Ep. 5 Measuring the Influence of Economic Indicators on Farm Income

00;00;06;27 – 00;00;08;15
Riley Smith
Tell me about Vegas. How was that?

00;00;08;19 – 00;00;26;09
Dr. Ryan Loy
Vegas was a blast. I mean, really is, for anybody who is, who knows what the sphere is, I’m definitely recommend it to anybody. It’s definitely worth the trip and worth the, the time to go. and, I had a blast. You know, I’ve been traveling a lot for work, and so it was nice to be able to fit a nice little personal trip in there.

00;00;26;09 – 00;00;30;24
Dr. Ryan Loy
A quick little two day trip. So we got to visit the sphere, listen to some good music. And it was a blast.

00;00;30;25 – 00;00;32;22
Riley Smith
And that was the Ungrateful Dead, right?

00;00;32;23 – 00;00;33;19
Dr. Ryan Loy
It was the Grateful Dead.

00;00;33;19 – 00;00;34;22
Riley Smith
The Grateful Dead. Yeah, yeah, yeah.

00;00;34;22 – 00;00;41;22
Dr. Ryan Loy
So the grateful Dead. I like that I want to start talking about it like that. I like it. Now, we did that. It was. It was a great time. So.

00;00;41;25 – 00;00;52;24
Riley Smith
Well good deal. All righty. Good morning. Good morning. Welcome to another episode of Morning Coffee and Ag Markets with your host Riley Smith. So today we got Dr. Loy in. How are you.

00;00;52;25 – 00;00;55;03
Dr. Ryan Loy
Doing? Well, Riley, how about yourself? Thank you for having me.

00;00;55;03 – 00;01;03;27
Riley Smith
I’m doing great. It’s been, been a couple weeks since we’ve had you. glad you’re here. Glad you’ve, you’ve just been out doing meetings and.

00;01;03;29 – 00;01;15;27
Dr. Ryan Loy
Oh, yes, several meetings this summer. Honestly, it’s been more meetings this summer than I was expecting, but it’s been good. So we’ve had some good collaboration across the region, good collaboration within the state. And so I definitely appreciate getting out anytime I can.

00;01;15;27 – 00;01;18;23
Riley Smith
Oh yeah. I don’t blame you when you come out of the office is a good time.

00;01;18;23 – 00;01;19;27
Dr. Ryan Loy
That’s right, that’s right.

00;01;19;27 – 00;01;41;16
Riley Smith
So anyway, so today’s topic we’re going to be talking about, or I should say Doctor Loy’s going to be talking about measuring the influence of economic indicators of on farm income. so we’re going to be talking about that today. if you want to just kind of brief us on that. Of course, before we get into this and we get at this meat and potatoes, as I like to say.

00;01;41;16 – 00;01;59;02
Dr. Ryan Loy
Yes, yes. So I know that that title, measuring the influence of economic indicator indicators on farm income, seems very broad. And that’s kind of how I want to treat it, because one thing I mentioned in the introductory podcast is I want to take these macroeconomic factors that you see in the news and make them make sense on so far.

00;01;59;02 – 00;02;06;15
Riley Smith
So when you say macro indicators, so are you are you specifically targeting like inputs or so what I.

00;02;06;20 – 00;02;13;12
Dr. Ryan Loy
Mean by macro I mean the general economy. And so the big like the even the global, even the country wide economy.

00;02;13;12 – 00;02;20;19
Riley Smith
So we’re looking at global trade or global, the just basically global economics. It does on the affect the farming right now.

00;02;20;19 – 00;02;45;25
Dr. Ryan Loy
That’s right. And so more specifically what I’m going to be talking about today are some inflation indicators that our Federal Reserve uses, which is basically the monetary policy tool of our government, which means they control the money supply. And so we’re going to look at some of those indicators that they, that they use to see how our economy is doing, what they determine how they determine interest rates, which is very important, a very big topic right now, especially with net farming, comes down across the board.

