Here’s an update on interest rates from the fourth quarter of 2024 as reported by Federal Reserve districts that share data impacting dairy finances.
Ag loan interest rates fall in the fourth quarter
Quarterly lender surveys from Chicago, Dallas, Kansas City and Minneapolis Federal Reserve districts confirmed interest rates on all agricultural loans fell in the fourth quarter of 2024, reflecting a stressful year for the agricultural economy. Interest rates in the four agricultural districts reports rates not seen since first-quarter 2023, or in Chicago’s case since fourth-quarter 2022.
According to lenders across the districts, agricultural interest rates were subdued as weaker conditions persisted, from weather conditions to low commodity prices and declining working capital for farm operations. One survey respondent said, “Working capital levels have declined significantly the last two years. In addition, projected 2025 cash flows are very tight.”
The average variable interest rate across districts was 7.99% and the average fixed interest rate was greater at 8.12%, although rates ranged from district to district and by types of loan.
Reviewing quarterly lender surveys in predominantly agricultural districts, average interest rates and quarterly included (Table 1):
- Chicago: Interest rates on variable-rate operating loans and intermediate loans fell 0.34% and 0.21%, respectively, from third quarter while the interest rates on variable-rate real estate loans remained unchanged at 7.19%.
- Dallas: The average interest rates on both fixed-rate and variable-rate loans in all categories stumbled from the previous quarter. Variable-rate operating loans reported the greatest spread at 0.55% less than the second quarter as fixed-rate intermediate loans noted the smallest change, down 0.38%.
- Kansas City: Interest rates on fixed and variable loans in all categories showed a decline in the fourth quarter. The largest drop was in variable-rate operating loans at 0.41% lower than the previous quarter.
- Minneapolis: Rates for variable-rate operating loans saw the steepest decline at 0.6% from third quarter to fourth quarter. Inversely, fixed-rate real estate loans recorded the smallest spread, falling 0.2% during the same time period.
March FSA interest rates rise
The announced interest rates on loans through the USDA’s Farm Service Agency (FSA) rose again after declining in February. As we begin March 2025, interest rates for operating and ownership loans (compared to February) are as follows:
- Farm operating loans (direct): 5.5%, up from 5.125%
- Farm ownership loans (direct): 5.875%, up from 5.5%
- Farm ownership loans (direct, joint financing): 3.875%, up from 3.5%
- Farm ownership loans (down payment): 1.875%, up from 1.5%
- 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 at last meeting of 2024, maintain rates for beginning of 2025
In mid-December 2024, the Federal Reserve Board lowered interest rates by a quarter of a percentage to 4.25%-4.5%, reflective of indicators that suggest economic activity has continued to expand at a solid pace and inflation has moved closer toward the Federal Reserve Boards’ Federal Open Market Committee’s (FOMC) goal of 2%.
The committee maintained the target range of federal fund rates during their first meeting of 2025, citing “the risks to achieving the committee’s employment and inflation goals were roughly in balance.”
The next meeting is scheduled for March 18-19.
