Managing Farm Debt in a High-Rate Environment
How can farmers effectively manage farm debt to overcome higher interest rates?
In 2025, farm debt levels are projected to rise due to elevated interest rates combined with increased demand for farm operating loans. Farmers with short-term variable loans face greater risk, but any rural landowner with debt will need to balance their obligations and their income. Effective risk management in agriculture this year will involve navigating your borrowing options wisely to preserve your farm liquidity.
In this article, we’ll provide further insight into how interest rates are affecting farm debt and give you the resources to make smart financial decisions in 2025 and beyond.
Interest Rates and Impact on Farm Debt
Interest rates were at historic lows until 2022, when the Federal Reserve began raising them to combat inflation, pushing the cost of land loans higher.
While most farm loans have slowed down due to these slightly higher rates, the demand for operating loans grew by 40 percent in the third quarter of 2024 as farmers sought capital amid curtailed farm income.
“High interest rates will present a challenge for both long-term and short-term loans. Repayment might be an issue, as well as farmers’ ability to grow certain crops or rebuild cattle herds due to the high costs of borrowing.”
Dede Jones, Texas A&M University
The good news is the value of farmland has also gone up by 42 percent, helping offset the farmer’s debt-to-asset ratio. When land values rise, farmers have more flexibility to secure loans or refinance existing debt, even when interest rates are high.
Pro Tip: Strong land values give landowners more options, but it’s important to work with a lender who will help ensure you aren’t overleveraging yourself into a tighter financial position down the road.
Will Farm Debt Interest Rates Go Down in 2025?
The Fed may continue to cut interest rates in 2025, but farm loan rates might take time to drop. Fed Chair Jerome Powell says they’re taking a wait-and-see approach. Since interest rates aren’t as high as before and the economy is still strong, they don’t feel the need to rush any changes.
This may be frustrating for some who are waiting for land loan rates to drop. Land loan rates remain high because long-term rates are driven by factors like inflation expectations, economic strength, and fiscal uncertainty—forces that dictate the bond market’s response to each Fed rate cut.
So, what does all of this mean? Essentially, borrowers should anticipate farm debt and land loan rates to remain slightly elevated in 2025, understanding that greater uncertainty means a wider range of potential outcomes for rates—both higher and lower. Rather than focusing on the current Fed policy rate, keep an eye on the Treasury market for a reference point on the direction of land loan rates.
Overall, we’re still seeing a trend where short-term rate expectations will stay steady while long-term rates could drift lower due to slower growth and lower demand for bonds.
What Can Farmers Do to Manage Farm Debt?
In a high-rate environment, farmers can use several strategies to reduce the burden on their bottom line. A strong understanding of your financial posture and options can help you make more informed decisions about when and how to take out a loan.
If you’re considering a farm loan, first:
- Monitor interest rates
- Ask about debt restructuring options
- Document your cash flow management
- Consider ways to diversify your income
- Be proactive in discussing your options with a lender
- Read up on tax policy if you’re considering a land sale
What Farm Debt Resources Are Available?
Fortunately, there are many free financial resources available to farmers and ranchers. In addition to resources like loan rate calculators and financial planning tools, farmers also have options that can reduce their financial risk. Commodity price programs like ARC and PLC or crop insurance can protect farmers’ assets in case of unpredicted loss. Ad hoc disaster relief programs can also help farmers combat the consequences of natural disasters.
Additionally, farmers can take advantage of conservation programs or research and development grants to lock in extra incentives while working to improve their operations.
Keeping Farmers Informed and Adaptable
At AgAmerica, we know that feeding a nation takes hard work—that’s why we work hard to keep operations like yours financially healthy and in your hands. We take the time to get to know our clients and fully understand each operation’s history and financial goals. This is how we’re able to create custom loans built specifically for your needs.
The first step to financial health—especially in tough times—is knowledge. That’s why we provide an annual economic outlook report to help you plan for the year ahead. Download it now to learn more strategies to effectively manage your farm debt in the 2025 market.
