From the Fed to the Farm: A Look at Farm Interest Rates

FOMC Meeting

By Brent Gloy and David Widmar

There has been widespread speculation about whether the Federal Reserve will raise interest rates at the upcoming Federal Open Market Committee (FOMC) meeting. Regardless of whether they decide to raise rates or not, it certainly been some time since rates have risen. In fact, the Fed Funds rate has been held near zero since late 2008 when the financial crisis was in full swing. One has to go back even further, 2006, to observe the last time that the Fed raised the target rate. A long time indeed.

The impact of low interest rates on agriculture has been debated quite widely. We have argued for some time that low long-term interest rates have played a supporting, if not key, role in the dramatic rise in farm real estate values and we’ll provide some perspective on longer term rates in a subsequent post. While the Fed’s decision won’t necessarily impact long-term rates, any decision to increase rates may impact the shorter term borrowing rates faced by farmers. In honor of the Fed’s big decision we decided to take a look at historic farm interest rates and think about how changes in interest rates might impact the farm sector.

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A Look at Corn and Soybean Seed Expense

seedby David A. Widmar

In a post from a year ago we took a look at how budgeted corn seed expenses had changed over time.  That post shed light on an interesting trend in corn seed expense and left us wondering how seed expenses would adjust in 2015. Mainly, we wondering if the record corn seed expense observed in 2014 would adjust lower with forecasted incomes for 2015.

In this week’s post are revisiting seed expense and take a look at corn and soybean seed expenses.

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Are Fixed Farm Expenses Coming Down Yet?

 

Fixed Expenses coming down. Photo by Johnny Klemme

by David A. Widmar

As production agriculture in the U.S. transitions out of the boom-era, producers face a margin squeeze resulting from declining output prices and stubbornly high input costs. In most cases, producers are facing 2015 and 2016 crop production budgets with negative returns.

We are often asked when things on the farm will improve. In an earlier post and paper, we outlined that in the long-run it is likely that a combination of three scenarios will take place to stabilize farm profitability: 1. variable costs moderate through eventual reduction in farmer demand for inputs 2. Fixed costs decline through reduction in fixed assets demands and values, and/or 3) output price may improve.

In this post, we take a look at fixed costs from the most recent data (2014) provided by the USDA and Kansas Farm Management Association (KFMA). Keep in mind that net farm incomes across the country were lower in 2014, but still well above average.

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