Ag Credit Tightens with Rising Interest Rates and Following Bank Collapses
By: Michelle Rook
Farmers are managing through higher interest rates as they move into the spring planting season. However, the price to borrow money for rent or inputs to plant the new crop will cost farmers more this year. Nathan Kaufmann with the Federal Reserve Bank out of Kansas City saying very few new loans have a rate of less than 6% as you can see on this graphic.
The rising rates, plus recent bank collapses also mean credit tightening as farmers finalize or renew operating notes or loans for capital purchases.
According to the Federal Reserve of Kansas City, community banks, which provide about 80-percent of all ag lending, have seen outflows, plus a tightening of credit. The same is true of regional lenders that serve agriculture.
Rip Mason, CEO, Ag Resource Management says, “Kansas City Fed officials say there will be more restrictive lending in the foreseeable future and opine that they don’t see ratings coming down anytime soon. So, in addition to rate elevation, credit standards will be such that there’ll be less credit extended to support operations. So it’s going to be somewhat of a challenging time.”
Mason says the higher interest rates are getting very expensive for farmers securing operating loans for spring planting, cutting into profits. This is especially true for farmers that principally rent land. “If you don’t have your production loans, I wouldn’t delay I would go ahead and get those done as promptly as you can. I would expect rates to move up on the margin. A bit more from where they sit today. And they’re high to begin with.”
According to Farmer Mac the higher interest rates have also led to a slowdown in land purchases and refinances on equipment are down 40%.
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