Apr 9, 2018

As Interest Rates Rise, Beware of Increased Delinquency Rates

By: Ashley Davenport

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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