00;02;45;27 – 00;02;55;22
Dr. Ryan Loy
it’s important to understand where these interest rates are coming from and why they’re so expensive right now. And then we’re going to take a quick look at what it looks like on a per acre basis for a conventional soybean farm here.

00;02;55;24 – 00;03;15;06
Riley Smith
I know that I know that’s very important to farmers. Is that per acre. basically that per acre expense. With that it’s, what is it? So with this tie in to the farm bill, I’d like the, I guess not necessarily the State Farm bill, but the federal farm bill and farm payments?

00;03;15;09 – 00;03;34;18
Dr. Ryan Loy
Yes and no. and I would say it has an indirect effect. Meaning what I mean by the indirect effect is that they’re they’re not going to write farm policy based on these sorts of things, of what I’m talking about. However, the farm policy they write is going to be influenced by the general economy at the time. So, for example, right, like we have low commodity prices, right?

00;03;34;19 – 00;03;41;06
Dr. Ryan Loy
Well, that’s not the we don’t have low commodity prices just because we have them. It’s because of outside factors that are that are making this.

00;03;41;13 – 00;03;42;06
Riley Smith
The chain effect.

00;03;42;06 – 00;03;55;29
Dr. Ryan Loy
It’s the chain effect. And so that’s what I mean, where it’s saying that they’re not going to directly write it on this, but there’s going to be a chain effect along the way and say, hey, if our dollars are expensive, our commodity prices are low, then we need to farm support right. That’s going to be the idea. So, right.

00;03;56;00 – 00;04;12;04
Dr. Ryan Loy
Just kind of kicking this off, I want to briefly discuss, and again the newsletter will have all the graphs and everything to kind of make more sense of this. And if you’re listening to this, I would encourage you to pull up the newsletter, maybe follow along, or if you just prefer to read, reading the newsletter kind of get you the same thing as well.

00;04;12;04 – 00;04;30;21
Riley Smith
So so so guys, if you’re listening on Spotify or Apple Music, we’re trying to get a link into the Spotify, or into our Spotify or, Apple Music and, and our buzzsprout. So that way hopefully shares with it. So if you can, you can go to that portion and get into a link that would allow you to subscribe to the newsletter.

00;04;30;24 – 00;04;49;18
Riley Smith
we’re currently working on that. So y’all just, keep an eye out for that. And it’ll be this under the same name as the podcast and Morning Coffee and Ag Markets newsletter. And, everything that we talk about, you’ll be able to go to that, see what we’re talked about that day in, in more of a, summary format and, give you a better idea.

00;04;49;18 – 00;05;14;06
Riley Smith
And then at the end of it, you’ll be able to see what I talk about in the market report as far as the, futures, commodity prices, input prices, the Mississippi River level and the national weather seven day rain forecast or rainfall map. So you’ll be able to see all that, and so on the flip flop of that, what we’re getting to is, talking about our topic today.

00;05;14;06 – 00;05;17;21
Riley Smith
So, so we’ll just go straight to the questions that I’ve got for you.

00;05;17;21 – 00;05;18;25
Dr. Ryan Loy
Sounds great.

00;05;18;27 – 00;05;24;21
Riley Smith
so first question I have is, is how does the federal funds rate translate into farm level finance?

00;05;24;26 – 00;05;43;13
Dr. Ryan Loy
Well, that’s a great question really. And I think that’s something that, you know, us as economists, really we we our job is to make that make sense to the farmer. That’s our job. You know, we see these big headlines of the Fed’s changing interest rates or the interest rates are high. You know, those sorts of things. Everybody’s seen those headlines.

00;05;43;15 – 00;06;02;06
Dr. Ryan Loy
But what does that mean. You know the fed is not calling your bank your local bank and saying raise the rates. It’s not what happens. And so I’m going to just briefly discuss what the federal funds rate translate into farm, level finances. And so when you see the headlines it says, oh interest rates are changing. The Fed’s is raising interest rates again or they’re lowering interest rates.

