Food problems in the USA
2022.11.22 12:49
Food problems in the USA
Budrigannews.com – Sarah Degn, a farmer from Montana, had big plans to buy a new storage bin or upgrade her planter with the substantial profits she made from her wheat and soybeans this year.
However, those plans have been put on hold. All that Degn needs to cultivate is more costly – and without precedent for her five-year profession, so is the loan fee on the transient obligation she and practically every other U.S. rancher depends upon to develop their harvests and raise their domesticated animals.
“We could have gotten more cash-flow this year, however we spent similarly however much we made,” said Degn, a fourth-age rancher in Sidney, Montana.Her operating note’s interest rate doubled this year and will increase in 2023.We cannot advance.”
The majority of farmers in the United States use variable-rate, short-term loans to pay for everything from seeds and fertilizer to livestock and machinery to spring planting.
After harvest, farmers pay back these loans with cash from their crops before starting over.To take advantage of suppliers’ early-pay discounts and to ensure that they won’t be caught short as global supplies of fertilizers and chemicals remain constrained, farmers frequently try to secure loans by the end of the year or early January.
According to data from the U.S. Department of Agriculture and the Kansas City Federal Reserve as well as interviews with two dozen farmers and bankers, producers are currently grappling with how to pay for that debt as interest rates rise ahead of the next planting season.
Some producers’ liquidity is being strained as a result of the rising cost of credit, leading them to consider cutting back on fertilizer and chemical use or planting fewer seeds in the coming spring.That, in turn, may result in lower crop yields and an increase in the price of food production.
All of this occurs at a time when crop prices and global demand are high.Grain and oilseed producers in the United States benefited this year when crop prices reached decade- or all-time highs, as grain exports from the Black Sea region were disrupted by the conflict in Ukraine.
However, the widespread drought in the United States hampered crop production on the Plains and increased the number of cattle killed in Texas.Farmland prices and cash rents have also increased, as have fuel and fertilizer costs.
Casey Seymour, who runs the Moving Iron podcast and operates a farm equipment dealership in Scottsbluff, Nebraska, stated, “[Farming] is a highly leveraged business, so about everything is financed.”There is a lot of money being paid in interest out there.”
According to USDA data, the total interest expense of the U.S. farm sector—also known as the cost of debt carried—is anticipated to reach $26.45 billion this year. This figure is the highest since 1990 when inflation is taken into account and is nearly 32% higher than it was last year.
According to data from the U.S. Census Bureau, that amount is equal to or greater than the amount incurred by other U.S. industries, such as the retail and pharmaceutical products sectors, whose interest expense has historically been comparable to or greater than that amount.
Ranchers are assuming greater advances because of greater expenses, in spite of the monetary weight it puts on their tasks.
According to data from the Kansas City Fed, the average size of bank loans for running a farm has increased to a level that is nearly five times higher than it has been in actual dollars.According to the data, these loans’ average interest rates are at their highest level since 2019.
The majority of loans for farm operations are usually variable rather than fixed.While variable-rate financing has lower interest rates than fixed-rate financing, borrowers run the risk of paying more if interest rates rise.
That is exactly what transpired when the Federal Reserve of the United States began raising short-term rates in an effort to stem rising inflation.
The short-term federal funds rate is now between 3.75 percent and 4%, up from 0 percent to 0.25 percent at the beginning of March, just before Fed policymakers started raising rates.Expansion is still high, nonetheless, and request serious areas of strength for is, Took care of policymakers have flagged they will keep raising rates until they see more extensive proof of their impact.
The crisis in agriculture is already upon us:The most recent data from the Kansas City Fed indicate that the average interest rate on all loans for farm operations is 4.93 percent.
There are more farmers paying more.On May 1, Ohio farmer Chris Gibbs applied for a $70,000 operating loan with a 3.3% variable interest rate from his local lender at the government-sponsored Farm Credit System.
He had to borrow more money to cover the costs of fertilizer and chemicals, even though Farm Credit charges increased each time the Fed raised rates.His interest rate right now is 7.35 percent, and he thinks it could reach 8 percent by the end of the year—a 142% increase in eight months.
Instead of storing the crop and selling it for potentially higher prices the following summer, Gibbs raced to pay off the majority of his loan by selling it off.He is attempting to pay for inputs with cash while machinery purchases are on hold.
“I have the most elevated gross incentive for my harvest in my set of experiences of cultivating,” said Gibbs, 64. “I would have to make difficult choices and consider what I could sell if I didn’t.”
Farmers in the United States take on more debt – MACHINERY WORRIES According to interviews with four dealers, the financial impact is being felt on equipment dealers’ lots as farmers avoid purchasing equipment on credit.
Dealers said that banks are tightening their underwriting standards, which can be a problem for smaller, newer farmers looking for capital to buy equipment.
A CNH Industrial (NYSE:) representative stated, “It’s easier to get financing when interest rates are cheap because [banks] are willing to take on more risk.”The name of the dealer representative was withheld.
Deere (NYSE:) and authorized dealers from the equipment manufacturerCo., AGCO, and CNH Industrial informed Reuters that the machinery manufacturers’ own financing rates have also more than doubled in the past six months.
According to sources in the industry, the interest rates on loans for farm machinery and equipment range from 7.65 percent at Deere to 7.8 percent at CNH Industrial, 8.14 percent at AGCO, and 8.25 percent at Ag Direct.According to data from the Kansas City Fed, the industry average is 5.86% nationwide.
Deere and AGCO stated in separate statements that the interest rates they offer are determined by the borrower’s creditworthiness, equipment type, and loan terms.According to CNH Industrial, larger machinery has lower interest rates than smaller machinery.
