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Fed rate hike will impact farmers' bottom line

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Posted at 6:56 PM, May 09, 2022
and last updated 2022-05-09 21:56:16-04

LA SALLE, Colo. — Harry Strohauer only hopes for a few things as a farmer: timely rain, no hail, and low interest rates.

"We borrow money on machinery and we borrow money on inputs. We have a lot of inputs, we grow a lot of potatoes. A lot of them are organic, the inputs are very, very expensive so yes we borrow a fair amount of money," said Strohauer.

The average farm in America owes $1.3 million. Every percent in interest is precious when borrowing that amount of money. So when the Federal Reserve raised interest rates a half percent, the highest hike in almost two decades, the agriculture community took notice.

"The debt level that a lot of farmers and ranchers have, it's gotten really, really high and it's not by choice really, equipment cost so much more," said Pete Best, a rancher from North Dakota.

He also moonlights as a loan officer for farmers and ranchers.

"A half a point on $5 million obviously is a lot of money. A half a point here a half a point there, pretty soon you got a percent or two," said Best.

Some farmers are worried about this latest rate hike, and the promise for more in the coming months.

Roger Cryan, the chief economist for the American Farm Bureau believes it's necessary to fight a bigger enemy to farmers' wallets.

"Inflation is happening. It's not going away quickly," he said. "The fed caused it, and it's the fed's job to fix it."

Cryan is worried about what will happen if inflation isn't brought under control.

"In 1981, the 30-year mortgage rate peaked at over 18% because it was based on an expectation that the inflation, which reached over 14% was going to be a continuing phenomenon," said Cryan.

While rising interest rates may mean a little short-term pain for farmers, Strohauer said farmers won't give up.

"We're survivors. We're optimists and survivors and that's the nature of doing what we do. You got to believe in it, 100% of the time and you got to overcome whatever's thrown at you," said Strohauer.