Farmers prepare for harvest and planting of wheat as Fed raises rates
“To sow a crop that is worth $9.50 a bushel when planted in the ground is something I may have only experienced once in my career,” he said. While this is encouraging, the downside is that input prices are also significantly higher. “So our margins tend to be quite thin, but it’s good to see a nine ahead of the wheat market, not a four.”
It has started making some sales for the 2023 season. Although it’s a bit earlier than usual, it’s important not to take any chances. While he sold futures, he also bought out-of-the-money calls for about a penny a bushel to keep the top of the market open “in case something crazy happens in the world and the market would run away”.
It’s also only a few days away from starting to chop silage. Corn was still a bit immature when he spoke to DTN on Friday, but Arnusch said recent moisture should help speed it up. And with no frost on the horizon, he thinks there will be a good window to get the crop out.
“At Keenesburg, we are looking at fairly stable conditions for the next week,” said DTN AG meteorologist John Baranick. “There should be plenty of sunshine and temperatures generally in the upper 70s. There is potential for a few showers later next week with a small disturbance, but otherwise it looks like harvesters should have no problems. meteorological.”
With such a forecast, it’s at full speed. Arnusch and his team will harvest corn silage, plant wheat, and clean and condition malting barley seed to anticipate upcoming delivery dates.
“We’re going to juggle a lot of chainsaws at the same time,” he joked. “They’re not too bad at juggling as long as you grab them by the handle.”
He hasn’t had to juggle interest rates in a long time. Arnusch said when he graduated from college in the 1990s, it was not unusual to pay 9% interest on an operating note. “We almost got drunk on low interest rates here over the last decade” by borrowing operating funds at 3.5% to 4%, he said.
Rates are expected to climb to 4.5% next year and, when combined with input price inflation, “it’s just a double whammy.”
Arnusch is mentoring a few young farmers this year, including his son and niece. One of the things they talked about is cash management. He encourages them to be creative, to demand more from their input suppliers and to take advantage of certain programs that offer no interest and no payments until the fall.
He understands that many of these programs have a hidden cost, but they allow producers who don’t have such strong balance sheets to manage their cash flow. “And that’s incredibly critical right now. Cash will be king next year, especially if we’re in a very volatile market,” he said, adding that alternative financing, such as that offered by the input suppliers, was not available. when he started cultivating, but it would have made things much easier.
Another piece of advice he would give to young producers is to cultivate relationships with a variety of lenders. Even if you are very loyal to your main lender, having potential partners waiting in the wings has served him well, such as when he had the opportunity to buy a farm that had not been sell for 100 years. His bank wasn’t sure they could finance him. Luckily he had a relationship with another lender and he was able to move forward quickly.
“These are the types of opportunities that I think will exist here in the next three to five years as our economy begins to reset,” he said.
It is also essential to make grain sales and take profits from the table. “You’re never going to go broke on making a profit,” he said, adding that it’s not always necessary to reach the top 10% of the market, but rather to focus on selling in the upper third. “This, in an indirect way, will help us hedge against interest rate and inflation risks. Greed can be the enemy of many farmers. I myself have been guilty of this before, but I’ve learned over time that there’s a lot of value in certainty.”
LUKE GARRABRANT: JOHNSTOWN, OHIO
Fall is knocking in central Ohio. The leaves have an off-green hue. When DTN spoke with Garrabrant last Thursday, the high temperature was around 65 degrees, down from 80 the previous day. The overnight low was expected in the 1940s.
“It’s a bit cold compared to what it was,” he said. They’ve had a number of regular light showers, and Garrabrant said he’s not complaining…yet. “Now if this continues for another three weeks I’m going to get nervous, but so far it’s really helping things.”
Baranick said there was a lot of chaotic weather in the near-term forecast. In addition to a wet pattern for the weekend, “another blow of colder air will move into Monday night. This could bring more showers on Tuesday and push high temperatures into the upper 50s or below 60 for a few days.expected to stay in the 40s so no chance of frost for now.Temperature will then rise throughout the week and should remain drier thereafter.Early October looks favorable for harvest conditions with limited chance of rain the following week as well.
Garrabrant started soybean plantings late this year, so those late rains could benefit plants that are still filling the pods. His dad has a few fields ready to be picked, and if it hadn’t been for the wedding this weekend, they probably would have been spending time in the combine. He knows that some farmers in his areas probably started this weekend.
“It makes me a little nervous to see what’s going on,” he said.
The corn harvest still has a ways to go and temperatures in the 60s won’t help it dry out. Garrabrant estimates he is at least three weeks away from harvesting the corn.
“I don’t jump into it too much because I don’t have a dryer or closet space. The more natural drying I can get, the more it helps my checkbook,” he said.
As a young farmer who relies on an operating line of credit, Garrabrant struggles to better understand how interest rates will affect his checkbook. He contacted farmers he knows who lived through the 1980s or who learned a lot about that era from their parents.
He debates a few different ways to minimize the impact of interest rates on next year’s operating margin. One of them taps into the equity he has accumulated in his equipment. Garrabrant started acquiring equipment very early in his life when he had a manure spreading business.
“Long story short, I was forced out of the business and sold a lot of my equipment and had a good amount of capital in that equipment that I put right back into the farm. Luckily, a lot of my equipment is paid for,” he says. Although he feels like he’s a bit behind the times, he plans to take some of that equity out with a fixed-interest loan and convert it in operating money.
“I don’t know if it’s a good idea or a bad idea, but it’s something that’s on the table as to how I might combat this,” he said. “The end goal is to get that operating line of credit as low as possible.”
If he was just planning to maintain his acreage next year, he could have halved his operating line, but planning to double his acreage also means doubling his expenses.
“It’s one more thing to navigate and manage. In a perfect world, I would be operating with cash and what I paid in interest would be what I paid myself at the end of the year. I envy the day that I hope I can accomplish this because you feel like you’re working for the bank. It’s an overwhelming feeling sometimes.
While some people might argue that his recent gear swaps weren’t the best, he sees the value in newer gear that requires fewer repairs. Planting last spring reinforced the importance of being ready to plant when you have the chance.
“The goal is not to try to get equipment that takes care of where you are, it’s also to anticipate where you hope to be and to be able to grow without major changes,” he said. he declares.
Garrabrant says knowing your numbers is so crucial. Inflation and supply chain issues are not helping. He’s already booked his nitrogen fertilizer needs for 2023. He’s had some conversations about spring chemicals, but hasn’t finalized any deals yet. The next thing on the table is the seed.
“Right now it looks like we’re starting to have to plan for next year’s harvest much earlier than before. It’s just one more thing to add to the plate,” he said.
Katie Dehlinger can be reached at email@example.com
Follow her on Twitter at @KatieD_DTN
(c) Copyright 2022 DTN, LLC. All rights reserved.