Friday, April 8, 2022
CapitalPress.com 11
Interest: ‘The important thing is for the Fed to rein in inflation’
Continued from Page 1
Inflation risk
American Farm Bureau Fed-
eration Chief Economist Roger
Cryan said the Federal Reserve’s
increases in short-term interest
rates will have an impact, “but a
much bigger risk is the Fed not
raising
interest
rates and letting
inflation get away
from us.”
Monetary pol-
icymakers lacked
sufficient
disci-
pline in the 1970s,
Roger
when “some of
Cryan
us can remember
farm loan rates at
20% interest,” he said.
“In the 1980s, the Federal
Reserve fixed” inflation by dramat-
ically raising interest rates, Cryan
said, “but it was very painful.”
“Now the important thing is for
the Fed to rein in inflation so that
we can maintain stable long-term
interest rates,” he said, “because
that’s what’s best for farmers and
ranchers and the whole economy.
… It’s a little medicine now to pre-
vent a much worse problem down
the road.”
The annual inflation rate was
7.9% this year through February.
That’s up from 1.23% in 2020.
The
money
supply — the
amount of dollars
in circulation in
the economy —
has jumped about
40% since March
2020, fueled by
federal coronavi-
Terrell
rus relief spend-
Sorensen
ing. That means
more money has been chasing
goods and services and driving up
prices.
Terrell Sorensen, University of
Idaho Power County Extension
educator, previously farmed and
worked as an ag lender. Operat-
ing loan rates in the early 1980s
included average rates of 12-14%
— and some up to 18%, he said.
“Interest went from being
a small operating cost over-
all, compared to other things, to
being a huge part of your oper-
ating expense,” Sorensen said.
“One year, I think I paid $40,000
in interest.”
Farmland values also dropped,
reducing the borrowing capacity
of farmers who used their land as
collateral.
“Luckily we haven’t got that
now,” Sorensen said. “Land
prices have been strong and our
interest has been low.”
Many banks use the Prime
Lending Rate as a base for loans.
Prime is set 3 points above the
federal funds rate. The recent
quarter-point boost in the fed-
eral funds rate pushed Prime to
3.5%, up from 3.25% one year
ago.
The current average farm
operating loan rates of 4.5-5%
Brad Carlson/Capital Press
Richard Durrant, right, and Reyes Rangel clean soft white wheat for seed March 4 at Big D Ranch south
of Meridian, Idaho.
who farms near Caldwell, Idaho.
But late last year, he scrapped that
plan.
“Knowing that producing a crop
takes a lot of capital, I wanted to
restructure, because it’s going to
take even more capital now,” Dorsey
said.
He took on long-term debt,
secured by property, to lock in a
low interest rate and “have the
cash available to continue farming,
because the margins stay the same
even though we are putting so much
more money into it,” he said.
“A young farmer doesn’t get
that chance,” Dorsey said. “And if
I’m much older, I’m not going to
do it.”
“I’m in a position to be able to
choose if I want to continue to pro-
duce food or I don’t,” he said. “I
didn’t take that choice away from
myself ... we’ll see how it turns out.”
Dorsey produces carrot seed,
beans, alfalfa hay, small grains and
cattle.
He has two sons, ages 23 and 20,
who want to farm. One reason for
restructuring “was to give the fol-
lowing generation a chance to pro-
duce food,” he said.
Miguel Villafana, 30, has worked
in agricultural lending and under-
writing. He started his own farm in
2019.
He has seen some farmers grow
more hesitant to take out long-term
debt, such as for 20-25 years, as they
get older.
Villafana has bought land over
the last couple of years as opportu-
nities arose, mostly to ensure more
future control over what he grows
and where.
“Even though prices are going
up, I am always a glass-half-full
person,” said Villafana, who also
bought some equipment. He grows
sugar beets, corn and wheat.