00;06;02;06 – 00;06;16;15
Dr. Ryan Loy
What that means and what they’re referring to is something called the federal funds rate okay. So there’s going to be a few rates I talk about here. And again the graph makes this a make a lot more sense. So on the graph and what I’m showing here here in figure two on our newsletter we have the fed funds rate.

00;06;16;22 – 00;06;36;01
Dr. Ryan Loy
Which means that is the rate that the Federal Reserve sets for banks to borrow from each other overnight. Okay. So think about it. It’s an interest rate between banks, right. Banks charging an interest rate to borrow their money. The other banks are going to charge them to borrow their money. Two banks are required to have to. They have deposit requirements they have to meet.

00;06;36;09 – 00;06;58;14
Dr. Ryan Loy
So they must borrow that money overnight. So what’s the cost to actually get the money into the bank that they can then lend out to the farmer. So what ends up happening is and what we see is that the fed funds rate right now is sitting at a 5.33% effective rate. Okay. So the fed says we’re our target for the fed funds rate is anywhere between 5.25% in 5.5%.

00;06;58;14 – 00;07;21;10
Dr. Ryan Loy
And we’re sitting at five and a third percent right now. Now what does that mean? Well, I’m going to explain this by giving kind of, try to compare to where we were in 2020. So in 2020, our fed funds rate was zero, meaning that the cost to borrow money was very, very cheap between banks. And then therefore to the consumer, to the farmer, it’s going to be cheap, right?

00;07;21;16 – 00;07;38;06
Dr. Ryan Loy
So it spurs economic activity. It spurs growth, it spurs business loans, it spurs farm loans. It spurs all of that. Right. Because it’s cheaper. Well when our economy is growing too fast it could throw us into a recession. So they have to slow it on down. Right. The only way to slow it down is through the monetary policy tools.

00;07;38;14 – 00;07;55;12
Dr. Ryan Loy
And what they do is they raise that rate at the federal level that fed funds rate, making it more expensive for the banks to borrow from each other if it the banks if it’s more expensive for the banks to borrow from each other, then it’s more expensive to the farmer or to the consumer to get that money. And then that slows down.

00;07;55;12 – 00;07;58;16
Dr. Ryan Loy
In theory, that slows down the economic growth. Is that makes sense.

00;07;58;16 – 00;08;00;16
Riley Smith
Yeah. It’s kind of like robbing Peter to pay Paul.

00;08;00;16 – 00;08;22;08
Dr. Ryan Loy
That’s exactly right. And in a very interesting way. That’s exactly right. But the fed funds rate only influences the rest of the of the interest rates in the marketplace. So there’s something that’s known as the prime rate, which essentially sets the basis for the minimum. That’s that a lender is going to lend you money okay. And that usually sits about 3% higher than the fed funds rate.

00;08;22;08 – 00;08;39;07
Dr. Ryan Loy
Right. Banks have to make money. They don’t make money. Then they can’t stick around. Right. Everybody has to make money. So they have to make money on that spread between what they’re costing and what they’re going to lend it out for them. So the prime rate right now is sitting about 8.33%, 3% higher. Right. So think about that.

00;08;39;09 – 00;08;53;09
Dr. Ryan Loy
The base rate right now in the marketplace as in theory this is the base interest rate you could go get is eight and a third percent. That’s absurd. That’s extremely high. So let’s compare that.

00;08;53;09 – 00;09;01;07
Riley Smith
So wait a minute. So that prime rate that 8.3%. That’s for what the banks or what the consumer can go part or like.

00;09;01;07 – 00;09;01;23
Dr. Ryan Loy
So the way out.

00;09;01;25 – 00;09;03;19
Riley Smith
Interest only on a loan for a consumer.

00;09;03;20 – 00;09;19;20
Dr. Ryan Loy
So the way I would explain this is saying that that’s going to set the basis. So for somebody that’s you and I’s age who maybe doesn’t have a lot of credit history, or maybe the long standing relationships of creditors, that’s going to be our minimum. We’re not going to get anything below that as far as the prime rate is concerned right now, it’s a little bit different.

