By looking at data and trends both internally and externally, we can predict that although Americans will most likely see relief in the area of interest rates and some farm input costs, hired labor will continue to be difficult for producers to manage from a quantity and quality as well as financial perspective. Although the economy can be tough to predict, we’re breaking down what we see heading into the new year, and how it may impact you.
Production Costs
Production expenses like fertilizer and crop inputs are expected to continue to drop after peaking early on in the 2020 pandemic. Labor costs are predicted to be a challenge for farmers, as they have been in recent years along with replacement parts for equipment. Supply chain issues remain in many areas.
Finding domestic labor has been a sore spot for producers in recent years – and even longer for many farmers, prompting many to utilize the government program H2-A. While the program allows farm operators to bring nonimmigrant foreign workers into the United States to do seasonal work in agriculture and has helped to remedy issues of a worker shortage on farms, it unfortunately comes at a high price. According to government regulation, most recently, the minimum wage requirement for H2-A workers is $18.50 per hour in Michigan, more than ten dollars higher than the federal minimum wage of $7.25. This is a significant financial undertaking for farmers, forcing many to cut back on existing operations much less expand their labor dependent crop business. Many are evaluating other agriculture enterprises that reduce their need for hired labor.
Recession Rumors
Is a recession looming? It’s tough to make sense of all the conflicting headlines. Some economists say the threat of a recession is imminent, and others say high inflation is behind us, and we will hopefully stabilize economically in the next year. A slowdown in the general economy likely includes increased unemployment and reduced capital investment if inflation is to continue to moderate to the 2.0% FOMC target rate. The FOMC stated they would look to start reducing the Fed benchmark rate of interest once their models indicate inflation is moving to this target rate.
The Federal Reserve Open Market Committee most recent guidance continued to infer that interest rates may be cut in 2024 if inflation continues to moderate. This would provide some financial relief for the economy.
If the forecasted lower rate environment materializes there will be an opportunity for many of you that borrowed money from GreenStone over the past 2-3 years. GreenStone offers a conversion program that allows you to obtain a lower interest rate (if rates do in fact come down) for a small conversion fee without refinancing your loan and incurring larger closing costs such as appraisal, title insurance, etc. This may be an option to consider saving you valuable dollars via lower interest costs, if interest rates come down next year.
Planning Ahead
Looking forward to 2024, industry experts are forecasting a continuation of moderating commodity prices from the recent highs reached in 2021-2022. With this in mind, it continues to be critically important (best practice) that you take time to reduce your plan to writing, projecting commodity prices, yields and corresponding expenses. Taking steps to mitigate or limit cash flow volatility with a well thought out commodity marketing and crop insurance plan, pre-purchasing inputs when discounted, and taking advantage of interest rate repricing opportunities (as we have discussed above), all help to protect your financial position. Share your plan with your partner(s) and trusted advisors in your business to confirm or modify your plan before you hit the fields next year. Your team of experts at GreenStone is ready to assist with financial solutions to successfully execute your 2024 game plan and beyond.
This article was originally published in Michigan Farm News.
