Earlier this week, Reuters contributors Pj Huffstutter and Bianca Flowers reported, “Montana farmer Sarah Degn had big plans invest the healthy profits She collected soybeans and wheat for herself this year into the upgrade their flower box or the purchase of a new storage container.
“But these plans fell by the wayside. Everything Degn needs to farm is more expensive – and For the first time in her five-year career, that’s also the interest rate on her short-term debt They and almost every other US farmer rely on it to grow their crops and raise their livestock.
“‘We may have made more money this year, but we spent as much as we made,’ said Degn, a fourth-generation farmer in Sydney, Montana. The interest rate on their operating note has doubled this year and will be higher in 2023. ,We do not get any further.'”
Huffstutter and Flowers explained, “Most US farmers depend on it short-term, variable-rate loans They take out after the fall harvest and before spring planting to pay for everything from seeds and fertilizer to livestock and machinery.
“Farmers repay these post-harvest loans using cash from their crops before repeating the process. Farmers often try to secure credit through the end of the year or early January to take advantage of suppliers’ early payment rebates and ensure they don’t miss out as global supplies of fertilizers and chemicals remain tight.
“Now producers are wrestling with how to pay off that debt as interest rates rise toward the next planting seasonaccording to interviews with two dozen farmers and bankers, and data from the US Department of Agriculture and the Kansas City Federal Reserve.”
“These rising borrowing costs are taking a toll on some producers’ liquidity, prompting them to reduce their use of fertilizers or chemicals, or plant fewer seeds next spring. That, in turn, could reduce crop yields and push up the cost of producing that food,” the Reuters article said.
The Reuters article added: “The short-term federal funds rate is now in a 3.75% to 4% range, from a 0% to 0.25% range in early March, just before Fed policymakers began to raise interest rates. However, inflation is still high and demand is strong, and Fed policymakers have signaled they will keep raising rates until they see broader evidence of their impact.
“In agriculture, the pinch is already there: The average interest rate of all agricultural business loans is 4.93%according to the latest data from the Kansas City Fed.”
Huffstutter and Flowers also noted, “The financial collapse is being felt on equipment dealer properties, where farmers refrain from buying equipment on credit, according to interviews with four dealers.
“Traders said they are seeing banks tightening underwriting standardswhich can be a hurdle for newer and smaller farms looking for capital to purchase equipment.”
Meanwhile, Financial Times writers Colby Smith and Harriet Clarfelt reported Wednesday that “A’significant majority‘ backed by Federal Reserve officials Slowing pace of rate hikes soonalthough some have warned that monetary policy would do so must be tightened more than expected next yearaccording to a report on their last meeting.
“Minutes from the November meeting, at which the Fed hiked interest rates by 0.75 percentage points for the fourth straight day, officials hinted determined to press ahead with their campaign to combat elevated inflation.
“However, the account also signaled that officials are poised to hike rates smaller steps as they assess the economic impact of the most aggressive tightening campaign in decades.”