Interest Rates and Interest Rate Expenses on the Farm
Brady Brewer, Associate Professor of Agricultural Economics and Todd Kuethe, Professor and Schrader Endowed Chair in Farmland Economics at Purdue University reported that “2023 saw increasing interest rates, stable land values and lower farm profits relative to the year before. Overall, it was a good year for farmers’ balance sheets for both short-term and long-term assets. Overall, farmers have benefited from several years of higher net incomes, meaning that liquidity is high. This has resulted in some farmers decreasing operating loans to avoid higher interest rate costs which has pushed the demand for loans downward.”
Interest rates, in general, increased around 4 percentage points from 2022 to the end of 2023. The Federal Open Market Committee (FOMC), a twelve-person committee consisting of members of the board of Governors from the Federal Reserve System and presidents from the eleven Reserve Banks, raised the Fed Funds Rate four times in 2023 after 7 consecutive increases in 2022.
Figure 1 plots the average interest rate on farm operating loans since the first quarter of 1991 for the Chicago fed district and the second quarter of 2012 for the St. Louis Fed district. Farm...
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