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Harvest Public Media is a reporting collaboration focused on issues of food, fuel and field. Based at KCUR in Kansas City, Harvest covers these agriculture-related topics through an expanding network of reporters and partner stations throughout the Midwest.Most Harvest Public Media stories begin with radio- regular reports are aired on member stations in the Midwest. But Harvest also explores issues through online analyses, television documentaries and features, podcasts, photography, video, blogs and social networking. They are committed to the highest journalistic standards. Click here to read their ethics standards.Harvest Public Media was launched in 2010 with the support of a grant from the Corporation for Public Broadcasting. Today, the collaboration is supported by CPB, the partner stations, and contributions from underwriters and individuals.Tri States Public Radio is an associate partner of Harvest Public Media. You can play an important role in helping Harvest Public Media and Tri States Public Radio improve our coverage of food, field and fuel issues by joining the Harvest Network. Learn more here.

Higher Interest Rates Could Impact Crop Prices

Abby Wendle
More expensive storage space is one reason farmers seek to sell their crop when interest rates rise.

High interest rates have the potential to slow an economy and drop prices. So when the Federal Reserve Board raised the interest rate last week for the first time in seven years, farmers and ranchers likely wondered how it would affect their outlook.

Economists say corn and soybean prices should fall, but not by much.

“We'll never know what the effect of these interest rate hikes are going to be on corn and soybean prices because those effects are going to be so small compared to the market swings we see anyway,” said Jeffrey Dorfman, professor of economics at the University of Georgia, and author of a FarmDoc Daily article about the issue.

Dorfman predicts higher interest rates will push down corn prices by 2 cents a bushel and soybeans by a dime a bushel over the next year.

Interest rates impact corn and soybean prices in two ways:

  1. Corn and soybeans are storable commodities. When interest rates are higher, storage costs more and the opportunity cost of waiting to get paid is higher.
  2. Most farmers take out loans to pay for equipment, seeds, fertilizer, and other essential inputs to run the business. When the Federal Reserve raises the interest rate, those loans get more expensive.

Dorfman thinks the Feds will raise the interest rate .25 percent every few months, a slow and gentle strategy that will impact farmers much less than they think.
“If you have a corn and soybean operation in the Midwest, you farm 1,000-3,000 acres, this increase probably raised your production costs by $1,000,” he said. “Nobody likes paying an extra $1,000 but it’s not going to make or break anybody.”

The Federal Reserve Board hasn’t said how high they’re planning to raise the interest rate. But, Dorfman predicts they’ll cap it at 2-3 percent.

“Assuming they get that far,” he said. “We’ve already had a longer period than average since the last recession. So at some point there’s going to be another recession and they’ll start lowering rates again.”