Mixing Grain, Iron and Interest Rates: 2014 Is Coming

I mix iron and grain at the best of times.  If you don’t know what I mean it takes a lot of farm machinery to make those crops every year.  The quintessential rule is always to have the most efficient mix of farm machinery in order to get the maximized yield.  It just so happens that every few weeks I review all the farm machinery for Country Guide magazine.  So my computer is always lighting up with new pieces of farm machinery coming down the pipe.

It comes in handy when I speak about the grain markets across Ontario.  I had an Ontario grain merchandiser tell me recently, I had a great combination.  He was talking about my penchant for showing farm machinery at the start of my grains presentations.  He said when he used to go to farm shows everybody loved looking at the iron, but nobody like to talk to him about the markets, as they are so confusing.  I concur. So for every presentation I give, I project five minutes of slides of the farm equipment that I’ve reviewed recently.  Of course I have all kinds of stories about them, I finish in about 5 min. and then we talk about corn wheat and soybeans for the rest of the evening.  Needless to say, guys just love hearing about that new refrigerator you can order in your combine cab.

I find it more than interesting because I get more than one question about one particular piece of machinery, my land leveler.  It is a fairly big piece of farm equipment that is made mostly from angle iron but it is heavy.  They are the rage in southwestern Ontario as guys prepare stale seed beds the summer and fall before going into winter.  For instance each summer I plow my wheat ground then level it with my land leveler.  It only works on very flat ground.  So today, when I was speaking in Trenton Ontario, I got many questions about what that leveler was.

Of course the reason I got the questions was I was speaking in Eastern Ontario, a new frontier for cash crop operations, but also one where there is a lot of rolling land. So the land leveler that I use would not work in that country. There would be too much erosion.  Needless to say, farmers still love looking at the farm machinery as a segue into grains.

Having said that, I’m on my way this evening to the National Farm Machinery Show in Louisville Kentucky.   Yes, I’m reviewing farm equipment there and you will be able to read about it in a few weeks.  If you have never been to Louisville, it is a great event.  I call it the Super Bowl of agriculture, a place where I can learn a lot.  It is full of farmers from all over the United States and the world.  There is always a large contingent from Ontario at the show.

I’m sure the farm machinery at the show will be fabulous.  However, it will be very expensive, especially the combines.  You know that I love to review combines.  I am fascinated by how they work and all the nuances that are put into the modern ones to boost efficiency in.  I told the Quinte farmers today about our friend Ben Bernancke keeping interest rates low until 2014.  I told them in the context that it was a stimulus for agriculture.  Of course what that means is that many of us can get a loan to buy one of those combines.

The problem is eventually this low interest-rate environment will come to an end.  When I talk about the grains, I usually imply that eventually it will and when it ends we had better be able to service the debt that we took on during these good times.  Bank of Canada governor Mark Carney and finance Minister Jim Flaherty certainly must pulling their hair out thinking about the amount of money Canadians are borrowing.  That’s getting to be a long story now.  However, it’s the same on the farm, we’ve got to watch it.  Getting over capitalized in machinery might be something we read in history books today, but it surely could happen again.

It is not 2014 yet.  Just writing that sentence is a bit of science fiction.  In 2014 the US Federal Reserve has implied that the low interest rate policy will end and when it ends borrowing costs will go up.  It means that grain we are harvesting within that iron better be worth enough to pay for it.  Yes, I hate to spoil the party.  However, I love to show farm machinery in front of grains presentation, as it creates a smooth transition.

That transition two years down the road needs to be seamless.  At that time inflation might be rearing its ugly head and Federal Reserve banks might be raising interest rates to control it.  Yes, the printing presses have been running overtime in the United States.  It surely will be an interesting time.  So at least for the moment, let’s live it up.  Mixing iron and grain isn’t so bad.  I’m sure Louisville won’t disappoint.