ACTIVATE24 Sponsor Terrain, a service of American AgCredit, shares with us today’s Ag-Safety News Article on Navigating Financial Waves; insight on Rising Interest Rates.
In the current economic tide, Terrain, a service of American AgCredit, provides invaluable insights into the impact of rising interest rates on farmers. Recently, Matt Clark, senior rural economy analyst at Terrain and former Federal Reserve Bank employee, shared his expertise with Brownfield Ag News.
The Federal Reserve’s Moves
After a brief pause, the Federal Reserve raised interest rates by a quarter percentage point in July, with projections hinting at another hike later this year. Matt Clark explores the repercussions of these moves on the agricultural community, offering key insights for farmers to safeguard their financial well-being.
Farm Lending Landscape
Matt emphasizes the significant impact on operating notes, with over 78% of non-real estate farm loans in Q2 2023 having variable rates. The Federal Reserve Bank of Kansas City reports the highest average rate since 2007. Matt notes that, coupled with other inflationary expenses, higher interest rates are tightening financial situations compared to previous years.
Thoughts for Farmers with Variable-Rate Notes
For farmers with variable-rate notes, Matt suggests a proactive approach:
1. Engage with your Farm Credit lender to analyze potential interest rate scenarios.
2. Develop an action plan, setting rate strategy thresholds aligned with your risk tolerance.
3. Similar to commodity pricing, decide when to lock in or float interest rates.
Considerations for Savers
On a positive note, Matt highlights opportunities for savers with cash on hand:
1. Evaluate your cash flow with your Farm Credit lender to ensure coverage for the year.
2. Balance safety and risk, considering the cost-benefit of savings products with your finance team.
Indicators to Watch
As the Fed contemplates further rate hikes, Matt identifies two critical indicators:
Labor Market: With a robust labor market, Matt notes a lower-than-expected unemployment rate, signaling potential continued tightening of monetary policy.
PCE (Personal Consumption Expenditures) Inflation Report: While recent PCE readings show some slowing in inflation, the Fed remains committed to its 2% target. The likelihood of an aggressive Fed on interest rates suggests cautious financial planning.
For a deeper understanding of Matt Clark’s insights, the full interview is available online (Terrain | Remaining Resilient Amid Rising Interest Rates (terrainag.com)). Stay informed with Terrain and AgSafe as we navigate the complexities of a changing financial landscape. Register today to gain exclusive access to reports from Terrain at agloan.com/terrain
Author: Athena Ushana
Date: 01/18/2024