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The Relationship Between Farm Loans and Food Inflation

Many different aspects of the agriculture industry influence the rates and availability of farm loans. If you want to find the best rates possible for your loan, you need to pay attention to how factors like inflation impact the current market.

Understanding how food inflation affects farm loan interest rates—and how government entities like the Federal Reserve use both—helps you prepare to face the economic challenges of the farming industry. Learn more about the relationship between farm loans and food inflation with this brief overview.

Inflation From the Pandemic

To understand the current farm loan landscape, you must first review the effects the COVID-19 pandemic had on the economy. Government relief checks during the pandemic created more spending among consumers, which in turn increased demand. Higher demand combined with the numerous supply chain disruptions that resulted from COVID created much higher costs. This remained true coming out of the pandemic, when more people started spending again even as supply chains continued to face challenges.

Interest, Demand, and Commodity Prices

In order to combat high inflation rates for commodities like food, the Federal Reserve deployed a tried-and-true strategy of raising interest rates. Higher interest costs slow the circulation of money, decrease demand, and lower commodity prices.

However, high interest rates combined with currently high inflation puts farmers at risk of not being able to meet their short- and long-term financial obligations. Farmers who have prepared to deal with changing food inflation rates might not be prepared to face the quickly rising interest rates, putting them in a dangerous spot moving forward.

The Inflation Reduction Act

In 2022, the Inflation Reduction Act provided financial relief to farmers who struggled or were continuing to struggle due to complications with COVID, rising interest rates, and other challenges. By helping farmers and ranchers get ahead of their debts and continue to maintain their farms, the Inflation Reduction Act boosted farm businesses while also combatting food inflation rates across the board.

Paying attention to the relationship between farm loans and food inflation helps you make smart decisions about when to take out a farm loan. It’s also important to work with a lender you can trust to get an honest view of the current landscape and make sure you’re finding the best rates possible for your loan.

Set yourself up for success even during the economic challenges currently facing the industry when you choose Farm Plus Financial as your farm lending company. Talk with one of our experts today to learn more about our farm loan options and find the best solution for your property.