Cronin: All aspects of farming affected by interest rates

Tregg Cronin says interest rates are permeating every aspect of farming. From input costs to financing operating lines to land prices and cash rents, the cost of money influences every decision the producer makes. One of those decisions, according to Cronin, is whether to store grain.

“Your money can actually go to work for you now, so you have to weigh that against putting grain in the bin and waiting for market upside potentially,” said Cronin, a market analyst and farmer from Gettysburg, South Dakota. “Looking at what goes into that storage calculation, it’s important if you have your own bins on-farm; it’s even more important if you have grain at the elevator, because if you’re tacking on commercial storage rates plus four, five, six, seven, eight percent interest rates, storing grain gets incredibly expensive.”

With the cost of money at its present level, Cronin, who spoke recently at South Dakota Soybean’s AgOutlook in Sioux Falls, told the South Dakota Soybean Network there are several considerations to take into account before a decision is made about holding onto the crop.

“You need to factor in ‘What’s my realistic upside in the futures, what’s my realistic upside in the basis,’” said Cronin, “and weigh that against ‘Well I can just throw this money in a money market and earn four or five percent. I don’t have to worry about the market going down. I don’t have to worry about being able to deliver my grain, I don’t have to worry about a hurricane hitting the gulf, something impacting basis negatively,’”

Cronin does not see a repeat of 1980s double-digit interest rates that put so many farmers on the ropes financially. He makes comparisons, however, between that period of high interest and current circumstances 40 years later.

“So five-and-a-half percent today on the asset prices we have today are worse, arguably, than they were when those rates were what they were. It’s not to say which one was worse, but today has its own unique challenges that maybe we don’t have to go to the 15 to 20 percent interest rates to feel the same pain because these asset values are so inflated right now,” said Cronin. “I don’t want to find out what double-digit borrowing rates feel like. I heard enough horror stories and I think it’s likely we’re not going to be able to see them anyway.”

More of Tregg Cronin’s conversation will be on an upcoming edition of The Soybean POD, available here.