Source: FARM DOC DAILY, UNIV. OF ILLINOIS, 3/21/22

The US Federal Reserve has begun to raise interest rates to dampen inflation.  Higher rates imply higher interest expense, assuming no other change.  This article explores the role of farm interest expense in the US farm sector.  Between 1982 and 2014, farm interest expense declined as a share of farm cash production expenses from 18.3% to 4.4%.  Rising interest rates combined with the increase in farm debt since 1991 implies that farm interest expense is expected to increase.  A return of interest expense to its historical average 9.5% share of cash production expenses would reduce net farm income by more than 10%, assuming no other change.  This article is a companion to the farmdoc daily article of February 18, 2022 that focused on increasing debt on Illinois and US farms.

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