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Cash will be king as higher interest rates continue

The chief agricultural economist with Wells Fargo says cash is king in a time of high interest rates.

“It gives you the opportunity to set your own course.”

The Federal Reserve has raised benchmark interest rates four times in 2023 and it’s unclear when interest rates might start to move lower.

Michael Swanson says as farmers plan for next year they should approach rising interest rates the same way as other variable operating costs.

“When fertilizer prices go up, we ask how we want to apply fertilizer. When seed prices change, we talk about seed changing. Interest rates are the same thing,” says Swanson. “It’s an input, it’s time and convenience, but you need to put pencil to paper and think about it.”

He says one way to avoid paying interest is selling some grain in the short-term and putting the cash from that sale in the bank.

“If you’re sitting on, say 10,000 bushels of corn and you’re hoping the price of corn will go up, there’s an opportunity cost. If you were to sell that corn today and take the price as it’s in front of you, you could take that cash and pay off debts, which would reduce the interest expenses. Or if you don’t have those debts, you could put the money in a CD and a lot of the CDs are paying in the 5% range right now.”

Swanson says farmers should avoid speculation and make the best decision possible for their farming operation in 2024.