AgCountry Farm Credit Services, Farm Credit Services of America (FCSAmerica), and Frontier Farm Credit are sponsoring a webinar series, Two Economists and a Lender. Our May installment featured Agriculture Economic Insights (AEI) co-founders David Widmar and Brent Gloy and Chad Jacobs, financial officer. The webinar recording from May 22 is available.
The Fed began lowering interest rates late in 2024. Watch as our experts review the latest macroeconomic factor and the potential implications for farm-level interest rates in 2025 and beyond.
Interest Rates in 2025: What Ag Producers Should Watch
Interest rates have been on a rollercoaster over the past few years, and 2025 is shaping up to be another year of uncertainty. For producers, understanding how these shifts affect borrowing, land values, and business planning is more important than ever.
A New Normal for Rates?
After more than a decade of historically low interest rates, the Federal Reserve has taken a more aggressive stance in recent years to combat inflation. While the Fed’s benchmark rate remains elevated, farm-level interest rates — especially for operating and real estate loans — haven’t risen as sharply. That has provided some relief in the short term, but also means producers are less likely to see significant changes when rates ease.
The Fed’s long-term target for the federal funds rate is around 3%, which is higher than 2008-to-2022 levels, suggesting that the ultra-low-rate environment of the recent past may not return anytime soon.
What’s Driving the Fed’s Decisions?
For much of the past few years, the Fed has focused on tamping inflation in a hot economy, marked by growth in gross domestic product (GDP) and low unemployment. It raised interest rates in the hope that it could cool the economy just enough to tame inflation but avoid recession.
Right now, GDP is showing signs of slowing, unemployment remains low, and inflation—while down from its 2022 peak—is still a concern due to global pressures, including tariffs and supply chain disruptions.
This mix of signals has the Fed in a holding pattern, cautiously waiting for clearer trends before making any major moves. For producers, that means interest rate volatility could persist throughout the year.
What It Means on the Farm
Even though the Fed raised its federal funds rate more than 5% between 2022 and 2024, farm operating and real estate loan rates didn’t rise one-to-one – nor will they fall in equal measure.
For example, if the Fed does cut rates by 100 to 125 basis points, the impact on farm-level borrowing costs could be modest, particularly for operating loans, which may stay in the 7–8% range.
Timing Matters
If the 10-year Treasury dips below 4%, it might be time to explore refinancing options. But even a half-point drop in our loan rate can make a meaningful difference over time.
Pay attention to rates and lock them in when you have an opportunity to save money. Also, talk to your financial officer about all the tools at your disposal.
Interim fixed-rate loans—often structured with a 5-year fixed term and longer maturity—offer a middle ground between variable and long-term fixed rates. These can provide flexibility and cost savings, especially in a volatile environment.
Managing Cash in a Higher-Rate World
With operating loan rates doubling in recent years, cash management has become a bigger part of the conversation. When money was cheap, interest costs were easy to overlook. Now, they’re a line item that can significantly impact profitability.
Producers can increasingly monitor their lines of credit, time purchases more carefully, and explore ways to reduce interest rate exposure. These are smart moves in a world where rates may stay elevated longer than expected.
Final Thought
“Problems are opportunities wrapped in uncomfortable situations.”
While higher interest rates create challenges, they also encourage smarter financial planning and more creative solutions. Staying informed and proactive can help producers turn uncertainty into opportunity.
