Farm Lending And Interest Rates Tick Up
Larger sized loans continued to boost lending activity in the second quarter while farm loan interest rates edged higher.
Larger sized loans continued to boost lending activity in the second quarter while farm loan interest rates edged higher. The volume of non-real estate agricultural loans grew at a steady pace alongside an increase in the number and average size of loans. Interest rates remained historically low but continued to increase from recent quarters on nearly all types of farm loans, as benchmark rates rose further. The average maturity of some types of loans, particularly real estate loans, also increased during the quarter and were above recent historic averages.
Farm lending activity showed signs of rebounding from the pullback in recent years and could grow further in the coming months as the higher costs of many major inputs become more fully realized. Despite recent declines, agricultural commodity prices remained elevated through the first half of 2022 and continued to support revenue and income prospects across the farm sector. However, persistent pressure from higher production expenses could squeeze profit margins going forward and drive higher demand for credit.
Usda Announces November 2022 Lending Rates For Agricultural Producers
Contact:
WASHINGTON, Nov. 1, 2022 The U.S. Department of Agriculture announced loan interest rates for November 2022, which are effective Nov. 1, 2022. USDAs Farm Service Agency loans provide important access to capital to help agricultural producers start or expand their farming operation, purchase equipment and storage structures or meet cash flow needs.
Operating, Ownership and Emergency Loans
FSA offers farm ownership and operating loans with favorable interest rates and terms to help eligible agricultural producers, whether multi-generational, long-time, or new to the industry, obtain financing needed to start, expand or maintain a family agricultural operation. FSA also offers emergency loans to help producers recover from production and physical losses due to drought, flooding, other natural disasters or quarantine. For many loan options, FSA sets aside funding for historically underserved producers, including veterans, beginning, women, American Indian or Alaskan Native, Asian, Black or African American, Native Hawaiian or Pacific Islander, and Hispanic farmers and ranchers
Interest rates for Operating and Ownership loans for November 2022 are as follows:
- Farm Ownership Loans : 1.500%
- Emergency Loan : 3.750%
FSA also offers guaranteed loans through commercial lenders at rates set by those lenders.
You can find out which of these loans may be right for you by using our Farm Loan Discovery Tool .
Commodity and Storage Facility Loans
- Commodity Loans : 5.250%
Applicable Federal Rates Rulings
Each month, the IRS provides various prescribed rates for federal income tax purposes. These rates, known as Applicable Federal Rates , are regularly published as revenue rulings.
The list below initially presents the revenue rulings containing these AFRs in reverse chronological order from the present back to January 2000.
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Loans Through A Crop Retailer Livestock Supplier Or Equipment Dealer
Input Financing draw against your pre-approved loan at any time and make payments around your cash flow
Feeder Cattle and Breeding Livestock purchase through a participating livestock supplier and get customized financing with faster equity realization and no prepayment penalties
Equipment Financing when you buy new or used farm equipment and finance through a participating equipment dealer, you’ll work with people who know the industry
Equipment Leasing lease new or used equipment at participating dealerships, plus benefit from less money up front, lower payments and increased flexibility
Interest Rates For Operating Loans Rise Slightly From All
Interest rates on agricultural loans made by commercial banks increased slightly for some types of lending, but remained historically low through the first half of 2021.
Interest rates on agricultural loans made by commercial banks increased slightly for some types of lending, but remained historically low through the first half of 2021. The average rate on non-real estate loans was about 30 basis points higher than the all-time low reached at the end of 2020 and the uptick was largely consistent across loan types. In contrast, average rates on farm real estate loans continued to decline and marked another historic low. Rates also remained comparatively low at the largest commercial banks and those lenders offered a sizeable discount for the lowest risk loans, while smaller lenders continued to provide similar accommodation regardless of riskiness.
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The Federal Reserves Actions On Interest Rates And What It Means For Farm Credit East Borrowers
The U.S. Federal Reserve has raised the Federal Funds target rate 2.25% from near zero to a range between 2.25% and 2.5% since the beginning of the year. This has, in turn, resulted in corresponding interest rate increases for businesses and consumers on everything from bank loans to credit cards. Why is the Fed acting this aggressively, do we expect it to continue and what does it mean for Farm Credit East borrowers?
The Feds Mandate and Interest Rates
The U.S. Federal Reserve System Americas central bank has a dual mission: It is tasked with the dual mandate of pursuing the goals of maximum employment and price stability. It does this by using a variety of policies to influence the overall U.S. economy.
One of the main tools used in pursuit of this mandate is raising or lowering the Federal Funds target rate , to either expand or contract the overall money supply and raise or lower interest rates across the economy. This, in turn, affects both business and consumer spending and investment and ultimately can accelerate or cool economic growth.
Low interest rates can boost spending and investment, raise GDP growth and encourage the hiring of more workers, lowering unemployment. However, a robust economy with low unemployment is likely to lead to price increases, leading to high inflation.
