Another Interest Rate Hike? Here's How to Plan

08:11AM Dec 19, 2018
As the Federal Reserve prepares to raise interest rates another time this year, three ag lenders say there are ways a farmer can plan around the planned hike.
( Farm Journal )

The Federal Reserve is expected on Wednesday to raise the benchmark interest rate for a fourth time this year, and the ninth bump since the Fed began tightening rates. The anticipated move has already drawn the ire of President Donald Trump who tweeted his displeasure Wednesday morning. 

U.S. Farm Report recently sat down with three ag lenders to talk about how operations can plan around possible interest rate hikes in the future.

“Continue to look at the opportunity that presents itself and locking in long-term rates, if that isn't needed in your operation , and ask yourself ‘what happens to my operation if interest rates go up 100, 200, or 300 basis points?’” said Alan Hoskins, president and CEO of American Farm Mortgage. “What does that do to my overall cash flow?”

Keith Knudsen said building off what Hoskins said, “sensitivity analysis” can help farming operations understand how much of a rate hike the operation can handle.

“Sensitivity analysis is what we call it, and knowing what the impact will be on your bottom line, on your breakeven, is important,” said Knudsen, president and CEO of Security Bank in Nebraska. “You can even do a break-even on interest rates for your operation. If the opportunity comes up, hopefully you have an option of either a fixed or variable rate on your operating loans. Then again if you are going to restructure at least consider the fixed rates. Those are still attractive with long-term rates coming back down just a little bit recently, it could be a good time to lock in a longer term fixed rate.”

“Operating interest cost is almost another input, so make sure you have that figure and your break-evens and make sure you know what it is, and what it could be and what things you can do to offset some of that,” said Chris Floyd, president and CEO of First National Bank of Syracuse in Kansas. “How you're marketing when you purchase inputs – there are a lot of things you can do to influence that cost, as well.”

Bankers on Interest Rates