It’s been a volatile start to 2026, from unpredictable geopolitics to shifting interest rates and a more uncertain global outlook. We explore what this means for farmers.
Interest rates
- Central bank views are diverging. The RBA lifted to 3.85% whilst the RBNZ dropped to 2.25% and the US is expected to cut. Plenty of uncertainty for borrowers on the direction of rates.
- The luxury of an inverse yield curve has gone and we are back to a ‘normal’ upward sloping curve, which means the potential for rising interest costs.
Resulting all-in borrowing costs are still 5-7%. Not cheap nor expensive, just a cost of capital consistent with historical levels this century (COVID aside).- Australia is pricing in 2 rate rises this year, whilst longer tenors reflect a premium for uncertainty. The 10-year fixed rate flirted with 5.00% in late January before retreating. Borrowers are increasingly looking at staggered fixed rate strategies to manage interest rate risk.
- New Zealand still looks comparatively attractive, with opportunities to lock in sub 4.00% out to 7 years.
Note: Foundation Agri Finance price loans based on the current Australian Dollar Interest Swap Rate plus a customer margin. Please contact the team to discuss our competitive fixed-rate options.
What we’re hearing
Margins remain under pressure: with inflation running above 3%, farming remains a high-cost business and profitability is being squeezed.
Recent Australian benchmarking by Planfarm across ~500 broadacre farms shows operating costs are up 62% over the past five years. Strong production and pricing absorbed much of the additional cost, but softer grain prices mean new budgets are tight. Higher costs also mean more equity is at risk every time a crop is planted. 
New Zealand farmers face the same reality. Breakeven milk prices are now above $8.00/kgMS. Margins look healthy when the milk price is close to $10/kgMS, less so if prices ease.
The main takeaway. Have a disciplined approach to cost management and find efficiency gains where you can.
Volatility the new normal?: 2026 started with a bang. Presidents ousted, borders and independence tested, wars dragged on and deglobalisation continued. Global geopolitics has the world on tenterhooks. Volatility has eased from the peak, but remains elevated after decades of calm.
Unfortunately, agriculture often ends up as the bargaining chip in geopolitics. This can lead to swings in commodity prices, input costs, market access and supply chains.
Calm heads are essential. Focus on what you can control. Take risk off the table where possible and keep financial buffers in place. And it’s not all bad news. Volatility creates opportunity. Look at Australian and New Zealand beef enjoying a tariff advantage into the US just as the US herd sits at historic lows. Make the most of these opportunities.
Growing need for tailored solutions: traditional agri lenders generally do a good job with straightforward borrowers. Complexity is where the gaps appear and viable options for farmers fall away. That’s why we launched our tailored loan product late last year. These bespoke facilities are designed to help Australian and New Zealand farmers transition through change, whether that’s growth, seasonality or commodity pressure.
Our boots-on-the-ground, relationship approach is the same as how we view our long-term, fixed-rate lending. It starts with the customer and focuses on individual solutions to meet their unique needs. If you’d like to explore tailored options, please get in touch with the team.
Interest rate parity: our long-term product is funded from the US, so we’re often asked whether lower US rates mean cheaper borrowing here. The short answer is interest rate parity (IRP). In theory, interest rate differences are offset by movements in the exchange rates. Countries with higher interest rates tend to have currencies that depreciate on the forward curve. This is current situation between Australia and the US.
IRP isn’t perfect. Speculators look to find imbalances and use carry trades, borrowing in low rate currencies and investing in higher rate ones, betting that currencies won’t adjust fully. The strategy is high risk and not one for long-term lenders.
Globally, economies are pulling in different directions. In the US, softer inflation and a cooling labour market keep the door open for further cuts by the Fed. Politically, the cadence of Donald Trump’s activities has slowed as attention turns to the mid-term elections later in the year.
Australia’s economy is still running at full speed. Government spending hit a record 28.5% of GDP in 2025, adding fuel to the inflation fire. With government energy rebates rolling off, the RBA expects core inflation to rise to 4.2% by June and not return to target until 2028. A higher for longer cash rate is the message.
New Zealand’s economy is spluttering along. The RBNZ is trying to kick-start growth without fuelling already high inflation. The cash rate cut in November appears aggressive, given the market is pricing in hikes later this year.
The wildcard remains an offshore shock, reverberating locally.
Another theme to track is USD weakness. The USD is down ~10% over the past year. The AUD has broken above 70c for the first time in three years, and the NZD is up around 7% to 60c. Further Fed cuts and fiscal concerns could push the USD lower. This has implications for the competitiveness of Australian and New Zealand agricultural exports on global markets.
Quote of the update
“There are only nine meals between mankind and anarchy” – Alfred Henry Lewis, 1906.
We do not include specific commodity price or seasonal updates as this is not out expertise. If you would like to be added to the mailing list to receive the updates directly to your inbox, please fill in the form on the contact page and we will be in touch.
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