Fed Rate Hike Means Higher Costs for Farmers

Wednesday’s three-quarter’s-of-a-percent interest rate hike by the Federal Reserve will squeeze Nebraska farmers and consumers, an ag economist said.

Jay Rempe, chief economist for the Nebraska Farm Bureau, said higher interest rates will make it more expensive for farmers to take out operating loans for things like seed, fertilizer and fuel. And those increased expenses will mean less farm income, rippling through the state’s economy.

“When farmers don’t have as much money, they’re not out buying new equipment. They’re not buying new vehicles. They’re pulling in their spending a little bit too. You start to see that in the rural communities and the businesses there, then that kind of ripples upward from there,” Rempe said.

Rempe said the cost of commodities produced by farmers is only a small portion of the cost of food, which also includes processing, transportation, and marketing. Even so, he says, increased farm production costs will also affect consumer behavior.

“Beef’s more expensive than chicken, so instead of buying that steak, they’ll buy the chicken breast instead. Or they could buy smaller portions. Or they could substitute out some other way,” he said.

And Rempe said higher interest rates in the U.S. will strengthen the dollar, making American farm products more expensive overseas, and possibly reducing agricultural exports.