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Lowering Interest Rates Good for Farmers

The USDA's chief economist says the drop in interest rates will help farmers.

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.

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