When Money Ain’t Cheap: Boosting Your Ag Lending Portfolio in High Interest Rate Environments

Travis Martin
November 22, 2023
4 min

Ag lending is the life blood of many agribusiness professionals and an annual necessity for many farmers’ operations. Relationships are forged, agricultural production thrives, and rural communities prosper—especially when the cost of those loans is easy on the wallet.

But we’re not in 2021 anymore, Toto.

Regardless of what the Fed’s up to, farmers still need ag loans. But in high interest rate environments, aka 2023, ag finance can be rough.

Rough for farmers and lenders.

As an ag lender, you’re peddling wares with a much higher price tag than a couple years ago. And some folks simply aren’t buying.

That’s why having good leads, and plenty of them, matters. Let’s break it down:

More Leads Matter

When interest rates are high, fewer potential borrowers are going to, well, borrow.

It’s the basic Law of Demand here: rates are high, loans cost more, and fewer folks sign on the dotted line.

In this environment, the top of the funnel needs to be wide to collect a large quantity of potential borrowers.

These days, unlike in borrower-friendly years, fewer farmers who inquire about loans will go through the other end of that funnel with borrowed cash in hand. After they see the interest rate and final cost, several of your leads are bound to pause and consider other options.

According to James Mintert, the principal investigator who conducts and analyzes producer surveys for Purdue University’s monthly Ag Economy Barometer, “Rising interest rates… continue to put downward pressure on producer sentiment.”

Looking for more leads can be a tough job, but today, it’s a necessity.

Has Cash Become King?

High interest rates affect nearly all farmers, at least on some level.

Referring to less profitable producers, Tait Berg with the Minneapolis Fed noted, “As rates increase, they face larger interest costs per acre, further straining their cash flows and reducing profits.”

Then the cycle continues.

But for those who are more profitable and, thus might have more cash on hand, the sting isn’t as severe.

That’s why farmland values keep increasing.

According to Eric Sarff, president of the Murray Wise Associates farm real estate group based out of Champaign, Illinois, “What caused demand to remain strong is that there's a lot of cash buyers out there, so the interest rates don't affect those buyers quite as much.”

Some producers are even considering cashing out investments and paying up front as a way to avoid paying interest. The cash crowd plays a big role, and it’s important to plan for less business from them when rates are high.

But Opportunity is Knocking

When fewer farmers are signing up for financing, some times you just have to get creative.

Machinery, farmland, and operating loans will still play a vital role. But what else can you do to make your loan products more unique and attractive?

Could you pull together multiple loans into one lower-rate package? The higher principal gets you what you need, and the rate looks inviting to farmers.

Could you try region-specific loans or marketing products based on specific goals? For example, how about offering a loan that would help the farmer buy necessary equipment and inputs to convert to more no-till or specialty crop practices?

Averaging old and new interest rates is also a great selling point that many farmers will go for. Consider a 2019 loan with a 5-6% rate that was refinanced in 2021 for 3-4%. A new loan might be in the 7-8% range, but if merged with the older refinance, the producer is back to where they started in 2019 at around 5-6%.

The opportunities are endless. But at the end of the day, one of the best things you can do is simply know your customer.

Relationship lending is a big deal—especially in today’s environment. And that’s exactly what an ag lender in Southwestern Indiana said he focuses on: “We try to be a consistent lender. We’re in it for the long haul and want to be there at all times.”

That’s pretty good advice.

Part of being in it for the long haul also means remembering that quantity doesn’t always mean quality. To connect with more quality leads, according to a VP of digital marketing with an ag lender in the Southeast, lenders should double down on their advertising spend. Yes, even (and especially) in high-interest rate environments.

Think about it: relationship lending never starts with that first in-person conversation where someone is ready to speak with a lender and sign paperwork that day. 

“It starts with the first piece of content the lead interacts with before they decide to fill out a ‘Contact Us’ form, whether that’s a blog article, a Google ad, or a Facebook post,” the VP of marketing said. “All your content and advertising verbiage need to make the lead feel like you hear their concerns and understand their needs — no matter what the environment is.”

Doubling down on your content and marketing spend in times like these can kill two birds with one stone. First, you’re qualifying a lead before they get to you — which helps everyone avoid any wasted time or confusion. 

But most importantly, you get to build trust with potential future customers. Even if someone is taking the process slowly and isn’t quite ready to pull the trigger, you’ll be the first one they think of when they are ready, because they’ve been interacting with your content, voice, and advice for potentially weeks or months. When you provide quality, value-driven content that speaks to their unique problems, you get to show customers you know what you’re talking about — and have answers to their questions. You get them.

Because nobody wants to do business with a lender they feel like doesn’t understand or hear them.

It’s not easy out there. But gathering more leads, qualifying those leads, getting creative, building relationships, and remembering the role of cash buyers can make navigating this environment a little smoother.

And remember this last nugget from that Southwestern Indiana ag lender:

“History is what history is. It will repeat itself, and this will eventually go the other way.”


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