00;09;19;20 – 00;09;30;02
Dr. Ryan Loy
If you have a long standing relationship, you might get something lower than the prime rate they’re willing to work with you, but that prime rate sets that basis for what you’re going to be able to loan that money to get that money, lend it to you for.

00;09;30;02 – 00;09;53;00
Riley Smith
Okay, so, so so the my follow up question for that would be is that so it can you explain how that relates to the federal funds rate in the in the interest at all like commercial lenders. So absolutely. So I guess that’s kind of what we were talking about. That’s exactly what we’re saying as far as like the consumer, what you know, as, as, you know, one of us right before he’s going to go to the bank and the prime rate’s 8.3%.

00;09;53;00 – 00;10;10;27
Riley Smith
Well, if we can get a higher if we don’t have a higher credit, you know, level. Yes, then we’re only getting getting the base of 8.3%. We can’t get nothing any any lower unless you’re like, this is just an example. But like my dad or your dad, you know, somebody that’s that has that history has credit history.

00;10;10;27 – 00;10;20;11
Dr. Ryan Loy
And a lot with a and and more so even the credit history. But that relationship with the lender. Right. That’s very important. And I think we all know that how much the, the the personal the personal relationship.

00;10;20;14 – 00;10;20;22
Dr. Ryan Loy
with your banker.

00;10;20;27 – 00;10;23;10
Riley Smith
Yeah. Your relationship with your banker goes a long way.

00;10;23;12 – 00;10;35;21
Dr. Ryan Loy
That’s right. The relationship with the banker goes a long way in, especially in environments like this. And now when I say that it sets the base rate, and I don’t mean that you and I can go get an eight and third percent loan, because we’re probably not going to it’s going to be much higher than that.

00;10;35;21 – 00;10;41;09
Riley Smith
Yeah, it’d probably be I would, I would go walk out on a limb and say the assumption would probably be around 12 to 15%.

00;10;41;09 – 00;11;00;02
Dr. Ryan Loy
Right. And I’ve, I’ve heard of operating loans having 11% interest right now, which is from an economics perspective that is difficult to make money. And I’m going to talk about that. And so that’s one thing I want to say. So I’ve been going off about all these, you know, this alphabet soup of these rates and this and all of these complicated ideas.

00;11;00;02 – 00;11;18;17
Dr. Ryan Loy
But let’s, let’s pause and let’s, let’s boil this down. What does that mean to you on a per acre basis? Okay. So in the newsletter what we’re looking at today the Kansas City Fed they do a survey each quarter of all their ag lenders in their district. I’m saying hey what are you loaning out right now. What is your interest rate.

00;11;18;17 – 00;11;40;11
Dr. Ryan Loy
And they’ll report it. And then they report an average of that. And so right now in on average in that in Kansas City Fed’s district on an operating loan for about a year or less operating loan, you’re looking at about 8.83% on average. Now that’s on average. And I bring that up. And I say that several times because average is usually lower than what somebody is going to go get.

00;11;40;14 – 00;11;56;24
Dr. Ryan Loy
And that’s on average. So really you probably have a lot of those young folks that are driving that average up. And then you have a lot of the older folks who are driving that average down. But to even average out at 8.83% right now is is eye opening. That is a lot. That is a lot. And I’m going to show you why that’s a lot here.

00;11;56;24 – 00;12;19;10
Dr. Ryan Loy
So if you’re looking at the newsletter I put a quick table in there. And what I did is I went to our enterprise budgets at the University of Arkansas. I kind of just quickly estimated, did some just quick math on what our per acre expenses that you would need to take out an operating loan for. Okay, so I’ve got seed, fertilizer, pesticides, fuel, irrigation and equipment in here just for an example.

00;12;19;13 – 00;12;35;09
Dr. Ryan Loy
This isn’t an exhaustive list. This is just an example. Because what I’m trying to show is the magnitude of differences in the interest rates. So if you went and got an interest rate right now at 8.83%, okay, you’re going to be paying what’s known as an effective interest rate, because you’re probably going to pay it back less than.

