Ep. 92 The Best of Season 4

Main Topics Covered

1. Interest Rates in Agriculture: Historical trends and current perspectives on interest rates, emphasizing the perception of normalcy in rate environments.
2. Farm Equipment Technology: Challenges and opportunities in upgrading farm equipment, including cost analysis and technology adoption.
3. Farm Credit Advocacy: The role of the Farm Credit Council in advocating for farmers, legislative and regulatory engagement, and navigating economic uncertainties.

 

Transcription

Speaker 1 (00:08):Welcome to AgCredit Said It, your go-to podcast for insights on farm finance and maximizing your return on investment. Join us as we talk to industry leaders, financial experts, and area farmers, bringing you skillful advice and strategies to grow your farm's financial future ag credit setting where farm finance goes beyond the balance sheet.

Libby Wixtead (00:38):Welcome back to AgCredit Said It where we take you beyond the balance sheet. I am here with Matt, Phil, and obviously Libby. And so Matt or Phil, do you guys want to explain why you hear Pink Pony Club and bowling going on in the background?

Matt Adams (00:56):Well, sure. Libby, for all the listeners out there, we are actually having our first annual sales kickoff for Ag Credit for all of our account officers, lending managers, a lot of our sales team. So we're at kind of a team building event right now at a bowling alley, so playing some of Phil's favorite songs in the background for all of our listeners that can hear that. Guilty. Yeah,

Libby Wixtead (01:19):It's very unusual that all three of us are in the same place. So we wanted to record our season four recap of our favorite episodes. So Matt, what was your favorite episode of season four?

Matt Adams (01:31):Hey, thanks Libby. So one of the things we looked at this season was really that the return on investment, what it really means to your farm, and the episode I picked was early on in our season, episode 74, navigating interest rates and agriculture insights from one of our association specialists, Dan Ebert, and we're going to play a clip from that episode. Now,

Libby Wixtead (01:54):As a lender, we are always thinking about interest rates and that is the main topic when we have people come and talk to us. Can you walk us through some historical trends and in interest rates and how they've evolved over the past decade, particularly in ag?

Dan Ebert (02:13):Okay, let's go back to the timeframe just prior to the great recession of 2007, 2009, rates probably were at that time in a more normal range historically with long-term real estate lending rates in the seven to 8% range. We then saw an extended period of abnormally low rates in the four to 5% range as the nation and the world tried to recover from the impact of the recession rates then drifted up and down within a range that would still be relatively low, historically speaking in the 7% range. Then as we well know, COVID hit and we saw rates plummet and stay there for another round of rates that were essentially at all time lows, at least from a modern day perspective. Rates then began to increase to the seven to 8% range and even higher as the post COVID economic recovery played out amid high inflation rates that had not been seen since the 1980s.

(03:09):That leads us in a position where we feel like rates are unusually high, but perhaps they're really a little more normal than what we perceive them to be. We took a look at some month end data going back as far as the 1950s and using US treasuries as a benchmark one year, treasuries have averaged about 4.65% and 10 year treasuries have averaged roughly seven or 5.55%. That spread is 90 basis points. So if you look at this morning rates with one year treasuries at 4.3 and 10 year at 4.4% rates would appear to be still somewhat low and the long end of the yield curve needs to go higher to get back to the normal 90 basis point spread, which would mean 10 year yields at 5.2% or an increase of 80 basis points from where they are now. The other alternative to normalize would be for the one year to drift downward while the 10 year stays where it is until we reached the historical 90 basis point spread.

(04:10):For comparison purposes, the highest rates since the 1950s occurred in the 1980s when one in 10 year treasuries averaged 9.74 and 10.6% respectively. Contrast that with the averages since the start of 2020, which shows one in 10 year treasuries on average being 2.63 and 2.68%, notice that not only are the rates low, but the yield curve is very narrow, almost inverted whether we recognize it or not. We have been living in a very low rate environment. The 1950s were followed by a general uptrend for 30 years to the highs of the eighties and then a 30 to 40 year downtrending rate environment culminating with the remarkable lows post COVID. Your guess is as good as mine regarding what the next short or long-term trend might be. But I would tend to believe we will probably see a generally higher rate trend versus going back to the extreme lows we have grown accustomed to.

Libby Wixtead (05:10):Yeah, that's I think a lot of our farmers now and just, I guess in my generation we think these lower rates are normal and that's where when you guys have come back and told us that the rates that the seven to 8% is really where the normal is, and that's hard for us to really adjust to that. But just based off of what you said, we are in a normal environment. Our normal is the abnormal. Hey,

Matt Adams (05:41):I hope you guys got some good insight out of that clip. Phil, we're going to move to you. What was your highlight from the season this year?

Phil Young (05:47):Yeah, I felt like we had a lot of good episodes. The one that kind of sticks with me the most is actually one that I did, I interviewed, it was actually, it was episode 86 and I, Andy Drup, he's the director of Precision Ag at True Land Equipment. We had a great conversation just about the equipment market technology that's coming down the pike for farmers, how to analyze your equipment or pieces of equipment that you're maybe wanting to upgrade and when that timeline should be and maybe what the cost analysis should be to do that. So here's a little bit of a clip of that episode. Yeah, we're going to jump in here. Can you share some common challenges or opportunities farmers face when it comes to updating their farm equipment?

Andy Drerup (06:29):Everything's always opportunity. Yep, exactly. Especially when you're a ag equipment dealer. The biggest challenges that we face that farmers our customers face is it really revolves around the right time and to what extent. So the technology that we have now is just so widespread and customer base when it comes to where customers are at on the technology journey, it is hard to say this is a single challenge. Everybody faces this challenge, this is what we're going to run into because it depends where they're coming from. If they're coming from, they have auto track now and they have a planter that's 15 years old, it's got the original, what they call seed star, the original precision based planting system to move up to a brand new planter that's exact emerge the newest technology of the X exactor. It's a pretty big jump because we're talking about going from hydraulic drive to electric drive, from ground drive fertilizer with a wheel that's spinning back there and a piston pump to a hydraulically driven pump that's basically like a sprayer

Phil Young (07:40):System.

Andy Drerup (07:41):It is quite a big jump. So number one, there's a price jump that they have to make and that's pretty substantial because adding so much to it, there's a little bit of a technology learning jump to, and we try to combat that with the best we can. But we've always struggled with this question, what's the biggest challenge? Because we also bring that right back to what's the return. That's an age old question we've had with Precision Ag with technology and ag because I can remember back 15 years ago when we were doing a lot of auto track demos and everybody would say, well, what's my ROI? What's my return on this? We've never had an answer. What a return on investment for Autotrack is, we can tell you what the benefits are, but we can't really tell you what the return investment is. Now moving into planner controls, I'm in the planner mindset because it's spring. I'm thinking planners

(08:48):Planner, technology and or combine technology. What's the return? Well, we can see that a little bit planters, we can see that we get more accurate seed spacing. We get population control on curves. We get all this stuff, individual row shutoffs, we get all this stuff that'll save us money. Now what's the actual return? We'd have to really sit down and do some calculation and Deere's got some calculators and they're okay that they do show a benefit if you have the right circumstances. But will that technology be a complete return on that investment right away? No, it takes some time to do it. It takes a couple of years to do that. So for a customer that's got an older planner, going back to your question on common challenges, the biggest challenge is how far along on that journey are they and how far do they want to jump? If they're looking to make just a minor adjustment, we can look at that. We can do upgrades, we can do changes. If they're wanting to make a big swing, that's a big challenge. That's a big jump both in the operation of training and the financial aspect of making that purchase,

Phil Young (09:53):If

Andy Drerup (09:53):That makes sense.

Phil Young (09:54):And I think it's probably a little bit of helping the customer understand, hey, we have updated equipment. That doesn't mean that you get to sit back and do less. You have to do some work. There's some time investment to learn it. To be able to operate it basically is a good way to look at it. It will make your life easier, but it's going to take time to learn it. Alright, yeah, appreciated that episode and go back and listen to it again. It's episode 86 and Libby, you're up. What's your favorite episode this past season?

Libby Wixtead (10:21):So my favorite episode was episode 83 with Christy Cipher from the Farm Credit Council. She was just, when we interviewed, just newly elected as president and she just was explaining what Farm Credit Council does and how it advocates for farmers and everything that they do beyond that as well. So here is a clip from that episode. How does Farm Credit advocate for farmers in Washington dc?

Christy Seyfert (10:51):There are a variety of ways. We are very, very proud to be the voice of Farm Credit, making sure that we have a unified voice for farm credit. It is a great big country and a lot of diverse needs, but we have to sing from the same song

Libby Wixtead (11:09):Sheet.

Christy Seyfert (11:10):And so we represent farm credit institutions on Capitol Hill, so in the legislative space and we also do that in the regulatory space. So if you think USDA farm, credit administration, other agencies who we work with. But beyond that, beyond the legislative and regulatory engagement, we are also working closely with stakeholders, with our friends in agriculture to make sure that we're sharing information and collaborating when and where we can. And so there are many ways that we are working to bring that unified voice for farm credit in DC and beyond.

Libby Wixtead (11:56):Yeah, so I've talked to many different organizations and they've talked about how small ag is really when you get to the groups and the commodity groups and how everybody's working together and it seems like a lot of our missions are the same. And to have that unified voice within farm credit, all the farm credits and then having you guys on our behalf working with the national commodity groups is so helpful for us down here at the local level.

Christy Seyfert (12:21):Well, growing up in a small town was actually great training for me to work in Washington DC and especially in ag circles, you need to have a lot of friends. Relationships matter and you got to be careful who you share what with because it's going to come back.

Libby Wixtead (12:35):Absolutely, absolutely. Yes. And a small certainly does happen. How does Farm Credit help farmers navigate economic uncertainty? And with all of our interest rate fluctuations that we've had here in the last couple of years,

Christy Seyfert (12:50):We are your eyes and ears in Washington and I tell you we're hearing a lot and seeing a lot right now and there is a lot of uncertainty.

Libby Wixtead (12:58):And

Christy Seyfert (13:00):I want to say thank you to all the farmers out there and agribusinesses as well who support them because there are a lot of headwinds,

(13:08):There's a lot of uncertainty, but I really appreciate that they endure through that to make sure we have food absolutely being fuel and fiber, all of it. I think that we are working to make sure that we are advancing initiatives in Washington that will make credit more accessible. We are working to advance initiatives in Washington like the Farm Bill, to make sure that there is greater certainty, longer term certainty, because just one extension after the other of current farm policy that has its own challenges, there is a better way. And so we're working to make sure that we have the right relationships in place in DC to advance those initiatives and make a difference. And similarly, at USDA in our regulatory agencies, we are working to make sure that they understand one size doesn't fit all sometimes with respect to regulatory and other initiatives. And we want to make sure that they understand the complexities of what our farm credit institutions are working with and dealing with and what's in the best interest of our borrower members.

Libby Wixtead (14:24):Alright, well I hope you guys enjoyed listening to all our favorite clips from season four. We'll have season five coming soon and we'll focus on diversifying your operation and income streams and we'll talk to you guys soon.

Speaker 1 (14:46):Thank you for listening to AgCredit Said It. Be sure to subscribe in your favorite podcast app or join us through our website at AgCredit.net so you never miss an episode.