Producers should expect interest rates to rise by 2017, bringing lower land values, farm profits and agricultural exports, says Jason Henderson, director of Purdue Extension and a professor of agricultural economics.
“It has a direct effect on your income,” Henderson told farmers at the 2015 Top Farmer Conference at Purdue this week. “It has a direct effect on your collateral.”
This new era will be different than the 1980s, when interest rates skyrocketed upward of 18% with little warning. This time, the Federal Reserve has spent time informing people of its plans well in advance of enacting them.
Despite the challenges higher interest rates will pose to farmers in light of tight or nonexistent margins, Henderson sees a silver lining: He expects farmers to eventually see the profit opportunities of a lifetime.
Until then, producers should prepare for higher interest rates by revisiting management strategies and their books.
“Make sure you have working capital,” Henderson stresses. “Make sure you have some cash.”
Producers with a rainy day fund will be able to weather seesaw interest rates as the Fed course corrects based on economic signals such as unemployment and manufacturing capacity.