How Will Interest Rate Hikes Impact Farm Country

It came as no surprise when the Federal Reserve recently moved interest rates higher, a one-quarter-percent hike in short-term interest rates.  The Fed said the increase is to keep the overall U.S. economy strong.  But for the farm economy, rate hikes in the past have tended to have the opposite affect.

USDA Chief Economist Rob Johansson said rate hikes tend to cause the dollar to gain strength.

"And that has the affect of making it more difficult on our producers to sell our products oversees and making things a little less competitive on the global scene."

Another "side-effect" Johansson noted.

"Land and capital equipment will probably go down in value a little bit. As interest rates go up, it becomes a little bit more difficult to buy those, and therefore demand for those assets will fall."

Also, when interest rates rise, sometimes farm commodity prices drop a little bit.  Johansson adds it's almost certain that farmers will be paying more to borrow money.  USDA estimates this year, it'll be 17% more.

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