Rising Interest Rates Have Some Farmers Spooked
The Federal Reserve lifted the upper bound of the federal funds target range by 75 basis points or 0.75% in September 2022, stretching the Fed’s target interest rate to 3.25%.
This is the fifth such interest rate hike by the Fed in 2022, as the government continues to try to tame red-hot inflation. The first such raise in the federal funds benchmark rate occurred in March 2022, when the Fed raised it by 25 basis points. That was the first time the Fed had raising interest rates since 2018. All told, 2022 interest rate hikes now total 300 basis points.
As interest rates have rapidly climbed through the year, farmer confidence has faltered, as indicated by the Purdue/CME Group Ag Economy Barometer. The October 2022 Barometer results pointed to a 5-point decline in overall farmer sentiment compared to the previous month.
The Ag Economy Barometer sentiment index is issued each month, based on responses from 400 U.S. agricultural producers via a telephone survey.
Drilling deeper into the results, farmers continue to list high input costs as their number-one concern for their businesses. But a new second-place worry reflects changes in U.S. monetary policy, with 23% of producers citing concern about “rising interest rates” in the September poll -- up from 14% in August.
Meanwhile, the Farm Capital Invest Index, calculated from the same survey data, declined to a record low of 31 in September 2022. Producers overwhelmingly do not feel this is a “good time” to make large capital investments in their businesses.
Farmers citing “rising interest rates” as the reason for their bearish outlook on capital investments rose from 14% in August to 21% in September.
The interest bumps for the year probably aren’t over, as the Fed has released median projections of a target rate of 4.4% by the end of 2022, and 4.6% in 2023.