Passing costs on
Brad Carlson/Capital Press
Miguel Villafana remotely moves a sprinkler pivot to make room for
a fertilizer spreader at a winter wheat field near Greenleaf, Idaho,
March 1.
Brad Carlson/Capital Press
Matt Dorsey at his farm outside
Caldwell, Idaho.
It all adds up
Brad Carlson/Capital Press
Logan and Paul Skeen outside their farm shop near Nyssa, Ore.
from commercial lenders are up
0.25% from a year ago, in keep-
ing with the Fed’s action. Loan
rates vary based on borrower
profile and operation size.
Robison of Northwest Farm
Credit said higher long-term
interest rates “will make the cost
of buying farms, equipment, and
other assets that are typically
financed with fixed-rate loans
more costly over time as interest
expenses increase.
“However, fixed interest rates
are likely to remain well below
the levels seen in past business
cycles, and interest expense
remains a relatively small part of
the expenses paid by producers,”
he said.
Richard Durrant, 61, who farms
south of Meridian and is vice presi-
dent of the Idaho Farm Bureau Fed-
eration, said his net income is down
from two years ago despite higher
crop prices. Fertilizer and small-
grain seed prices have doubled.
The price of one herbicide nearly
quadrupled.
His family grows corn for grain
and silage, sweet corn, sugar beets,
alfalfa hay, peppermint, wheat and
dry beans. At their bonded and
licensed warehouse, they store and
market wheat, corn and beans for
local producers.
“You are seeing a 1 (point) or
better increase in the cost to bor-
row money, and that is compounded
with prices that are already inflated,”
Durrant said.
Some farmers saw higher interest
rates coming and planned ahead.
“I was going to be debt-free
before 50,” said Matt Dorsey, 49,
The rising costs of farming —
higher interest rates, fuel prices and
input expenses — leave farmers
frustrated.
“There are just too many peo-
ple who think we can grow this
stuff for nothing, and they’ve been
able to pass it (the costs) onto us,”
said Paul Skeen, 68, Logan’s father,
now in his 50th year of farming.
“And we’ve felt like whatever they
passed on, we’ve had to live with.”
They grow onions, sugar beets,
wheat and peas for seed, popcorn
seed and sweet corn seed. Occa-
sionally, they grow carrot seed and
garden seed beans.
Logan Skeen said that in 10
years of farming on his own, “I
haven’t tried to conquer the world
with expansion, but I’ve tried to
take advantage of good opportuni-
ties that have been presented.”
He farms with his father in addi-
tion to running his own farm —
where higher expenses and inter-
est rates will show up on his bottom
line.
“Even though I am down in
acres, my costs will be higher this
season,” Logan Skeen said.
Drought: ‘I look at it as
an environmental disaster’
Continued from Page 1
‘Weathering
the storm’
North Unit is one of
eight irrigation districts
that make up the Deschutes
Basin Board of Control. It
has the most junior water
rights on the Deschutes
River, meaning it is the first
to be shut off under Ore-
gon’s “first in time, first in
right” policy.
The district gets most
of its water from Wick-
iup Reservoir southeast of
Bend. However, the reser-
voir is currently at a record
low, measuring 55% of
capacity on April 1. That
is 5% less than a year
ago and 42% below aver-
age, according to the U.S.
Bureau of Reclamation.
Josh Bailey, NUID man-
ager, said he has heard from
growers who are planting
30-40% of their ground
this year. By consolidat-
ing water on fewer acres
and leaning on higher com-
modity prices, they hope to
make ends meet.
“Those who have debt
are having a hard time
weathering the storm,” Bai-
ley said. “The bottom line
is everybody is severely
affected by this drought.”
It is a similar story in
southwest Oregon, where
Wanda Derry, manager of
the Talent Irrigation Dis-
trict, said their three pri-
mary reservoirs — Hyatt,
Howard Prairie and Emi-
grant lakes — are storing a
combined 11% capacity, an
all-time low.
