On Wednesday the Federal Reserve raised interest rates for the first time in nearly a decade. What would that mean for farmers? Joe Vaclavik told “AgDay” host Clinton Griffiths what he thinks farmers need to know about an interest rate hike.
A higher interest rate could be positive for our struggling commodity markets.
“Hopefully it results in the dollar topping out,” he says.
While fundamentally a rise in interest rates is seen as giving the dollar strength, Vaclavik says historically that’s not the case.
“Historically it will break lower after the rate hike,” he says. “It’s kind of a buy the rumor sell the fact kind of a thing.”
Don’t panic. The increase was only a quarter of a percent which Vaclavik says won’t hurt your ability to borrow.
“We're not going to go to interest rates that make borrowing money difficult,” he says. “We’re not going back to the 1980s anytime soon.”
The export markets have been struggling to rally with the strong dollar. Vaclavik says that a higher interest rate could cause the dollar retreat as it has historically done, which would be positive for exports.
“Exports of corn soybeans and wheat are below last year and they’re below USDA’s projections,” he says. “A softer dollar would go a long, long way to fixing that.”
The Bottom Line
Vaclavik says the question farmers should be asking is not 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.
Watch the full interview below: