Prioritize your business finances before new year (Grain Marketing)
(Editor’s note: John Hall is a professional commodities analyst.)
I hope you had an enjoyable Thanksgiving with family and friends and were able to relax and put our current challenges to bed for a day. That said, the end of year challenges appear to be growing. Challenges you can control and some you cannot.
First: I strongly suggest you prioritize your business finances before the end of the year. Rising interest rates can suffocate any business.
Several analysts believe that the Federal Reserve will increase interest rates again at its December meeting. That said, I strongly suggest you study the article “Rising Interest Rates – What to Consider on Your Farm” released on Nov. 18, and found at farmdoc daily (12):175.
This article is based on real farms using data from the Illinois Farm business Management (FBFM). In 2021, the average total (farm and non-farm) debt on Illinois grain farms enrolled in FBFM was $925,437, this compares to $335,036 in 2002. Total debt on these Illinois grain farms has almost tripled in 20 years, primarily due to rising asset values.
The chart at the top shows these values as well as the make-up of the loan terms.
On the total debt in 2021, 39 percent was for short-term obligations. This includes operating loans, accounts payable, accrued interest on all loan terms, Commodity Credit Corporation loans, the current portion due in 12 months on intermediate and long-term loans, etc. that typically have one-year or less term. Another 11 percent was for intermediate term loans (includes vehicle loans, machinery loans, grain bins, etc.) that typically are from more than a year to seven-years. The final 50 percent is long-term obligations (includes farmland, homes, farm buildings, etc.) that have the longest term of greater than seven years.
These percentages have changed over time with short term loans being the largest percentage until 2018 when long-term loans became a larger portion of the total. Rising interest rates will affect short term loans quickly and are often the noose around the neck of any business.
Each farm will be impacted differently by rising interest rates.
Good record keeping, understanding debt structure and understanding your financial statements are essential to survival.
Seek professional help if you have questions. Managing your debt structure with rising interest costs is essential to survival. Keep control and stay ahead of cash flow challenges.
The next farming challenge maybe the pending rail strike.
To give you a heads up on items that could be affected I found the graphic at the bottom-right. Notice the possible impact on fertilizer costs. Is it time to lock in fertilizer for 2023?
On the Eastern shore of Maryland where we are in a corn-deficit area, this could also impact basis paid for local corn. It appears rail rates will increase in the near future when a settlement is reached.
I list the futures prices in this article. It is up to you to understand basis and call the local elevators to see what they are paying and understand that the difference is basis. Basis could be a big factor if this strike occurs.
On Nov. 21, December corn closed at $6.62 while March corn futures closed at $6.66. January beans closed at $14.37 while March beans closed at $14.42. July wheat futures closed at $8.32.
Historically short term traders leave the market on long holiday weekends. It is unknown at this writing if that will happen during this Thanksgiving.
At this writing our competitor, Brazil, is still seeing rains in their forecast. Argentina has not been as fortunate.
Their 10-day forecast does not suggest rain at this time.
Although their critical pollination time has not been reached yet, their planting appears to have gone well.
I do not think Brazil’s past presidential election is completely settled yet. Maybe they have been watching too much U.S. television in that we continue to discuss how past elections were stolen. I saw a tweet where farmers were protesting the election.
If you recall, the current president allowed expansion of ag lands and some said cutting the rain forests. The newly elected President was a past president.
That said, it appears that protesters do not want to return to how it was four years ago.
The Ukraine – Russia conflict continues to push market volatility to a new high. Shelling and destroying the Ukraine Nuclear power plant could be disastrous.
Did you see the “60 Minutes” segment on this? That segment indicated that damage to this facility would be far worse than the Chernobyl Accident of 1986. If shelling continues, panic buying may begin which could cause a rally.
The other issue that could affect grains, the stock market, and world inflation is the Covid shut down in China.
Since all news coming out of China has to be approved by the Chinese Communist Party, I do not know its truthfulness. I understand China completely shut down all movement during this current COVID outbreak. Workers could not go to work. Some sources suggest they are considering allowing workers to go back to work which could cause a quick spike in inflation worldwide.
(Note: I research material from Allendale, DTN, USDA, University Land Grants and other credible sources in compiling this article. It is not merely my opinion, but rather a consensus of experts in the trade. Looking for a marketing coach or someone to discuss strategies with? Contact me at firstname.lastname@example.org, or call 410-708-8781.)