27 October 2022, US: Ahead of the Federal Reserve’s upcoming rate-setting meeting on November 1st, farmers are bracing for another expected rate hike increase of 75 basis points.
The Fed has continued to evaluate the current state of the economy and FBN® expects that at the next meeting we may see a possible fourth increase in less than 6 months.
Global markets have been impacted by the ongoing conflict in Eastern Europe and inflation is at a 40 year high. The Fed is scrambling to try to curb the situation from escalating out of control.
With inflation continuing to be an issue to global markets, it’s easy to compare what’s happening today with what happened in the early ‘80s. But while inflation soared in the early ‘80s, the market was affected by energy and food price shocks that started in the ‘70s. You will see below that while inflation is rising, we are not at the same levels as the 1970’s and 1980’s.
With continued interest rate hikes, it appears the risk of recession is not going away anytime soon and it’s a good time for farmers to evaluate their financing over the next 6 months.
[Learn more about how the economic shocks of 2022 are affecting farmland values in our recent FBN Research report. Unlock the free report today.]
What it means for farmers
As we’ve previously stated, Farmland real estate continues to be a good long-term investment but as the market continues to shift rapidly, now is the time to act.
According to TJ Wilson, Head of Sales for FBN® Finance, locking in your rate now will likely give you the best chance to secure a lower rate than waiting another six months.
“As the line of credit renewal season looms, don’t be surprised if you start to see rates in the double digits for operating lines. It has the potential to get tough. These rate increases will have an effect on the cash flow of operations year over year. You’re talking two and a half times the interest rate on some of these operating lines, if not three times, which makes a huge difference, especially given the price of inputs.”
Time is of the essence when it comes to securing your loan. While interest rates have more than doubled compared to October 2021, it may still be a good time to get a loan as the market is predicting these rates will continue to increase.
While some farmers will wait to see what happens, FBN’s Chief Economist Kevin McNew predicts that we’re in for a sustained period of high rates over the next 12 months so now is the time to take action if you’re thinking about financing for your operation.
Locking in a rate for the next 10-30 years may be a good option for some farmers to think about as rates continue to increase. With longer terms, there may be more certainty that they’ll continue to remain profitable. And if rates drop, you can refinance and prepay at a lower rate. Locking into a secure rate now is a smart investment for many. If you’re considering this option, check out our competitive land loan and operating loan rates which offer flexible term options.
This graph provides a visual of the predictions the Federal Open Market Committee (FOMC) made this year versus actuals. As stated above, there are predictions that these higher interest rates will present for at least the next year.
Looking forward
There is significant uncertainty as to where the market will be in 5 years, but as TJ Wilson points out, “We’re seeing a rise in the rates across the board. However, what we have seen historically, is when the yield curve starts to invert that may suggest rates will decrease in the future. We are starting to see those longer term rates and dip a little bit relative to shorter-term bonds. We’re seeing a lot of people go with five year adjustable rates right now for that exact reason. You know, anticipating that rates are going to be back down over the next couple years and they’re going to have an opportunity to refi on a longer term fixed and a lower rate.”
Solutions to grow your business
We aim to make financing for family farmers simple and affordable. Every farmer has a unique situation therefore we provide a variety of options that may be useful in managing or growing your operation:
Operating lines
Operating lines will help you fund your operation as you see fit. With inflation impacting everyone, capitalizing on FBN’s special offer of 0% interest* on inputs may help you maximize your profit potential. To qualify for this offer you need to both complete the closing process for the operating line and have a FBN Direct® minimum purchase of $45,000 by December 9, 2022. Apply today and get your approval decision instantly. Once you have your loan you can easily use it to pay for FBN inputs in our Direct store.
Land loans
Even though rates are high, the market is predicting they will rise even higher. Now may still be a good time to purchase that Ag land you have your eyes on. We want to help you finance your expansion, apply for a land loan now.
