Investment climate offers beneficial interest rates for farmers

In the world of agriculture, making informed investment decisions is crucial for farmers. One key factor that they should keep a close eye on are the 10-year yield on German government bonds, also known as the swap rate, as these are meaningful indicators for investment planning.

The focus should be on longer-term yields on the capital market, as they are usually decisive for financing costs. Fortunately, in the current environment, extreme interest rates are not present, making it favorable for investments.

Farmers should also pay attention to the European Central Bank's (ECB) six-month money market rate decisions. These rates influence borrowing costs, which affect investment expenses and financing conditions in agriculture. Changes in ECB rates impact the broader economy, inflation, and credit availability, all relevant for investment planning and cost management in farming.

However, the decision to make an investment depends on the individual overall situation of an agricultural business. Very low interest rates may indicate a poor economic situation, and very high interest rates often go hand in hand with high inflation, which is not favorable for investments.

Uwe Jurkschat, the head of the Treasury department at Deutsche Kreditbank AG (DKB), believes that farmers planning to invest should focus on indicators other than the ECB's interest rate decisions. He suggests paying attention to the deposit rate, the main refinancing rate, and the marginal lending rate. As of now, the deposit rate is 2 percent, the main refinancing rate is 2.15 percent, and the marginal lending rate is 2.4 percent.

Credit terms for farmers are more oriented towards capital market interest rates, which can deviate from money market interest rates, especially during phases of an inverted yield curve. An inverted yield curve occurs when short-term financing is more expensive than long-term financing. This situation can occur when key interest rates are still significantly higher than what the capital market expects in the long term.

Looking ahead, for medium to long-term interest rates, a stable to slightly increasing trend is expected due to the trend towards higher public debt. In 2026, if trade disputes are resolved, the German and European economies stabilize, and a mild recovery occurs without significantly increasing inflation, stable to slightly increasing capital market interest rates are expected.

The ECB meetings are important for assessing the economic situation and evaluating the development of inflation. The deposit rate is expected to remain at a level of 2 to 1.75 percent for the rest of the year.

In summary, while the ECB's interest rate decisions are important, farmers should also consider the longer-term yields on the capital market, credit market interest rates, and the overall economic situation when making investment decisions. A favorable investment can bear the financing costs, and current financing conditions are considered normal, making it an opportune time for farmers to consider their investment strategies.