Interest rates increase the intensity of farm financial management this year and particularly affect farmland purchase decisions and grain storage profitability.
"The challenge for lean times in agriculture is it requires more management,” says David Widmar, managing partner at AEI. “We have to make sure that we're double checking, we're rechecking, and that our plans are still going to work and they're still effective."
Speaking on this week’s Ag Marketing IQ In Depth, Widmar runs the numbers on the price of farmland, equating it to years of cash rent.
“Producers have never had to save more for a down payment," the agricultural economist says. He figures farmers now need “12 years of cash rent for that down payment today compared to much lower levels in the past."
To put a finer point on the purchase, he says: "It takes about three acres of farmland to make the payment on one. So, you have the acre you bought plus two others. And it wasn't that long ago that it took about two acres."
Low interest rates distort asset values
One critical relationship often overlooked is the impact low interest rates have on asset values. "Low interest rate distorts asset values to the upside," he says. "If you think about where we are in the farmland market, it's at a 2.2% cap rate. But we're borrowing somewhere considerably higher, somewhere around 5% or 6%. And so that's what's creating a big wedge for producers."
With these prices and rates in mind, Widmar challenges the conventional wisdom of expanding to increase profit. "If we're just pursuing bigger strategies for the sake of bigger strategies, and we're not tracking how it affects our cost of production, it can put us into a really difficult spot," he warns.
Factor interest into storage decisions
Interest rates dramatically increased grain storage expenses. During the recent period of low interest rates, Widmar calculates “the cost of storing maybe 100,000 bushels of grain for five months was around $5,000.” In 2026, he says, “we're in a scenario where it's going to cost about $15,000 to store that 100,000 bushels of grain."
What farmers should do now
Widmar urges prompt action. The starting place is crop production and storage budgets. "When we have things change, like our production costs, or especially our variable production costs, or we have higher interest rates, sometimes we get into a new environment, a new era, and we have to make sure our rules of thumb are still applicable."
Don’t wait for the Fed to act
Fed-driven interest rate decisions are neither the problem nor the solution, Widmar says. "There's a big gap between what the Federal Reserve does on the open market committee for the FOMC Fed funds rate and what we see as producers," he explains.
Instead, Widmar watches 10-year treasuries. Here’s what that data is showing: "10-year treasuries have been trending up since the end of February. So that's going to be a headwind for the argument that we're going to have lower farm interest rates."