Aug 30, 2014
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Money-Saving Tip: Plan for Higher Interest Rates

February 25, 2014
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Editor's note: We’ve gathered several experts to offer suggestions on trimming expenses in light of tighter margins in 2014. This is one of 10 money-saving tips.

Since the mid-1980s, interest rates generally have been decreasing. This downward trend is not likely to continue as it is difficult to see how interest rates can decrease from their already low levels, says Gary Schnitkey, University of Illinois ag economist.

"Since interest rates are not likely to decrease further, the possibility of having lower interest payments in the future is not likely," he says. "As a result, additional caution may be warranted when making debt-financed investments."

Position your farm for higher interest rates, says Mike Boehlje, ag economist at Purdue University. This is increasingly important because many farmers will need to borrow money in 2014 to offset potential shortfalls.

"We’re closer to a rate increase," he adds. "It’s crucial to take advantage of fixed rates if you haven’t already done so. For some, now’s a good time to think about consolidating/restructuring loans to reduce payments.

"Be conservative about using too much cash to buy assets or pay down debt," he adds, stressing the importance of a strong cash position.

Interest Rate Outlook

When will we see interest rates increase? Hard to tell. On Jan. 29 the Fed left interest rates unchanged and reported that it will probably hold its target interest rate near zero.

Low interest rates are boosting confidence that farmland values will remain strong. Marc Schober, editor of Farmland Forecast and an AgWeb blogger, reports that despite lower farm income in 2013, bankers were still confident in the industry keeping interest rates and collateral requirements at similar levels. Opportunities for land purchase and lease back should be strong in 2014 as farmers are looking to increase their operating capital as the planting season nears.

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Keep Your Production Costs in Check for 2014

With grain prices dropping, it’s time to get creative. There is no one-size-fits-all-farmers answer, but there are numerous ways to more closely align costs with returns. Here are the money-saving tips we've gathered.
 


 

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