How Lender Cost of Funds and Market Structure Shape Agricultural Interest Rates

Abstract

This paper investigates how lenders' costs of funds affect agricultural loan interest rates. We use a matched sample of US farm-loan data and lender-specific cost of funds, and a farm fixed effects design, to estimate pass-through, conditioning on borrower characteristics. We find modest average pass-through of funding costs to farm loan interest rates, with meaningful differences across lender types and local market conditions. Our findings suggest that borrower characteristics and common macroeconomic trends remain central to agricultural loan pricing, but lender business models and local credit market structure also shape how changes in funding costs affect farm borrowing costs.