Interest rates

Focus on interest rates, Ukrainian grain exports and railway strike concerns

In a recent update from the Federal Reserve Bank of Kansas City, “Steady growth in agricultural loans“, Nate Kauffman and Ty Kreitman indicates that, “Larger operating loans continued to drive agricultural lending activity. The volume of non-real estate agricultural loans increased by more than 10% for the third consecutive quarter. Operating loans accounted for almost all of the growth, driven by a 25% increase in the average height of these loans.

“Steady Growth in Agricultural Lending,” by Nate Kauffman and Ty Kreitman. Federal Reserve Bank of Kansas City (October 20, 2022).

Kauffman and Kreitman pointed out that “As lending grew, interest rates on agricultural loans rose sharply alongside rising benchmark rates. The rates applied to all types of agricultural loans were an average of 180 basis points more than the same period a year ago. The rapid rise has pushed rates for all types of loans to the highest level since 2019 and slightly above the 2015-2019 average.

“Steady Growth in Agricultural Lending,” by Nate Kauffman and Ty Kreitman. Federal Reserve Bank of Kansas City (October 20, 2022).

The Kansas City Fed update also noted that “While interest rates have edged up, borrowing costs have risen significantly from historic lows reached in 2021.

Based on current rates for an average operating note, the annual interest expense of a hypothetical mid-sized grain farm in the Midwest would total about $15 per acre or about 2 bushels of corn per acre at current prices.

The significant increase in financing costs pushed interest charges slightly above the recent historical average and could be more pronounced for operations with higher debt requirements.

“Steady Growth in Agricultural Lending,” by Nate Kauffman and Ty Kreitman. Federal Reserve Bank of Kansas City (October 20, 2022).

And yesterday, DTN Special Correspondent Elizabeth Williams reported that, “Despite rising interest rates and higher input costs, Midwest farmland market remains strongbut not as hardy as last fall.

Williams said that “So far, higher interest rates haven’t really been a problem for farmland sales, [Steve Bruere with People’s Company based in Clive, Iowa] said. “And it surprised me, but there’s a lot of money there. Incredibly high commodity prices outweighed the effect of rising interest rates. But in the future it could be a real challenge for people using leverage to buy land.

“[Nate Franzen, president of the ag banking division at First Dakota National Bank in Yankton, South Dakota] said that whether a farmer can lock in 5% interest or 6.5% to 7% interest is do not enter into the decision-making process.

“’Profitability is stable to strong. This has been the main motivation for the land market,” he said. ‘We continue to see new record sales across the board this fall.’”

“Farmland Values ​​Set Records,” by Elizabeth Williams. DTN-Progressive Farmer (November 7, 2022).

The DTN article added: “However, there is also a lot to support the farmland market. Begin, majority of land is held debt free. Farms expect high yields. A high crop price option for crop insurance will increase payouts for those in drought areas. Farmers have the opportunity to secure profitable prices for next year. This is why most farmland experts interviewed by DTN expect the pace of farmland price increases to plateau or slow to around 10% to 15% year-over-year in 2023.”

Somewhere else, Reuters writer Pavel Polityuk reported yesterday that “Ukraine exported nearly 14.3 million tonnes of grain so far in the 2022/23 season, down 30.7% from 20.6 million tonnes exported at the same stage of the previous seasonAgriculture Department data showed Monday.

“The government said Ukraine could harvest Between 50 million and 52 million tonnes of grain This yeardown from a record 86 million tons in 2021 due to loss of land to Russian forces and declining yields,” the Reuters article said.

Financial Times columnist Alan Beattie pointed out last week that “The Black Sea Initiative has been useful but not dramatic. Ukraine has doubled its grain exports but stay only at levels 50% lower than 2021. In the weeks following his announcement, wheat prices fell only about 5%, having already retraced almost all of the 50% rise between February and their peak in May.

And in a separate space Reuters story as of today, Polityuk reported that, “Ukraine Planting of 2022/23 winter cereals was 90% complete at 4.3 million hectares as of November 7, the Ministry of Agriculture announced on Tuesday.

Meanwhile, Dow Jones Writer Kirk Maltais reported yesterday that “An impending rail strikewhich could happen later this month without a new deal, is introducing concerns over soaring fertilizer prices, the Fertilizer Institute said in a letter addressed to the leaders of Congress. The group urged Congress to settle the dispute when it resumes Nov. 14. “A railroad strike would be devastating to fertilizer manufacturing and to the distribution of fertilizer to farmers,” TFI President and CEO Corey Rosenbusch said in a press release. With supply chain issues seen in the trucking and river freight segments, a rail shutdown would quickly take its toll on the economy, the group said. The latest assessment from research firm DTN shows fertilizer prices have skyrocketed reached earlier this year, but remains high.”