While the U.S. general economy has shown promise for 2018, the outlook for ag has not followed. In fact, as Tara Durbin, Senior Vice President of Agricultural Lending, Farm Credit Mid-America, points out the current economic climate has many farmers sharpening their pencils and determining what is critical capital.
“For 2018, as we know, the net farm cash income is projected to decline,” Durbin said. “As we think about that, along with recent reports from the Fed, based on a strengthening economy, they are looking to keep their position of continuing to raise interest rates.”
According to Durbin interest rates are expected to rise three times this year and two more the next year.
Durbin said now is the time to build that partnership with your lender.
“Really looking to your lender — to not just go to them for loans or leases or even crop insurance — but for advice and looking at them more as a partner in your operation,” Durbin said. “Working with our financial officers, working with producers on a more in-depth level so making sure our producers really understand what their break-even is, what their cost of production is, and then how to make decisions based off of that information.”
Durbin encourages farmers to look at certain changes that they might need to make to their variable cost structure or even their fixed cost structure of their operation. Are there pieces of equipment you don’t need you could sell or when you are getting ready to purchase is that a critical piece of capital for the operation? When it comes to looking at inputs, can you get a better price on seed, fertilizer, chemicals, etc.?
With a flattening yield curve, Durbin said those shorter-term interest rates are not going to be as appealing as looking at longer term rates. It’s time to lock in now.
“By looking to fix in your interest rates and get those locked in, it will give you some peace of mind as you make other choices for your operation in the future,” Durbin said.