodities

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