On Wednesday the Federal Reserve lowered its benchmark federal funds rate by .5 to a range between 4.75% and 5%. This marks a policy shift from taming inflation to supporting employment.

This will be welcome news for the ag industry. For the past couple of years, farm loan interest rates have hovered at multi-decade highs. This increased operating costs and helped fuel fund managers’ record short positions in corn, soybeans and wheat earlier this year.

Demand for non-real estate loans, including operating loans, has been rising at the fastest rate since, according to the Kansas City Federal Reserve. This spike is the result of higher production costs and lower commodity prices.

Farmers in the Kansas City Federal Reserve district were locked into an interest rate of nearly 9% in 2024. A slim majority of the rate-setting committee has forecasted two more .25 cuts by the end of the year. However, it may take several financial cycles before farmers realize the full benefits of a lower interest rate environment.

Read more about the impact of the interest rate cuts here.