A low interest rate environment has led to an availability of inexpensive farm debt and may have helped support farmland values, but the Federal Reserve has signaled rates will rise. This article introduces several ways a rising interest rate environment could impact U.S. farmers.

A higher interest rate environment may have income implications for the farm sector. Past research demonstrates a negative relationship between relative interest rate levels and commodity prices, particularly for agricultural commodities. This article explores the complex relationship between interest rates, the money supply, exchange rates, and commodity prices.

Farm sector debt is nearing the historically high levels seen in the early 1980s, but today’s low interest rate environment has helped keep farmers’ interest payments relatively low. The farm sector currently appears prepared to handle the near-term expected interest rate increases, but several factors could increase financial stress.

Farmland returns and values have garnered substantial interest over the past few years as income dropped dramatically. Farmland values and rates of return are compared across alternative asset classes and a set of related interest rate series to provide context to interpret farmland capitalization rate relationships to market interest rates.

Changes in interest rates can substantially impact farm balance sheets. This article explores the farm sector’s interest rate risk levels using duration gap analysis and proposes simple modifications producers can make to their balance sheets to help protect equity from rising interest rates.