By Jamie Martin
Inflation in the broader U.S. economy is slowing, according to the Bureau of Labor Statistics. Yet the financial reality on many farms remains difficult. American Farm Bureau Federation economist Bernt Nelson explains that the squeeze on producers has lasted for years and intensified recently.
USDA price indexes show a clear pattern. For the past five years, crop producers have paid more for supplies, repairs, and other inputs than they have received from crop sales, when measured by the respective indexes. Since 2023, the gap between the “prices paid” and “prices received” indexes has grown wider. This means producers face higher costs without matching gains in revenue.
Lower commodity prices make the picture tougher. With smaller checks from grain and other crops, many operations depend more on operating lines and term loans. Because interest rates rose in recent years, the cost of that borrowing has increased. Nelson notes that some farms are now posting losses for a third consecutive year. More credit at higher rates translates into a larger slice of farm income going to interest, straining cash flow and equity positions.
The next focal point is the Federal Reserve’s September meeting. If the Fed leaves rates unchanged, it could help keep inflation from accelerating, but it also keeps borrowing costs high for producers planning inputs, land rent, equipment repairs, or refinancing. If the Fed lowers rates, credit would become less expensive, which could reduce the share of income consumed by interest. However, a rate cut also carries the risk that inflation could flare up again.
For readers, the lesson is that farm profitability hinges on several moving parts: input costs versus crop prices, access to credit, and the level of interest rates. Until those factors realign more favorably, producers will need careful cost control, strong marketing plans, and proactive conversations with lenders to navigate the months ahead.
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Categories: National