00;12;35;15 – 00;12;37;21
Riley Smith
8.83 or 8.3.

00;12;37;26 – 00;12;45;24
Dr. Ryan Loy
8.83, which is the average is different from the prime rate. The prime rate’s 8.3%. The actual rate, the average, okay. The rate is.

00;12;45;24 – 00;12;47;08
Riley Smith
What I just wanted to clarify that.

00;12;47;09 – 00;13;03;12
Dr. Ryan Loy
So thank you for clarifying that. I’m sure that that could be confusing to the listeners. And so what we’re looking at there is you’re going to be paying an effective interest rate. So let’s say I’m assuming nine months. I’m assuming you’re paying back your operating loan after nine months saying of harvest. Right. So really you’re going to be paying an effective interest rate.

00;13;03;14 – 00;13;47;14
Dr. Ryan Loy
So based on this 8.83%, you’re really paying 6.62% in interest over that nine month time. Okay. Based on this soybean budget that I’m looking at here, you are paying $35 in per acre interest on this. If you went and got a loan today, on the average, does that make sense? Let’s compare that to quarter two of 2022, where the where the average rate for an operating loan was sitting at 5.75%, and the effective rate for that was 4.31%, you’re paying $23 in interest, so over $10 in interest just between a two year difference.

00;13;47;14 – 00;14;14;08
Dr. Ryan Loy
You’re paying more in interest. Now if you farm a thousand acres, that’s not a that’s not a pretty sight. Right. And if you farm even more than a thousand acres, that gets even uglier, right? When you farm any sort of acres, that’s ugly. But the bigger you get, that’s an ugly bill to have to pay. Right. And so when you’re thinking about this on what this fed funds rate the fed, the fed sets this rate for banks to borrow the the banks and set their rate from what they’re them, they’re going to loan to you.

00;14;14;14 – 00;14;31;24
Dr. Ryan Loy
And then that gets translated down to your farm finances. And you can see it just in a two year time span. You’ve gone up over $10 in interest expense alone. And this is just on an assumption, right, of me assuming that you just take out this operating loan. This is not even on your ownership. This is not even considering your family living expenses and how much more that is.

00;14;31;26 – 00;14;37;26
Dr. Ryan Loy
Right? And so just to show how important this is, and I think that’s really the story here.

00;14;37;29 – 00;15;05;20
Riley Smith
Oh, cool. The the mass of that is, is that the more you’ve more acres you have in production, even though we’re at a lower, per acre interest expense, at that actual rate of 8.83%, you’re going you’re that $100 is turning into more hundreds of thousands of dollars. When you’re talking about somebody that’s farming, that’s right over, you know, thousand acres, you know, talk about, you know, you talking about some of the guys that I know that are farming.

00;15;05;20 – 00;15;06;13
Riley Smith
15,000 to 25,000

00;15;06;13 – 00;15;06;28
Dr. Ryan Loy
that’s right.

00;15;06;28 – 00;15;22;13
Dr. Ryan Loy
Now think about that. $10 more an acre. So in 2022 and the, the, the part that’s really, you know, hard about it is that they probably had better crop prices in 2022 and not probably they definitely did have better crop prices in 2022. Yeah.

00;15;22;13 – 00;15;23;08
Riley Smith
And I’ve been.

00;15;23;10 – 00;15;31;23
Dr. Ryan Loy
Paying less on interest. And now you’re paying on average $10 more in interest and you’re not getting even 75% of your crop.

00;15;31;23 – 00;15;55;22
Riley Smith
Well, you gotta love that inflation because, I mean, we’re getting higher and higher interest rate. That’s right. And right now, like looking at just for, you know, giggles talking about we’re talking about prices looking at commodity prices like the futures right now. We’ll get you September corn for example. And you’ll hear this in my market report. It’s $3.83 right now on the September futures.

