Inflation and Interest Rates: A Perfect Storm for U.S. Farmers

The current economic conditions in the United States have created a challenging environment for farmers and ranchers, with inflation and interest rates impacting their ability to grow crops and care for livestock. According to the Federal Reserve, a healthy level of inflation is around 2%, but the recent rate of 2.7% has been pulling down the purchasing power of money. The Bureau of Labor Statistics' Consumer Price Index (CPI) measures inflation, and the latest report showed a 3.1% increase in core inflation for goods and services minus food and energy.

Key Takeaways:

• The Federal Reserve's effective federal funds rate (EFFR) has increased to 4.33%, up from near-zero levels in 2020, directly influencing interest rates for mortgages, auto loans, credit cards, and business financing.
• Total U.S. farm expenditures in 2024 are estimated at $477.6 billion, down about $4.3 billion (0.9%) from the record-setting $481.9 billion in 2023.
• The average expenditure per farm was $254,043 in 2024, down slightly from the record-high $255,047 in 2023.
• Falling commodity prices have reduced the price of feed for livestock, and the gap between prices received and prices paid has grown wider due to falling prices.
• The average farm spent about $6,809, 2.7% of their total expenses, on interest in 2024, a 46% increase from $4,672 in 2014.
• The total average interest expenditure per farm has increased by 33% since 2014, and the rise in interest rates has driven up the cost of borrowing money.
• Credit is becoming more critical for farmers and ranchers, especially in low-price years, making interest a crucial expense that continues to increase.
• Despite increasing costs of credit, farmers continue to borrow more, with about 40% of ag bankers expecting higher operating, feeder cattle, and FSA guaranteed loan volumes this year than last.
• The U.S. has lost 20,000 farms since the last Census of Agriculture, with 142,000 farms lost between 2017 and 2022, more than 77 farms per day.

Statistics:

• Total U.S. farm expenditures in 2024: $477.6 billion
• Average expenditure per farm: $254,043
• Average farm interest expenditure: $6,809 (2.7% of total expenses)
• Interest rate increase since 2020: 4.33% (EFFR)
• Median operating loan interest rate: 7.5% (as of December 19, 2024)
• Total average interest expenditure per farm increase since 2014: 33%
• Percentage of ag bankers expecting higher operating, feeder cattle, and FSA guaranteed loan volumes this year: 40%
• Number of farms lost in the U.S. since the last Census of Agriculture: 20,000
• Number of farms lost between 2017 and 2022: 142,000
• Farms lost per day: 77

Sources:

• American Farm Bureau Federation
• Federal Reserve
• Bureau of Labor Statistics (BLS)
• U.S. Department of Agriculture (USDA)
• Federal Reserve Bank of Kansas City
• Federal Reserve Bank of Chicago