Top 10 Ag Stories of 2023: No. 2

Interest Rates on Farm Loans Soar to 20-Year Highs as Fed Fights Inflation

Katie Micik Dehlinger
By  Katie Micik Dehlinger , Farm Business Editor
Interest rates charged on farm loans rose for the eighth consecutive quarter to their highest in more than 20 years, according to the Federal Reserve Bank of Kansas City, which added that the average rates on all types of loans climbed to above 8% in all districts, steeply increasing from historic lows in 2021. (Graphic from Ag Finance Update by Federal Reserve Bank of Kansas City)

Editor's Note: Each year DTN publishes our choices for the Top 10 ag news stories of the year as selected by DTN analysts, editors and reporters. This year, we're counting them down from Dec. 18 to Dec. 29. On Dec. 31, we will look at some of the runners-up for this year. Today, we continue the countdown with No. 2: Interest rates on farm loans soaring to their highest in 20 years and how that affected farmers.


MT. JULIET, Tenn. (DTN) -- The Federal Reserve's medicine for feverish inflation appears to be working. Inflation declined to 3.1% in November, much closer to the Fed's 2% target. Unemployment rates didn't flinch. The Fed appears poised for a soft landing.

But it's rarely that simple, Rabobank cross-asset strategist Christian Lawrence said. There's usually some form of collateral damage. "It's like shooting a mosquito with a shotgun."

The Federal Reserve changed its mosquito hunting strategy midway through 2023.

At first, it kept with 2022's aggressive schedule and raised rates four times. By the time of its last increase in July, the federal funds rate was in a range of 5.25% to 5.5%, the highest level in 22 years.

By midsummer, recession concerns roared. The stock market slumped. Tech companies announced layoffs. The Federal Reserve stopped shooting, and recently announced it's more likely to cut rates in 2024 than raise them.


The Federal Reserve sets a range for the fed funds rate, which is the rate banks charge each other on what they borrow to meet their overnight capital requirements. The prime rate, a benchmark for business and consumer loans, is usually higher than the fed funds rate and reserved for only the strongest borrowers. Rates get higher as loan risk rises.

Rates on ag loans tend to be higher than prime, and the Federal Reserve Bank of Kansas City reports the average interest rate on all types of farm loans topped 8% in 2023, the highest in 20 years. Rates have climbed for eight consecutive quarters.

Farmers who rely on operating notes and those looking to finance equipment are feeling the sting of higher interest rates the most. After more than a decade of interest rates near zero, farmers had to manage the cost of money alongside running the farm and, in some cases, the interest on the operating line cost as much as seed in 2023.

Many are taking advantage of vendor financing offers, where an input supplier provides credit, often at a discounted interest rate. Others chose to forgo buying new equipment and wait for a better rate.


Higher interest rates have had a more nuanced role in the land markets. So much of the land is owned outright -- it's about 84% in Iowa -- or was financed at very low interest rates during the past decade that the impact of higher rates is only being felt in new loans.

Conventional wisdom would suggest higher interest rates would cool buying interest by making mortgages more expensive. However, a tight supply of land for sale means interested buyers need to act or potentially miss a once-in-a-generation chance. After several years of record farm incomes, farmers can usually rally resources and may be willing to take higher rate loans now with plans to refinance when they can.

Investors may not be as willing. With 5-year returns on CDs topping 5% this year, there were more lucrative ways to earn money than cash rent. But deposits don't appreciate, and as the adage says, God isn't making any more land.

While interest rates are only one factor influencing farmland values, most experts and surveys show prices continued to rise in 2023 and are likely to remain steady or decline in 2024.

For more on this year's coverage of interest rates at DTN, please read:

An Urban's Rural View: "Finally, Some Good News on Interest Rates,"…

Kub's Den: "Interest Rates Add to Cost of Production,"…

"Interest Rates Drawing Some Investors Away from Ag Land,"…

"Iowa Farmland Values Approach a Plateau as Annual Increase Slows to 3.7%,"…

To see more about our DTN countdown, see the Editors' Notebook blog at….

To see the other top stories of the year:

No. 10: "Livestock Producers Lean Into USDA's Livestock Risk Protection Coverage (LRP),"…

No. 9: "Supreme Court Rules on Two Major Ag Cases,"…

No. 8: "EPA's Plan to Protect Endangered Species From Herbicides Draws Criticism,"…

No. 7: "The High Cost of Some Inputs Fall, But So Does Farm Income,"…

No. 6: "Ongoing Drought Slows Cow Herd Expansion During Year,"…

No. 5: "King Corn Gives Up Its Crown as US Export Share Remains in Decline,"…

No. 4: " 2023 Wild Weather Caused by Quick Change in La Nina to El Nino Ocean Temperatures,"…

No. 3: "The Crop Year of Surprises,"…

You can find No. 1 in DTN's Top 10 list on Dec. 29, along with an Editors' Notebook blog on why DTN selected its choice for the top story of the year.

Katie Dehlinger can be reached at

Follow her on X, formerly known as Twitter, at @KatieD_DTN

Katie Dehlinger