In an effort to minimize the economic impact of the coronavirus, the Federal Reserve announced an emergency rate cut over the weekend. In the month of March alone, the Fed cut 150 basis points, so the federal fund rate is at 0% to 0.25%.
Despite the rough circumstances to bring about an interest rate cut, Travis Jones, CFO of GreenStone Farm Credit Services, says this is a bright spot for agriculture and GreenStone’s customers.
“When Treasury rates fall, Farm Credit rates normally follow, and Farm Credit rates have fallen about 1.4% for 10-year borrowings,” said Jones.
With the Fed funds target rate change, Jones says that has an instant impact for farmers on their operating lines.
“We typically follow when the Fed funds rate gets cut, the prime rate gets cut, and we have variable rate loans that we drop automatically, effective the next month,” he said. “We will have lots of loans that are going to get automatically decreased by 1.5% come April 1.”
In the last year, Jones says operating loans have fallen 2.25% and 1.5% in the last month. As farmers struggle against depressed commodity prices, this is a good way to save them money.
“Operating costs are lower in 2020,” said Jones. “It’s going to make the equipment they need to finance a little less expensive. It’s going to make land they wanted to finance a little less expensive. This is going to be a great positive for the farmers in Michigan and the country.”
In this time of low interest rates, farmers might be thinking this is the prime opportunity to make that big purchase. Jones says that might make the decision easier, but GreenStone members and farmers need to look at their balance sheets first.
“What do commodity prices look like? What do milk prices look like?” he said. “They need to balance that against all the costs on their farm and whay they are going to project. From a revenue standpoint, it certainly is beneficial to the equation, but it really depends on our farmer and our member from an individual standpoint if this is the right time or not.”
For more information, you can call or visit your local GreenStone branch. They currently have 32 of their 36 locations open.