According to USDA Chief Economist Keith Collins, the Fed's lowering interest rates for the first time in four years Tuesday should make farmers happy, because interest expenses are a significant part of farm production expenses.
Even a small change in interest rates can affect a farmer's bottomline, and with the past few years of increasing interest rates, Collins says today farmers are spending about eight percent of their total production expenses on interest.
"That's interest on short-term debt like operating loans and long-term debt like real estate loans," Collins says. "In 2007 we are estimating that farmers will spend $15.6 billion on interest expenses."
Before interest rates began going up in 2003 it was only $11.5 billion dollars, so this half a percent cut in interest rates may sound small but could save farmers hundreds of millions of dollars.