The United States' agricultural economy had a good couple of years, with crop prices at record or near-record highs.
But this year, as interest rates rise, banks are lending less money to farmers and agricultural equipment sales are falling. Farmers also have to deal with high costs for inputs like seeds and fertilizers.
“I expect that to spill over into farmland purchases by the farmer,” said Ernie Goss, a regional economist at Nebraska’s Creighton University. “The farmer, like the rest of us, is going to have to be prepared for higher interest rates.”
The U.S. Department of Agriculture predicted that farm income would decrease in 2023 after increasing the past two years. Crop pricesare expected to decline too.
Overall, however, the rural economy in the Midwest and Great Plains, which is closely tied to the agricultural economy, is still doing well, according to Creighton University’s latest Mainstreet Economy survey, released this month.
“What I expect and what our survey is pointing to is somewhat slower growth in the rural economic growth that we track here at the university, but it's still going to be positive,” said Goss.
However, consumers should also expect food prices to stay high due to inflation.
Increases in land values are also starting to slow down, said Paul Schadegg, senior vice president at Farmers National Company, an agricultural landowner services company.
“They were still increasing, but at a much more moderate rate,” he said of land values, attributing some of the slow-down to rising interest rates.
High farmland prices have made it difficult for new young farmers to get into the industry, but this plateau might change that.
“There can be an opportunity for a new beginning farmer, or it could be for investors also,” said Schadegg.
New opportunities for young farmers could be outweighed as the Federal Reserve continues to raise interest rates, though. Higher interest rates will affect farmers' ability to take out loans for equipment and real estate, said Wade Simpson of Ag Resource Management, an agricultural finance company.
“It’s going to put a strain on farmers to look at what they need to do,” Simpson said, “and how how they need to do it.”
Simpson said farmers need to prepare for these economic changes.
“It's understanding their budget, understanding their crop insurance coverages and not over leveraging, not over borrowing,” he said.
Simpson said keeping crop insurance affordable in this year’s upcoming Farm Bill will be key to making sure farmers can stay in business, especially through extreme weather brought by climate change.
Rep. Randy Feenstra, a Republican from Iowa, said he and other members of the House Agriculture Committee are considering discounts on crop insurance for beginning farmers. He and Rep. Angie Craig, a Democrat from Minnesota, also introduced the Crop Insurance for Future Farmers Act earlier this year, which provides better access to crop insurance for beginning farmers and veterans.
“Agriculture touches everybody's life, far more than we ever realize,” said Simpson, “and that's why it's important that we're able to work with the farmers, even in the tough times and dark times.”
Eva Tesfaye covers agriculture, food systems and rural issues for KCUR and Harvest Public Media and is a Report For America corps member.
This story was produced in partnership with Harvest Public Media, a collaboration of public media newsrooms in the Midwest. It reports on food systems, agriculture and rural issues.
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