Farm Credit Council president addresses rising interest rates alarming producers during uncertain times
On March 18, Farm Credit Council President and CEO Todd Van Hoose discusses interest rates and inflation affecting the farm economy during an Agri-Pulse Newsmakers podcast.
The Federal Reserve approved the first interest rate hike in over three years on March 16. A 0.25 percentage point rate hike was approved and rates are expected to continue to rise at each of the committee’s remaining six meetings in 2022.
There is a projected two percent total increase by the end of the year. This increase brings financial concerns to many producers across the U.S.
Van Hoose reminds producers the farm economy is still in a stable position.
“Interest rates are going to go up,” he says, “But, producers are still in an era of historically low interest rates. Even if interest rates rise a whole percent, producers who have been around for a long time understand four to six percent in ag is still pretty affordable.”
Van Hoose reminds producers of the challenging times farmers and ranchers faced during the 1980s. He says inflation rates are nowhere near the 18 to 19 percent rates producers encountered during this time.
Van Hoose says the interest rate curve is relatively flat today because of competing interests.
“The Federal Reserve is pushing short-term interest rates up a bit, but the economy is keeping interest rates down on the long end,” he says. “The curve is starting to flatten, so as a result, if producers are still looking for 30-year money to buy a farm it’s pretty affordable right now.”
Van Hoose mentions farmers and ranchers won’t be seeing a huge impact on their operations with these interest rate rises.
“We are looking at six interest rate increases across 2022 which will probably total a movement between two and 3.5 percent,” he shares. “We aren’t expecting a huge impact on agriculture.”
Although Van Hoose isn’t extremely worried about the interest rates affecting producers, he does acknowledge the challenges producers are facing.
“It’s not just inflation,” he says. “It’s also availability of inputs. People coming into this growing season are seeing every possible cost rise including fuel, fertilizer and seed price.”
He notes the severity of shortages in products is going down, but products are increasingly more expensive so producers are concerned with inflation.
“Producers are worried they won’t be able to get the products they need,” Van Hoose says.
Net farm income
Van Hoose mentions net farm income has looked good the past two years. He does acknowledge a lot of this has been from government payments, especially from two years ago.
“If you look at the U.S. Department of Agriculture’s projections now, you’re seeing almost historically high net income projections this year with a much smaller percentage of this coming out of government payments,” he says. “The market returns this year are expected to be very good.”
Van Hoose notes there is still financial healing needing to be done, but each individual farm has been impacted differently.
“By and large, the farm economy is in really good shape this year,” he says. “There’re still supply chain issues and inflation worries out there.”
These issues are what make farmers such good managers, Van Hoose says.
“Managing farms is complex – today’s farmers are the most technologically sophisticated managers we’ve ever seen in ag,” he continues. “The ability for American farmers to manage this complex business they run has never been greater.”
Russian invasion impacts
Van Hoose encourages producers to trust in the Farm Credit System because it is extraordinarily strong.
“This is good news for ag because whenever we see shifts in the large economy, there’s turmoil,” he notes.
Van Hoose mentions the length of the Russian invasion of Ukraine could impact the health of the farm economy in the U.S.
“Ukraine and Russia are both big exporters of wheat, and ships aren’t leaving Ukraine right now,” he says.
In addition, Ukrainians may not be able to plant, grow and harvest a crop this year or the next, he adds.
“The length of this war will be very important in the economic health of the world in general,” Van Hoose continues. “The longer this war goes on, the more complexities will be introduced into the economy.”
“One advantage ag has is this incredibly strong Farm Credit System which is supposed to be there in good times and bad, underpinning the whole thing,” Van Hoose says. “We feel good about our position in being able to support farmers through turmoil.”
Van Hoose notes he has seen a large amount of interest from young producers in financing their farms.
“We are seeing a lot of entrance into ag,” he says. “In the last three years, Farm Credit has sent almost 250,000 loans to new farmers for a total of about $50 billion.”
Van Hoose notes he’s seeing a good amount of young folks who have full-time jobs elsewhere decide they want to start farming on the side, and they eventually make it their full-time job.
He shares this new interest in farming is giving hope to agriculture, even though producers are facing financial challenges.
“I am forever impressed by the optimism in ag,” Van Hoose says. “Next year will always be better.”
Kaitlyn Root is an editor for the Wyoming Livestock Roundup. Send comments on this article to email@example.com.