Interest Rates & Ag Lending Trends

Were interest rates a part of your Thanksgiving dinner conversation?

The short term rate loans have been getting the most attention throughout 2022, says Darla Sikora, who sits on the Wisconsin Bankers Association Ag Lending Board. The longer term rates — 5-10 years — haven’t gone up as much.

Sikora, an ag banker for Citizens State Bank of Loyal, says her customers’ fixed rate loans are up between 1.5 to 2 percent. Variable rates are up about 4 percent, and she says those are likely to continue.

National reports say the markets expect the Federal Reserve to approve its seventh rate hike of the year in December. Talk is of a 0.5 percentage point increase versus the previous 0.75 percentage point moves.

“A lot of our customers got their rates locked in,” she says. “The reason that’s really good is hopefully most of their borrowings are not even being impacted by the current rate increases because their rates are fixed.”

She says the hope is that by the time those fixed rates are set to renew, interest rates are coming back back down. And she quotes an economic report that says rates will not approach what the agriculture industry saw in the 80s.

She says regardless of the rates, she’s noticing dairies in Central Wisconsin in particular, the trend among farms has been to reduce debts.

“In the last maybe five years, a goal of a lot of our producers has been to reduce debt, not necessarily to take on more debt,” she explains. “In dairy ag, from 2015 to 2019 were some really, really tough years, very, very low margins.”

Today, milk prices and grain prices are higher, but input costs are, too. Sikora says because 2023 is so uncertain, she’s encouraging producers to keep some extra money on hand.

“It would prevent you from having to borrow money in 2023 when it looks like input costs are not coming down,” she says. “And then that keeps them from having to take on higher interest variable notes to be able to operate into 2023.”