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Farmers who are not enjoying the nation’s economic boom are
having a difficult time with Federal Reserve interest rate increases
that are meant to keep the economy from overheating. “It’s just
become another expense,” said Dan Wiltse, who farms near Lisbon.
“It’s one of those things that subtract from the bottom line,
and with low grain prices you don’t even know if you have a bottom
line.”
The Federal Reserve has increased interest rates six times since
last June in an attempt to keep inflation in check. The most recent
increase, a half-point jump, brought the prime lending rate to 9.5
percent, the highest level since January 1991, when the country was
in a recession.
The prime lending rate, which is the benchmark rate for millions
of consumer loans, was at 7.75 percent before the Fed started
raising rates last summer.
The higher rate would amount to about a $3,000 increase in
interest costs on a $200,000 loan to buy farmland or finance
operating costs.
“For some growers its a real concern,” said Brian Sandvig, a
business and agriculture lender at Norwest Bank in Moorhead, Minn.
“For others there isn’t much of an impact. And for others it’s
an opportunity.”
Farmers who are heavily dependent on banks and credit unions for
operating capital are most worried about the increases, Sandvig
said. Farmers who have cash reserves will feel little effect or will
make money on their cash deposits, bankers say.
“It’s a two-edged sword,” said Roger Monson, president of
the Citizens State Bank in Finley. “It’s been very positive for
our (certificates of deposit) customers. They’ve seen a noticeable
increase in their rate.”
Farmers generally borrow operating loans at interest rates
between one-half and 1 percent above the prime lending rate. Most of
the loans are based on variable interest rates rather than fixed
rates.
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