Recent History and the Current Economy
What Comes Next
What Do the Feds Actions Mean to Farm Credit East Borrowers?
Percent Change In Dollar Value Of Good Farmland
Top: April 1, 2022 to July 1, 2022
Bottom: July 1, 2021 to July 1, 2022
Agricultural prices rose in June 2022 from June 2021, staying on the upward trajectory for farm prices that had started in the summer of 2020. The U.S. Department of Agricultures June index of prices received by farmers increased 26 percent from a year ago and 53 percent from two years ago . Of particular relevance to the District were the June corn, soybean, and milk prices, which were up 23 percent, 13 percent, and 48 percent from a year ago, respectively.
Corn and soybean prices have been supported by fairly tight stocks, uncertainties surrounding Ukrainian exports, and concerns about the impacts of delayed plantings and drought on yields. Using long-term trend yields, the USDA estimated in July that 2022s harvest of corn for grain would be 14.5 billion bushels and that this years harvest of soybeans would be 4.5 billion bushels . The USDA forecasted prices for the 202223 crop year of $6.65 per bushel for corn and $14.40 per bushel for soybeans. When calculated with these prices, the projected revenues from the 2022 U.S. harvests relative to revenues from the previous years would be 7.3 percent larger for corn and 10 percent larger for soybeans. Thus, expected corn and soybean revenues in 2022 should surpass their levels in 2021.
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Rising Interest Rates What To Consider On Your Farm
- Illinois FBFM Association and Department of Agricultural and Consumer Economics
- University of Illinois
farmdoc dailyfarmdoc daily
As the Federal Reserve has raised interest rates in response to rising inflation , the average Illinois grain farm has various things to consider when analyzing the effect on their farm. Using data from Illinois Farm Business Farm Management , this article will look at the current make up of debt on the farm and interest as a percent of gross farm revenue as some factors that can be looked at to determine the impact of rising interest rates on individual farms.
When looking at the short-term share, the farm operating loan portion has averaged 65% of the total short-term loans over 20 years. 29% of all loans on average are for farm operating loans. As interest rates increase, the first impact to the farm is on operating loans as they can only be one year at a time. Therefore, the amount of interest paid on operating loans will increase the most in the short term. In addition, with rising operating expenses forecasted for the rest of 2022 and 2023 , this will likely increase the amount of operating debt needed, also increasing interest paid.
Summary
References
Zulauf, C. “Update on US Interest Rates and Inflation.” farmdoc daily :155, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, October 12, 2022.
Fsa Letter To Borrowers
In January 2021, USDA announced a temporary suspension of past-due debt collection and foreclosures for distressed direct farm loan borrowers due to the economic hardship imposed by the COVID-19 pandemic. USDA will not be accelerating or foreclosing on any direct loans, regardless of payment status, while the suspension is in effect. Although some direct loan borrowers may have received a standardized form known as the Notice of Intent to Accelerate, they should rest assured that USDA is not pursuing any acceleration or foreclosure.
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Usda Announces January 2022 Lending Rates For Agricultural Producers
Contact:
WASHINGTON, Jan. 3, 2022 The U.S. Department of Agriculture announced loan interest rates for January 2022, which are effective Jan. 3. USDAs Farm Service Agency loans provide important access to capital to help agricultural producers start or expand their farming operation, purchase equipment and storage structures or meet cash flow needs.
Operating, Ownership and Emergency Loans
FSA offers farm ownership and operating loans with favorable interest rates and terms to help eligible agricultural producers, whether multi-generational, long-time or new to the industry, obtain financing needed to start, expand or maintain a family agricultural operation. FSA also offers emergency loans to help producers recover from production and physical losses due to drought, flooding, other natural disasters or quarantine. For many loan options, FSA sets aside funding for historically underserved producers, including veterans, beginning, women, American Indian or Alaskan Native, Asian, Black or African American, Native Hawaiian or Pacific Islander, and Hispanic farmers and ranchers.
Interest rates for Operating and Ownership loans for January 2022 are as follows:
- Farm Ownership Loans : 1.500%
- Emergency Loan : 3.125%
FSA also offers guaranteed loans through commercial lenders at rates set by those lenders.
You can find out which of these loans may be right for you by using our Farm Loan Discovery Tool.
Commodity and Storage Facility Loans
- Commodity Loans : 1.250%
More Information
How To Apply For An Agriculture Loan
If you are looking to apply for an agriculture loan, it is advisable to research your options online and apply for a loan of your choice by visiting the nearest branch of a lender. When visiting the branch, ensure that you carry the required documentation along with you to quicken the application process.
Certain lenders may also give prospective borrowers the option to apply for an agriculture loan online through their official websites. In this case, you will need to navigate to the respective website, click on Apply Now, enter the required details in the application form, and upload the necessary documents onto the website.
Regardless of the channel that you choose, the lender will verify your application and approve it. Once your application gets approved, the loan amount will be disbursed into your account.
