Farm balance sheets: Interest rates going forward

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Interest rates closely link U.S. agriculture to national financial markets in various ways. First, interest rates affect the value of outstanding debt and thus the solvency of the sector. Second, agriculture is particularly sensitive to interest rates because it is one of the most capital-intensive industries in the economy. Interest rates can influence variable production costs by raising or lowering the payments required for shortrun planting-to-harvest borrowing. They also affect the cost of long-term capital investments. Third, interest rates are a key determinant of land values, the base of wealth in agriculture.

Based in part on the activities of the Federal Reserve in the latter part of 2010, interest rates in the overall economy are low and are expected to remain so through the remainder of 2012. Interest rates going forward will be affected by supply and demand forces in domestic and global financial markets.

Source: Farm Income and Costs

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