00;15;55;25 – 00;16;20;02
Riley Smith
And I believe the basis for on that right now is like $0.10. It’s the spot cash price is $3.97 I believe. Yeah. And I mean and and it’s unfortunate that that we’re you know commodity prices this this harvest season is going to be forecasted right now. It’s extremely low. That’s right. And you know it’s just that it kind of goes back to what we talked about last week.

00;16;20;02 – 00;16;44;11
Riley Smith
As far as we know. We were talking about the price indexes. at the 100%, you know, level in 2011. And we talked about me and Dr. Biram talked about, you know, the input prices comparative to the crop prices received in the past. And where we’re headed with that, now from the 2022 spike in fertilizer prices, we know we’re coming back down from that.

00;16;44;11 – 00;16;52;00
Riley Smith
And we’re and we’re getting closer to where the, prices received is going to meet the input price.

00;16;52;02 – 00;17;08;23
Dr. Ryan Loy
And what we’re seeing, too, is, is, is the unfortunate part is, is that as these inputs come down right now and as they stabilize, I hate to sit here and generalize and say they’re coming down. I would say it’s more of a stabilizing, than they are coming down, but they’re just more stable than they were before 20, you know, right around 2022.

00;17;08;23 – 00;17;09;16
Dr. Ryan Loy
Well.

00;17;09;19 – 00;17;23;16
Riley Smith
The input prices are coming down. I mean, you go but look in the input that graph we put together, that’s right for the macronutrients. Now that didn’t include like I know you have zinc sulfate on rice. Or you have more boron and you have these micronutrients.

00;17;23;19 – 00;17;40;19
Dr. Ryan Loy
But but the reason I struggle with saying, it’s going down is because that would imply that you’re in a better spot. However, the output prices are coming down at a higher rate right now. Right. So you’re still I mean, you’re just getting these farmers are getting price squeezed. And and this is really why I want to kind of show what goes on.

00;17;40;19 – 00;17;49;12
Dr. Ryan Loy
And so that way folks can take those big news headlines and say, how is that going to affect me on a per acre basis? What does that mean for me?

00;17;49;12 – 00;18;07;05
Riley Smith
And that’s for the guys. And this is specifically targeting the guys that don’t have like a special contract. If your, you know, I know there’s there’s producers out there that have a niche contract where they’re farming, you know, their crop for somebody else. I mean, commercial farming is and corporate farming is a big thing in our state.

00;18;07;07 – 00;18;44;21
Riley Smith
But if you’re if you’re going off of what you, you’re, you know, family owned ground, you farm for 5 or 6 generations and you know, your booking your corn or your booking your crop out, you know, certain parts of the year for, you know, depending on what the commodity is for a different delivery period. And then you save some over, for the, you know, the cash price in the harvest season, you know, looking at that input price still from and we talked about this, it’s it’s nine times higher than the the cash the cash price received for commodities.

00;18;44;22 – 00;19;01;18
Riley Smith
Right. So I mean that goes all in this all goes hand in hand when you talk about input to output ratios. So 1 to 1 to 9 to 1, that’s that’s what’s happened what’s happened in the last 20 years. And that’s the that’s the big thing that we’re, we’re talking about.

00;19;01;21 – 00;19;20;28
Dr. Ryan Loy
That’s right. And, and really, you know, the, the, the advice, you know, is to, if I, you know, the, the how do you wade this storm, how do you get through this storm? because as we all kind of know, we’re looking at an interest rate cut soon. And so if you’re on a variable rate loan, that might be good.

00;19;21;01 – 00;19;39;12
Dr. Ryan Loy
If you’re on a fixed loan, you know, refinance those sorts of things. Something to do. or, you know, there is the option of marketing loans, right? Don’t don’t market right at harvest. That’s going to be your lowest, lowest price. You can go get a marketing loan, pay off your operating note, borrow at a lower interest rate, and you can market that crop and actually make your money back a little bit.