While TID has yet to
announce its allocation
for irrigators, Derry said
it could be even less than
it was in 2021, when there
was only enough to last five
weeks.
‘Trickle-down effect’
Marty
Richards,
a
Madras-area farmer and
chairman of the North Unit
board of directors, said he
is farming one-third of his
total acres this year, cutting
out less valuable rotational
crops such as alfalfa, wheat
and peppermint to con-
centrate water on his seed
crops.
The economic impact,
he said, ripples beyond the
farm to Main Street busi-
nesses and dealerships in
rural communities that
depend on agriculture.
“When agriculture is
in trouble, there’s a trick-
le-down effect,” Richards
said. “If it keeps going
much longer, there’s going
to be some people leav-
ing the area. There won’t
be the jobs here for them.
That’s probably our biggest
concern.”
What’s more, Rich-
ards said more fallow
land could lead to more
intense dust storms and
soil erosion, stripping
away organic material and
making the ground less
productive.
“I look at it as an envi-
ronmental disaster, in a
sense, not just economic,”
he said.
Water budgets needed
Curt Covington, senior
director of institutional
credit for AgAmerica, a
Florida-based farm lender,
said bankers are “keenly
aware” of the drought cri-
sis. He said more lenders
are requiring a “water bud-
get” as part of the borrow-
er’s overall financial plan.
“I think water budgets
are becoming as popular
as cash flow budgets any-
more out West,” Coving-
ton said.
The best advice he can
give, Covington said, is
for farmers to be prepared,
come up with a plan and
keep in touch with their
lenders.
“This
isn’t
some-
thing you want to sweep
under the carpet,” he said.
“There might have to be
some decisions made here
about how much we’re
able to finance, given what
your water needs will be.”
George Plaven/Capital Press
Upper Klamath Lake
Inflows: Project serves approximately 175,000 acres
Continued from Page 1
Meanwhile, the fate of
farmers and ranchers hangs
in the balance as they await
how much, if any, water will
be allocated to the Klamath
Project.
The
project
serves
approximately
175,000
acres of irrigated farmland
straddling Southern Oregon
and Northern California, as
well as delivering water to
two national wildlife ref-
uges that are important stops
for migratory birds along the
Pacific Flyway.
Last
year’s
shutoff
resulted in alarming scenes
across the basin as fields
turned into blowing dust,
canals were choked with
weeds and hundreds of
domestic wells failed, leav-
ing residents without the
ability to shower or flush
their toilets.
Paul Simmons, execu-
tive director of the Klamath
Water Users Association,
said concern is once again
running high in the agricul-
tural community.
“We can’t have a ‘last
year’ again,” Simmons said.
“We have to have a mean-
ingful supply of irrigation
water.”
The KWUA has pointed
to what it perceives as flaws
in the Bureau of Reclama-
tion’s interim operations
plan for Upper Klamath
Lake. Simmons described
it as a “Frankenstein’s mon-
ster” that simply does not
work in dry years.
“There is physically
enough water to irrigate
100% of the project this
year,” Simmons said. “Most
of it is going to go to other
purposes.”
Person said the Bureau of
Reclamation will continue
to use the interim operations
plan through 2022 before
re-initiating
consultation
with the National Marine
Fisheries Service and U.S.
Fish & Wildlife Service on a
new plan beginning in 2023,
when the removal of four
hydroelectric dams along
the lower Klamath River is
scheduled to begin.
“That is, of course, going
to change the river land-
scape,” he said.
In setting this year’s
Klamath Project alloca-
tion, Person said the bureau
is in discussions with agri-
cultural groups, counties,
tribal governments and
other regulatory agencies
to balance the competing
interests.
“We are constrained by
the numbers. We are con-
strained by the requirements
of the ESA. But within that
framework, we’re working
to make the best informed
decision we can,” he said.
“When you have a shortage
of water, it makes the allo-
cation process an incredible
challenge.”