Michael Swanson, the Chief Agricultural Economist with Wells Fargo, says cash is king in a time of high interest rates. “It gives farmers the opportunity to set their own course.” The Federal Reserve has raised benchmark interest rates four times in 2023, and it’s unclear when interest rates might start to move lower. Swanson also says as farmers plan for next year they should approach rising interest rates the same way as other variable operating costs.
“When fertilizer prices go up, we ask how we want to apply fertilizer. When seed prices change, we talk about seed changing. Interest rates are the same thing,” says Swanson. “It’s an input, it’s time and convenience, but farmers need to put pencil to paper and think about it.”
He says one way to avoid paying interest is selling some grain in the short-term and putting the cash from that sale in the bank. For instance, if they’re sitting on, say 10,000 bushels of corn and hoping the price of corn will go up, there’s an opportunity cost. He advises farmers to sell that corn today and take the price as it’s in front of them, and take that cash and pay off debts, which would reduce their interest expenses. Or, if they don’t have those debts, put the money in a CD, which many are paying in the 5% range right now.
Swanson says farmers should avoid speculation and make the best decision possible for their farming operation in 2024.
EDITOR’S TAKE:
This article demonstrates how flexible farmers/ranchers can be with their cash and liquid assets to avoid paying higher interest rates. Many farmers have a good amount of cash available from prior years of significant net farm income. They have been paying down outstanding debts, investing in new buildings and equipment, while the value of their primary asset - land - is going up by leaps and bounds. They are more than ready, willing and able to look at your inventory. If financing is preferred, we will soon be able to offer an excellent tool that will allow your dealership to accommodate their cash flows needs. Be on the watch for CADFI in the very near future. In the meantime, be sure to put your inventory on AgTruckTrader.com, as farmers/ranchers will be looking for that new truck now that harvest is over and winter/tax season is approaching!