00;19;39;16 – 00;19;45;21
Dr. Ryan Loy
Yeah, it’s going to be tough. But there are risk management strategies. And that may be something we talk about in the next few weeks.

00;19;45;21 – 00;19;53;04
Riley Smith
So I want to back up a few steps. We were talking about explain to me how does how does an effective interest rate work.

00;19;53;04 – 00;20;09;21
Dr. Ryan Loy
Absolutely. So kind of like I mentioned, they take that average and say this is what we’re loaning out, right? This is on average the amount that the the interest were loaning out on our operating loans right now in our district. Well, let’s say that you and I go take out an operating loan book. That interest rate is based on a year.

00;20;09;24 – 00;20;26;27
Dr. Ryan Loy
Okay. So if the interest rates based on a year, but we’re planning to pay it back before a year, it’s not going to compound over that year. The interest rate. So let’s take the assumption I always make is nine months. I say nine months from you getting the operating loan from you, paying off your you getting the operating loan and then paying it off is about nine months now.

00;20;26;27 – 00;20;31;29
Dr. Ryan Loy
That’s an assumption. Okay. Now there’s a lot of things that happen. People refinance, people roll over those sorts of things.

00;20;31;29 – 00;20;36;07
Riley Smith
So basically you’re talking about a what I would call a, farm year.

00;20;36;09 – 00;20;36;23
Dr. Ryan Loy
That’s right.

00;20;36;26 – 00;20;45;20
Riley Smith
That’s exactly right. I’m at the time from, from the time that you, you prep the plant to the time that you roll the combine in the shop because you’re done cutting.

00;20;45;21 – 00;21;06;07
Dr. Ryan Loy
That’s exactly right. And so I’m assuming that because that’s on the operating note side. And we’re assuming that farming year. But those interest rates are based on a calendar year. So what ends up happening is you have what’s known as effective interest rate based on that prevailing interest rate saying. So basically what you’re doing is you’re multiplying that interest rate by the fraction of the year that you’re actually going to take it out.

00;21;06;07 – 00;21;20;28
Dr. Ryan Loy
So in this case of I’m assuming nine months would be nine divided by 12. So the fraction nine months out of 12 months times that interest rate, it’s going to give me that effective interest rate. That’s what I’m going to use to calculate this per acre basis. And again in the table you can see these two rates next to each other.

00;21;20;28 – 00;21;25;28
Dr. Ryan Loy
And I think it makes a lot more sense. And I go through this calculation in our write up this week.

00;21;26;01 – 00;21;50;06
Riley Smith
Well yeah. And I can see where it makes sense because I mean if you talk about so so you’re talking about three months out of the year where farmers aren’t doing anything. Well, typically those are, you know, December, January, February is pretty much dead time. That’s when you have your winter meetings. You’re seed meetings, all that, you know, so you’re you’re taking an effective interest rate on the time that they’re in operation.

00;21;50;06 – 00;21;56;10
Dr. Ryan Loy
That’s right. That’s exactly right. Saying this is I’m I’m taking it effectively based on when you will need the cash.

00;21;56;10 – 00;21;57;08
Riley Smith
Right, right, right, right.

00;21;57;08 – 00;21;59;17
Dr. Ryan Loy
And then when you don’t need the cash, I’d be paying that interest rate.

00;21;59;17 – 00;22;07;22
Riley Smith
So, so and then it’s, the last question I have is, is, so what are your expectations for the September Fed meeting?

00;22;07;22 – 00;22;27;28
Dr. Ryan Loy
Absolutely. And so I didn’t get into this too much in our discussion here, just for time purposes, but I do discuss it in the newsletter, if you’d like to read on it more. Just how the federal market Federal Open Market Committee works, that is a part of the Federal Reserve. They’re the monetary policy arm for the Federal Reserve, meaning that they again, like I mentioned earlier, they control that that liquidity in the market, they control it.

