The Federal Reserve’s looser monetary policy will help cash-strapped crop farmers, but 2026 will still be a tough year.
The Federal Open Market Committee meeting cut its benchmark Federal Funds rate by 0.25% on Sept. 17 and signaled that the rate-cutting cycle had started. The rate cut comes as ag credit conditions worsen and financial strains are appearing for some farmers, especially those who lease their land. With no crop profitable, producers need strict discipline when marketing this year’s harvest and closely monitor their finances, say experts.
Tanner Ehmke, lead economist, grains and oilseeds for CoBank, says the Fed’s rate cut helps farmers who take on debt for winter-wheat planting and spring planting in 2026. Rate cuts also weaken the dollar, making exports more competitive. Yet he’s seeing some concerning trends for farmers.
Weakening Farm Finances, Rising Bankruptcies
Midwestern and Plains-states crop producers saw farm income and credit conditions deteriorate in the second quarter of 2025, according to the Kansas City Federal Reserve’s Ag Finance Update, with farm income and loan repayment rates falling.
Falling crop prices led to weaker farm income, reducing liquidity for many producers, and increasing demand for financing. The KC Fed said loan repayments across all regions dropped.
The Fed rate cut could help with operating-loan costs, which have a variable rate, Ehmke says.
Compared to last year, interest rates are already lower than their peak because of rate cuts earlier this year, says Nate Kauffman, Omaha branch executive for the KC Fed, the bank’s regional economist.
Data from the KC Fed shows variable interest rates in Kansas are around 8.19% now, down from 8.81% a year earlier. A 0.25% rate cut on a $500,000 loan would save a borrower $1,250, all things being equal, Ehmke says. Farmers are already looking for financing as they plant winter wheat and plan their fall fertilizer applications for corn.
Another Tough Year Likely
Kauffman says the drop in interest rates is helpful, but a bigger issue are the weak profit margins. Farmers who need loans may not benefit since their finances are pressured.
In an August farmdoc post, Nick Paulson, Gary Schnitkey and Bradley Zwilling of the University of Illinois, and Carl Zulauf of Ohio State University, wrote that all Illinois crop and soybean producers who rent farmland will have negative average returns for the fourth straight crop year in 2026, despite greater Agricultural Risk Coverage and Price Loss Coverage payments under the recently passed federal tax bill.
The professors estimate slightly higher overall costs in 2026 pointing to a bump in non-land costs and also higher operating costs, including greater credit needs as interest rates remain elevated.
In a September farmdoc post, Michael Langemeier, Michael Boehlje, and Joana Colussi of Purdue University’s Center for Commercial Agriculture, said less experienced farms, producers who lease most of their operating acres and those who have relatively high debt-to-asset ratios are the most vulnerable in a downturn.
The researchers noted that in 2024, approximately 4% to 6% crop farms were financially stressed. That’s a small number, but the expected low net returns for 2025-2026 “could dramatically increase the percentage of farms that are financially stressed by the end of 2026,” the researchers wrote.
Ehmke points to U.S. Bankruptcy courts data which showed that for the first two quarters of 2025 there was a 57% year-over-year increase in Chapter 12 family-farm bankruptcies, the highest level since 2021.
“The epicenter of that is in states that are impacted by the trade war,” Ehmke says, referring to the trade tensions between the U.S. and China.
Arkansas accounted for one out of every 10 bankruptcies, with Iowa and Georgia, rounding out the top three. Those states account for 25% of farm bankruptcies and are big soybean and cotton producers, two commodities China hasn’t purchased amid the trade spat.
Ehmke is concerned that any further rate cuts could stoke inflation; the higher prices of the past few years have hit farmers hard. As the trade war drags on, he’s also worried that farmers may have difficulty selling crops. That could weigh on local basis levels as crops accumulate, limiting farmers’ marketing options.
As such farmers need to diversify their risk and market some crops now, especially soybeans.
“If you have an ability to market your soybeans now, that might be a wise thing to do, at least some of it,” Ehmke says.