If you've been thinking about building, buying land or starting other business ventures, now may be a good time to do so – at least in terms of interest rates. A report issued by USDA's Economic Research Service predicts that rates will remain low through much of 2002. If and when the general U.S. economy picks up, interest rates will likely tick upward.
Interest rates, much the same as pork prices, are dictated by supply and demand. Last year, the Federal Reserve made 11 interest rate cuts. A decline in farm interest rates also has been fueled by a much lower credit demand by businesses, an increase in consumer savings, a loosening of foreign monetary policy and a moderate fall in the expected level of inflation.
However, changes in farm interest rates tend to lag behind interest rates in the other sectors. The low rates consumers saw last fall to refinance home mortgages, started arriving in the agriculture sector this spring. "Both non-farm and farm loan rates are expected to fall further in the first half of 2002, with interest rates on non-real-estate and real-estate farm loans expected to hit 5.9 percent and 7.3 percent by the second quarter of 2002," says the report.
On the supply side of the interest-rate equation, six factors are expected to place mild downward pressure on rates. They are:
1. Continued low inflation rates.
2. An expected mild rise in consumer savings.
3. A gradual increase in the willingness of lending institutions to lend money.
4. Continued easing of foreign monetary policies.
5. Slow economic recovery and growth.
6. Possible additional easing of U.S. monetary policy by the Federal Reserve.
Several factors prevent farm interest rates from falling as low as interest rates in other sectors. One of those is the uncertainty of farm income and the 2002 price outlook. Despite that, the interest rate decline does reduce your cost to borrow money. So, if you've been delaying a project, you might want to pull it off the shelf and run the numbers. Interest rates like these won't last forever. When the general economy begins its recovery, you can expect to see interest rates trend upward too.