How Interest Rate Hike Could Impact Agriculture, Land, Collateral

December 14, 2017 03:20 PM

At the last meeting of the Federal Reserve on Wednesday, the Fed voted to increase interest rates 0.25 percent to 1.5 percent. That number is expected to climb in 2018, but there’s no inkling of what it could be.

It’s no secret the ag economy has been struggling. Bob Utterback, president of Utterback Marketing, says when it comes to land values, they are inversely related to interest rates: when interest rates increase, land values feel the pressure.

He is concerned that if the President Trump’s tax reform passes and doesn’t have a way for farmers to write off interest rates on land, that could have a “detrimental impact.”

“It’s going to start limiting, if not flatten, if not correct, land growth prices for a period of time until grain prices rally,” he told AgDay host Clinton Griffiths.

In looking at a two-year window, Utterback things land values will contract.

“The nefarious implication of that is that is banks now have to require greater collateral—it’s now going to take more to cover what the existing debt is,” he said.

Hear why Utterback is urging farmers to talk to their banker today on AgDay above.

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Spell Check

Jordan, MN
12/18/2017 11:14 AM

  I think Jim is on the right track, farming is in big trouble here. If interest rates keep climbing, which they are expected to do according to the Fed, land and other asset prices are going to be under incredible pressure and will continue to fall. What can we do? One idea that I've been thinking about is having a flexible ethanol (RFS) policy. Set a reasonable ending stock for corn, say 2.0 Bln bushels, then vary the ethanol from say 10% up to 30%. When the crop yield is high, we up the ethanol blend to 30%, when the crop is average, it's set to 20%, poor, 10%. By varying the demand for corn, we could get a reasonable and consistent price, say $4.50/bu. Of course, we could go back to the 1980's and implement a supply-side policy like set-aside, but that comes across to the public like welfare.

Jim Weeber
Goshen, IN
12/15/2017 06:57 PM

  Everyone should of been in survival mode when commodity prices started falling. Letting manufacturers, industry cheerleaders and land grant universities lead you down the path to difficult if not disastrous scenarios threatens every facet of a farmer's life. While they get weekends off. They talk about 2% of us doing the heavy lifting farming now. It was 3% when I got out of Purdue in 1978. Expert ag gurus said at that time we should stay in debt 30% or so, farm fence row to fence row as, " we're going to feed the world". (Now the fence rows are gone many places). Politics would never let that happen on the scale a logical person would expect. Consequently the 80's destroyed families, farms and lives in grandiose fashion. Farm shows talk about what would have to happen to raise corn prices. There is too much corn, too much milk and too much of many things. Grain bins are still selling to hold the excess production. Lower input costs will lead to more output; meat, milk, eggs etc., more overproduction. A dairy farmers answer to problems has been milk more cows. Now with sexed semen and a lot of heifers coming to maturity there is likely to be a flush of milk in the spring that will be historically huge! Don't forget that todays dairy farms pushing to get every drop of milk possible are also major hamburger factories. Similar stories can be told about the other facets of our agricultural production. Do I sound angry? Damn right. I've seen the true family farm where 60-80 cows were milked and a couple mile down the road another family doing the same run right through the shredder. All in the name of financing high price tags on everything we use. These farms were excellent incubators for high achieving youth. A local factory told me they are running out of "farm boys" and it is a problem. Plenty of blame to go around. We, the families who do the work, have a lot to think about in the coming few years. Self preservation...

bad axe, MI
12/15/2017 08:01 PM

  I think were going see the farm economy's bottom blow out that's going to make the 80's look like a church picnic and very few of us see it coming. Two land sales in the last month around here only could garner $3,900.00 per acre bids a far cry from the 8 to 10 thousand we saw around here 2 years ago. The FED's used FHA to create all this false wealth in farm country . There is so many growers across this country that went and mortgage there land to 3 and 4 grand an acre to buy everything up in the neighborhood , now there on the verge of being underwater with land values plunging . Bob Utterback knows the farmer doomed. He just won't say it . You can't compete with new JD and CIH combines rolling in Russia on $300.00 dollar an acre land.


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