After a long period of ‘cheap money” that a of farmers and ranchers have gotten used to- the recent increases in borrowing costs have added to the list of inputs that have risen over the last couple of years. That’s the word from Don Close, Chief Research & Analytics Officer for Terrain.
Close talked about interest rates and their impact on beef cattle producers in a recent podcast for the American Angus Association- and Oklahoma Farm Report Senior Broadcaster Ron Hays features his comments in this edition of the Beef Buzz.
Close says that current interest rates are basically double that of just a couple of years ago- one of the reasons that there has been a huge push for the Federal Reserve to lower the basis, which may happen here in the short term.
But Close says that a couple of big picture influences will likely keep interest rates over the long haul closer to where they are today. He says “If you just look at the level of federal debt- if you look at the changing demographics of the baby boomers retiring out against the smaller Gen X- Gen Z workforce- those two factors alone will be pushing interest rates higher long term.”
Don Close says an excellent example of how current higher interest rates versus a few years ago are impacting decisions down on the farm and ranch- you need to look no further than the beef cow herd rebuilding issue.
The US Beef Cow herd is at its lowest level in decades- but there is limited interest by cattle producers to start holding back heifers to rebuild those herds. The higher cost of money is one of the roadblocks to seeing the herd rebuild begin. “If you take replacement cow prices today and let’s put them in the $2200 to $2600 head bracket- and if you are looking at that difference in interest rates from 4 to 5 percent rate and now talking 8 to 10 percent interest rate- it’s a big influence on that increased breakeven cost for that cow.”
With supplies of beef so tight- Close says the silver lining for the beef cattle business right now is that consumers continue to want to include beef in the meals they serve their families. “Even though prices are high- beef prices are very much in line with all other consumer products. So while there is sticker shock in going up to that case for that $22 ribeye- as an industry we worry about that price while consumers are saying ‘hey, everything costs me more money’ I think they are quicker to get over that shock than producers are.”
You can hear the full conversation that Miranda Reiman had with Don Close by clicking here.
The Beef Buzz is a regular feature heard on radio stations around the region on the Radio Oklahoma Ag Network and is a regular audio feature found on this website as well. Click on the LISTEN BAR at the top of the story for today’s show and check out our archives for older Beef Buzz shows covering the gamut of the beef cattle industry today.
