Low rates of interest are a boon to agriculture

Brian Eggebrecht has been farming for 30 years and remembers the sky-high interest rates of the early 1980s. That makes today's rock-bottom rates even more attractive.

"This is huge," says the Malta, Mont., producer. "How often in your farming career are you going to have an opportunity to lock in these interest rates and upgrade your operation?"

Yields and crop prices are the numbers that usually generate the most attention in agriculture, at least among people not directly involved with it. But quietly, behind the scenes, low interest rates are impacting most financial aspects of area agriculture.

"The low rates are a major boon," says Robert Wishek, president of McIntosh County (N.D.) Bank, which has offices in Ashley and Zeeland.

The Federal Reserve System, the nation's central bank, is holding down rates to stimulate the economy. Many people outside agriculture, including homebuyers, also benefit from lower rates, Wishek and others in ag note.

Farmers, ag bankers and others say low interest rates are a factor in several important agricultural trends, including:

&middotRising land values. The return on investments such as certificates of deposit is extremely low, which makes buying farmland more attractive.

&middotStrong sales of farm machinery. Low interest rates make buying equipment easier when some or all of the money is borrowed.

&middotHealthier balance sheets for most farm operations. Lower rates mean less interest is paid out on farmers' and ranchers' loans.

&middot Further consolidation in agriculture. Farm operations are getting bigger and fewer, a trend strengthened by low rates that make it easier for farmers to buy all or part of neighboring farms.

&middotStrong U.S. grain exports. The rule of thumb is that low interest rates weaken the value of the U.S. dollar, which makes U.S. ag products more affordable to foreign customers.

Don't overestimate the importance of low interest rates, experts say.

The combination of strong grain prices and generally good yields in recent years is the main factor in area agricultural economics today, says Dwight Aakre, North Dakota State University Extension Service farm management specialist.

But low interest rates are important, too, he and others say.

Low rates are a "positive" for farm equipment sales, says David Meyer, president and CEO of Titan Machinery, a West Fargo, N.D.-based company that operates agricultural, construction and consumer products dealerships in the Upper Midwest.

Low rates have "really helped farmers upgrade their operations," says Kent Thiesse, farm management analyst and vice president with MinnStar bank in Lake Crystal, Minn.

Producers have invested in buildings and tile drainage, as well as farm machinery, he says.

A look at the math

Some farmers are borrowing money for as little as 3 to 4 percent, roughly a third of what they paid a decade ago, area bankers say.

That ties in with the so-called prime rate, a widely followed rate determined by the rates charged by 30 big banks across the country. The prime is used as a base rate for many types of loans.