Here’s an update on interest rates from quarter three of 2024 as reported by Federal Reserve districts that share data impacting dairy finances.
Ag loan interest rates drop in third quarter
Quarterly lender surveys from Chicago, Kansas City and Minneapolis Federal Reserve districts indicated interest rates on most agricultural loans decreased in the third quarter of 2024 with rates not seen that low since early 2023. The Dallas Federal Reserve district was the only district that reported the same or an increase in interest rates from the previous quarter, but conditions were still the most improved since that early 2023 time frame.
According to lenders across the districts, agricultural interest rates softened as the ongoing weakness in income has taken a toll on many financial conditions. The average of variable interest rates across district was 8.45%, and the average of fixed interest rates was similar at 8.49%, although ranged from a low of 7.55% to a high of 9.37%.
Reviewing quarterly lender surveys in predominantly agricultural districts, average interest rates and quarterly included (Table 1):
- Chicago: Interest rates on variable-rate operating and intermediate loans were both down 0.35%, while variable-rate real estate loans were down 0.36% from quarter two of 2024.
- Dallas: Average interest rates on both fixed and variable-rate loans in most categories ticked slightly upward from the previously quarter at 0.01% to 0.06% higher. Variable-rate real estate loans showed no change from quarter two.
- Kansas City: Rates on fixed and variable loans in all categories showed a decline in quarter three. The largest drop was in variable-rate operating loans at 0.19% lower than the quarter prior.
- Minneapolis: Interest rates on fixed-rate real estate loans saw the greatest decrease at 0.2% from quarter two to quarter three. Interest rates on variable-rate operating loans remained the same, while the other categories dropped 0.1%.
The Federal Reserve Bank of Minneapolis’ quarterly survey of agricultural credit conditions in the second quarter was also released since the last time Progressive Dairy reported on the interest rates (Table 2). Survey results indicated rising interest rates in the 9th District as demand for credit also increased in the second quarter of 2024. (Read: Ag loan interest rates move in positive direction)
- Minneapolis: Interest rates on both fixed-rate operating and machinery loans saw the greatest increase from quarter one to quarter two at 0.2%. The remaining categories, in both fixed and variable rate, increased at 0.1%.
December FSA interest rates rise
The announced interest rates on loans through the USDA’s Farm Service Agency (FSA) rose in December after four consecutive months of falling rates. As we begin December 2024, interest rates for operating and ownership loans (compared to November) are as follows:
- Farm operating loans (direct): 4.75%, up from 4.5%
- Farm ownership loans (direct): 5.25%, up from 5.125%
- Farm ownership loans (direct, joint financing): 3.25%, up from 3.125%
- Farm ownership loans (down payment): 1.5%, unchanged
- Emergency loan (amount of actual loss): 3.75%, unchanged
The FSA also offers guaranteed loans through commercial lenders at rates set by those lenders. For more information, producers can contact their local USDA Service Center.
FOMC lower interest rates ahead of last 2024 meeting
In early November, the Federal Reserve Board lowered interest rates by a quarter percentage point to 4.5%-4.75%, citing a stronger labor market and inflation moving in the direction of 2% but recognizes the economic outlook is uncertain. The final meeting of 2024 for the Federal Reserve Board’s Federal Open Market Committee (FOMC) is Dec. 17-18.
Minutes of this meeting, released Nov. 26, revealed almost all committee members agreed “the risks to achieving the committee’s employment and inflation goals were roughly in balance” and that they would “carefully assess incoming data, the evolving outlook and the balance of risks” when considering additional adjustments to the target range for the federal funds rate in the future.
