Farmers may face increased financial pressure as petroleum-related input costs could add to their interest expenses, according to an April 28 statement from the University of Arkansas Division of Agriculture.
The issue is important because even though national interest rates have dropped from their post-pandemic highs, the combination of elevated borrowing costs and rising input prices continues to squeeze farm budgets. This situation affects farmers’ ability to manage operating loans and overall profitability.
Ryan Loy, extension economist for the University of Arkansas Division of Agriculture, said that while benchmark rates have come down from recent peaks, “borrowing costs continue to remain elevated compared to the low-interest-rate environment before 2022.” Loy said this presents a significant challenge for farmers across the country since “interest expenses remain a notable portion of crop budgets while trying to balance the drastic increase in operating expenses.”
Loy explained that higher operating expenses force farmers to take out larger loans, which results in greater interest payments. For example, estimated interest expenses for 2026 are slightly lower than those at their peak in 2024 but still high compared with previous years. Loy added that in comparison with projected figures for 2026, operating costs in 2024 would have generated about $4.26 more per acre for corn, $4.95 more for cotton, $4.58 more for rice and $2.74 more for soybeans.
The ongoing conflict in the Strait of Hormuz has led Brent Crude oil prices on a volatile path, which could further raise input costs such as fertilizer and diesel fuel needed by farmers. “Many farmers already took out operating loans before the conflict began,” Loy said. “While they can likely put the increased cost in a revolving line of credit, they will now have to pay more interest expense because they have to pay back a larger amount.” The Federal Open Market Committee recently voted to keep its target rate unchanged at 3.50-3.75 percent and indicated little likelihood of changes at its next meeting.
The University of Arkansas Cooperative Extension Service receives funding through federal grants from the U.S Department of Agriculture and state appropriations according to the official website. The service operates throughout all 75 counties in Arkansas using county offices and research centers according to its official website. It aims to enhance agriculture, communities and families through research-backed practices according to its official website.
Loy concluded: “The expectation of near-zero rates might be unrealistic, but it’s important to highlight that even with lower rates, interest expense continue[s] to contribute to the on-farm price-cost squeeze… Farmers will be forced to buckle up to get through if the conflict lasts several months.”
