Farm Loan Interest Rates Are Up (I think you knew that already)
The Kansas City Federal Reserve release an article late in November titled “Farm Loan Interest Rates Rise Sharply“. This is a third quarter survey of farm banks across their region.
2021 farm loan interest rates were the lowest in likely the last 50 years or more. Operating loans were likely 4.5% or less. There was a very small uptick in rates in the first quarter of 2022, but starting in the second quarter these rates accelerated rapidly with the third quarter being between 6 and 7%.
Farm real estate loans saw rates go from about 4-4.5% up to 6%-6.7% in the third quarter. The Dallas region sees the highest rates (which makes sense due to more risk with weather and crops in that area), while the Chicago region sees the lowest rates (again due to better weather and soil in that region).
Farmland values are still seeing an uptrend, but the change in values appears to be declining. If you look at Chart #2, you will see it looks eerily similar to the 2013-2014 timeframe. History may not repeat but it may rhyme. Although Iowa, Northern Illinois and Northern Indiana were all up over 20%, Oklahoma barely nudged upward at a 2% rate.
They mentioned that household spending rose more steadily than capital spending and we have certainly seen that trend in our client database.
We would expect operating loan rates to continue up with the Fed interest rate changes and the peak is likely not here yet. We will keep you posted.
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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