As Interest Rates Rise, Beware of Increased Delinquency Rates

March 23, 2018 02:50 PM

The Federal Reserve was in action Wednesday and raised the key interest rate up 0.25 percent to 1.75 percent. This is the highest level it’s been since 2008.

Former chair of the Fed, Janet Yellen, left her position in February, and this is the first major decision made by the new chair, Jerome Powell. During the December meeting, Fed officials said they intend to raise rates three times in 2018.

According to the Fed, the U.S. economy has the potential to expand 2.7 percent in 2018, and steeper hikes could be in store for 2019 and 2020.

Farmers and ranchers are paying close attention to this matter, and planning on how it can and will impact them, especially as the rural economy isn’t seeing much positive news.

Research from ag lender Farmer Mac shows rising interest rates can lead to increased risks for the farming sector, putting pressure on farmland values.

If interest rates continue to rise, Farmer Mac warns loan delinquency rates could continue to increase. Curt Covington, senior vice president of agricultural finance for Farmer Mac, says higher interest rates are coming at a time when working capital on farms is dwindling.

“I encourage farmers to think in terms of absolute dollars because they’re having to borrow more money and lenders are looking at it from the same perspective,” he said.

According to the USDA, farm debt has increased more than 30 percent in the last decade, and debt accounts for 13 percent of asset values.

Hear from Farmer Mac economist, Jackson Takach, as he talks about the two impacts of rising interest rates above.

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Spell Check

Eastern, NE
3/26/2018 08:37 AM

  Hopefully, most farmers have all of their term debt on fixed rates to cushion them against a rise in rates. Lines of credit can be problematic if the need is more front loaded instead of spread out through the year. I'd like to see rates rise so my savings actually earns me some interest. Land prices are like bonds, when rates are high, the discount is steep, when rates are low, there is very little discount. Unless you have a farm in the perfect part of the country where everything grows with towering success, land isn't a good investment right now. Your cost of money is greater than your ROI.

bad axe, MI
3/26/2018 06:16 AM

  70 trillion in credit market debt if the fed can get there rate up to 4% on that it's 2.8 trillion in interest income going to the government . Pretty good gig.


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