Rising Costs and Interest Rates are Affecting Food Security and Production
It is no secret that costs and interest rates are rising in the United States. For farmers and ranchers, the costs are greater than ever for basic resources, making it more difficult to grow the food that ends up on our tables and the price we pay for it at the grocery store.
Leveraging on Farmers & Ranchers
Many people do not realize that farmers and ranchers can take out business loans just like any other business. When a farmer or rancher needs to take out a farm loan, they often turn to the USDA Farm Service Agency and other agencies. A farm loan allows farmers and ranchers to finance the materials they need to realize a profit at the end of the season. The downside to this is that it leaves their assets leveraged. These assets include but are not limited to: land, livestock, equipment, fertilizer, seed, and general start-up costs. Since they are leveraged, their profit does not go directly into their pockets leaving them with an even lower net profit.
On the bright side, these loans have helped thousands of farmers across the country. Farm loans have kept generational family farms running as well as getting new farms started. Without farm loans, many American farmers and ranchers would not be able to provide food to the common people. When looking at the price increases at the supermarket, remember what the farmers and ranchers who work to put it there have to spend. Furthermore, their gross profit is not entirely theirs because they often go into debt to get products out to the consumer.
In the fall of 2021, farmers could buy anhydrous ammonia (fertilizer) for $700 to $800 a ton. By the end of January 2022, those prices were up to $1497 per ton. These numbers have only continued to rise.
Fertilizer is not the only cost that is rising. The costs of cattle, land, equipment, fuel, and electricity are steadily rising as well. In 2020, the average cost of diesel was roughly $2.55 per gallon. In 2022, the average diesel cost is roughly $5.01 per gallon. For farmers and ranchers, fuel is a necessity. It is used to run tractors, trucks, and other important equipment used for farming.
Due to the high costs of inputs, many farmers and ranchers are left with no other option than to take out farm loans, leaving farmers and ranchers leveraged. This is of particular concern due to the prediction of rapid reductions in profit over the next 10 years for farmers.
The Kansas Farm Management Association conducted a study and reported that the average net profit for farms in 2021 was $310,000. In 2022, they predict that the average net income will be $291,000, which includes the rising costs to keep operations going.
Rising Interest Rates
Since many farmers and ranchers in the agriculture industry are leveraged, rising interest rates are impacting them. Many older farmers are reminded of the 1970s when interest rates reached double digits. Thankfully they are nowhere near that high in 2022. However, they are steadily rising. Effective as of September 1, 2022, interest rates are as high as 4.375% on select farm loans. Just three months ago in June 2022, a person could take out a Direct Farm Ownership loan from the USDA with an interest rate of 3.750%. In September of 2022, that same loan had an interest rate of 4.375%. Meaning that it is nearly up 1% in a matter of months. Where will it be in six months or a year from now?
A Possible Recession
Economists are paying attention to the high cost of living, high cost of production, rising interest rates, and are warning that these are the signs of a coming recession.
Right now, inflation is at the highest it has been in forty years. There has not been a major economic recession since 2008. Therefore, interest rates are raised to accommodate this change and prevent inflation from increasing. Interest rates are set by The Federal Reserve and are increased or decreased to lower inflation or boost the economy. Interest rates have been increasing since the 2020 pandemic to accommodate rising costs. The pandemic caused many production issues which raised prices leaving producers and the Federal Reserve to play catch up.
Effects of Inflation on Food Production & Security
Many farmers and ranchers were hit hard during the previous recession, and it took years to recover financially. This is because the demand for their products do not go down. Everyone needs to eat in order to survive. The demand may stay high but the prices to produce increase exponentially, making it difficult to produce high volumes and stay above water financially. It is on the shoulders of the agriculture industry to keep their heads above water while feeding the American people.
High production costs make it difficult for farmers to purchase the materials needed to function at a high production level. Farmers and ranchers need commodities such as tractors, water, seed, fertilizer, and fuel to run their operations. It is imperative for their businesses. Without ample and affordable supplies, agriculturalists cannot grow large quantities of common products. The math is simple, high production costs equals low production. Low production then leads to poor food security.
Food security can be equated to the ability to afford to keep nutritious food on the table for your family. Right now, that is an issue for many. If high-interest rates and costs continue to steadily rise, food security will continue to decrease. Leaving millions across the United States wondering how they will feed their children.
What Happens Next
We can take steps to help protect our food security by supporting farmers and ranchers. For those not in agriculture, the best thing to do is to stay informed. We urge you to keep an eye on legislation, regulations, and ordinances which will impact the livelihood of farmers and ranchers. The use of your voice as a citizen is crucial to keeping food on your shelves.
Our mission at Protect The Harvest is to inform, protect, and respond. The first step in taking action is to be informed about issues impacting our food security.
You can stay informed by subscribing to our newsletter and following us on social media.
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Information about Food Security HERE
Federal Reserve in 2017 – Farm Progress Article HERE
Interest Rates and InflationHERE
Interest Rates in 2022 – Farm Progress Article HERE
USDA Farm LoansHERE
Article – Fed Rate Hike Means Higher Costs for Famers HERE
Article about Fertilizer Prices HERE