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Best Farm Loans Of 2023
Get the right financing for your farm
We recommend the best products through an independent review process, and advertisers do not influence our picks. We may receive compensation if you visit partners we recommend. Read our advertiser disclosure for more info.
Farm loans help farmers buy, operate, and expand a farm. Farm loans can provide liquid cash at the startup phase as well as help established farms with a cash crunch during a seasonal challenge. Equipment, crop, and livestock financing, as well as credit lines, are common ways a farm loan can take form.
Farm loans vary depending on the size of your farm, your financial history, your collateral, and whether you qualify for a federal Farm Service Agency loan program or a farm program designed by a commercial lender. According to the FSA, farm ownership and operating loans in 2021 were over $6.7 billion, down from an agency record of more than $7.5 billion in 2020.
Even if you have less-than-perfect credit, limited experience, or less down payment money than you wish you had, youre bound to find a lender in this list that can work with you. We researched 15 farm lenders before we chose the seven best farm loans. Read on to see which ones meet your needs.
How Are Farm Loan Interest Rates Determined
They typically are assessed using three separate pieces of information. The first, which impacts not only the U.S., but can affect other countries is the Federal Reserve. This is the central bank of the United States and they set the feds funds rate. This is what affects short-term and variable interest rates.
The second is the investor demand for U.S. Treasury notes and bonds. The reason this is important it because they affect long-term and fixed interest rates.
Lastly, farm loan interest rates are determined by the banking industry itself. It is because they offer loans and mortgages and can charge interest rates depending on their business needs.
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Best For Ease Of Qualifications: Advancepoint Capital
AdvancePoint Capital
AdvancePoint Capitals short-term loans for agricultural and farm businesses can save the day when you cant qualify for other loan options, making it our best for ease of qualification.
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Funds available as soon as one day
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One-page application
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Higher rates and fees than traditional loans
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Loan amounts cap at $500,000
When you cant qualify anywhere else, AdvancePoint Capital, the lender with the easiest qualification criteria, can probably get you over the goal line, edging out the competition in this category. Their short-term business loans can work with applicants who have low credit and other financial challenges.
Short-term loans are given for a period of 18 months or less. Users that need short-term financing can reach out to AdvancePoint Capital and pay up to 3% in origination fees. The typical term is less than 12 months and funds within 24 hours.
Founded in 2012, AdvancePoint Capital is based in New Jersey but offers loans for small businesses, including farms, nationwide. Known as Americas small business funding marketplace, they offer loans from $10,000 to $500,000 to help owners improve their financial situation and grow their business.
As a company with high ratings, AdvancePoint Capital is a reliable loan platform that matches users with business loans, lines of credit, invoice factoring, equipment leasing, and business cash advances.
How Do Usda Farm Loans Work
The USDA provides a very competitive direct farm ownership loan where the FSA funds the farmer with no lending intermediary in the middle. There are also guaranteed farm loans where the FSA contributes up to 50% and a commercial lender or cooperative finances the rest, combined with a 5% down payment provided by the borrower.
In 2021, direct farm ownership loan obligations reached their highest level ever at $2.1 billion. The FSA sets aside large sums every year to allocate to beginning farmers to help younger generations get into farming.
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/1 Arm Mortgage Rates
A 5/1 ARM has an average rate of 5.62%, which is a rise of 3 basis points compared to last week.
An ARM is ideal for households who will sell or refinance before the rate changes. If thats not the case, their interest rates could end up being remarkably higher after a rate adjusts.
For the first five years, a 5/1 ARM will typically have a lower interest rate compared to a 30-year fixed mortgage. Keep in mind that depending on how much your loans rate adjusts, your payment has the potential to increase by a large amount.
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Best For Starting A Farm: Farm Plus Financial
Farm Plus Financial
Farms require money and expertise to be successful, and our top choice for starting a farm, Farm Plus Financial, offers both.
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Loans range from $400,000 to $25 million.
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Doesnt require an excellent credit score
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High customer satisfaction ratings
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Borrowers must have sufficient income to service all debts.
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Borrowers have to provide at least 30% down payment.
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Doesnt lend in North Dakota
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680 credit score minimum
Farm Plus Financial provides its clients with a team experienced in agriculture, running a farm, and lending, so they are a perfect choice for guiding someone through the beginning stages of funding your new farm wisely. With loan sizes in the $400,000 to $25 million range, that expertise becomes even more critical with large sums of money during the startup phase, making them our best lender for people who want to start a farm. If youre starting your farm part-time, Farm Plus Financial can help you there as well with their Part-time Farmer Loans.
Most loan options require a 30% down payment, and budget at least $20,000 for closing expenses if your loan amount is in the $500,000 range.
With a minimum 680 credit score, customers can get pre-qualified online quickly nationwide except in North Dakota. They close some loans within a few weeks to a month and post a list of the typical documents needed.
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