00;22;27;28 – 00;22;43;00
Dr. Ryan Loy
And by controlling liquidity in the market, it all comes back to simple supply and demand. You know, you don’t need a PhD in economics to understand that less supply is something and there’s a demand for it. The price is going to go up. Right. So if they can control that supply of money, they’re gonna be able to manipulate the cost of it.

00;22;43;06 – 00;23;07;18
Dr. Ryan Loy
That makes sense. So what they do is last week, they actually met and they decided to keep rates steady. And they said that September rate cuts are on the table, which is a little bit less of a more of a pessimistic outlook than they originally had before July. But the, June jobs report came in a little bit elevated unemployment rates at a 4.3%, which is a signal to start cutting rates.

00;23;07;20 – 00;23;36;00
Dr. Ryan Loy
I don’t want to get in too much of the details here and confuse everybody. The point being here is that for September, expect some sort of rate cut, and if there isn’t a rate cut in September, it would be a shock to a lot of people in the market. if you’re ever curious on where, the market stands on what the Federal Reserve is going to do, the CME Group does something called the Fed Watch Tool, and they basically go out and look at the markets and say, who’s who’s betting on the fed, who’s betting on the fed to do this.

00;23;36;00 – 00;23;55;06
Dr. Ryan Loy
And they they lump sum it in. And so right now I looked yesterday there’s about a 75% chance that they’ll raise at 50 or basically half a percentage point or there is a 25% chance they’ll lower it about a quarter of a percentage point. And so again, I think it’ll be worth revisiting when that time comes at September.

00;23;55;06 – 00;23;57;27
Dr. Ryan Loy
And we can talk about what those changes mean on the farm income.

00;23;57;29 – 00;24;21;06
Riley Smith
Well good deal. Well, without. I believe that’s everything. So I want to thank you guys again for joining another episode this morning. Dr. Loy, thank you for joining us. And giving us an update on the, federal funds. Of course. And, enjoyed talking with you. guys, thank you again. hope you enjoyed your morning coffee and listening to us.

00;24;21;07 – 00;24;48;11
Riley Smith
Yeah, we’re like a couple of squirrels. following this, will be my market report. Thanks. Hey, guys. So here’s your market report for the week. September 24 Corn current prices at $3.83 a bushel a month ago prices at $4.11. The difference on that $0.28, year ago price was at $4.86, down dollar $1.03. September 24

00;24;48;11 – 00;25;23;22
Riley Smith
Rice is at $15.16 per cwt. Month agos price was at $14.56. It’s up $0.60, from that price a year agos price was at $15.89 per cwt. The difference on that $0.73. November 24 Soybeans $10.19 per bushel. Year ago, month ago, price was at $11.30 per bushel, down dollars $0.11. Year agos price was at $13.06 per bushel, down $2.87.

00;25;23;24 – 00;25;56;29
Riley Smith
July 25 Wheat is at $6.01 per bushel. month agos price is $6.45 per bushel. down $0.44 year ago $7.24 down $1.23 December 24. Cotton $0.68 per pound. Month agos price at $0.71, down $0.03 a year. Goes. Price $0.85, down $0.17 weekly U.S average for peanuts is at $524 per ton a month agos price 546 down $22 a year.

00;25;56;29 – 00;26;33;20
Riley Smith
agos price at 530, down $6. That’s your, futures, commodity prices. this week’s input prices Urea is at $495 per ton UAN, 32-0-0 is at $537.50 per ton, DAP is at $752.50 per ton. potash is at $460 per ton, AG limb is at $60 per ton, and your diesel price this week’s at $2.61 per gallon. your Mississippi River level, at Memphis, current levels at 3.6ft, year ago was at four feet.

00;26;33;22 – 00;26;59;22
Riley Smith
that’s your market report for the week. Want to thank you all again for listening to another episode of Morning Coffee and Ag Markets. we hope you enjoy the rest of your week, and we’ll catch you on the flip flop. Bye bye. Now.

00;26;59;24 – 00;27;02;13
Riley Smith

00;27;02;16 – 00;27;02;25
Riley Smith
I.