What does the interest rate hike mean for farmers?
The Federal Reserve raised interest rates for the first time in nearly a decade on Dec. 16. Joe Vaclavik, founder and president of Standard Grain, told “AgDay” host Clinton Griffiths what he thinks farmers need to know about an interest rate hike.
The increase was only a quarter of a percent. “We’re not going to go to interest rates that make borrowing money difficult,” Vaclavik says. “We’re not going back to the 1980s anytime soon.”
A higher interest rate could be positive for the struggling commodity markets.
“Hopefully it results in the dollar topping out,” Vaclavik says.
While fundamentally a rise in interest rates is seen as giving the dollar strength, that’s not been the case.
“Historically, it will break lower after the rate hike,” he says. “It’s a buy-the-rumor-sell-the-fact kind of a thing.”
The export markets haven’t been able to rally with a strong dollar. Vaclavik says if the dollar retreats as a result of higher interest rates, the rate hike will be positive for exports.
“Exports of corn, soybeans and wheat are below 2014 and they’re below USDA’s projections,” he says. “A softer dollar would go a long, long way to fixing that.”
Farmers should be asking if this is the last time rates will go up. “The real question is ‘will they raise rates every quarter, six months or every year, or is this one and done?’” he says.