The Gravel Road - Issue 2

Good morning. Welcome to the Gravel Road. Info-tainment for those who work hard to keep my belly full.

 Where are all the OREO farms? Do OREOS grow on trees?

Here's what we have this week:

• Fed raises interest rates

• Least wasteful bale feeders

• Buy a showpig

• $$ available for your Farmer's Market

INTEREST RATE HIKES

Interest rates hit a 15 year high this past week. The Federal Open Market Committee (FOMC) a.k.a. "The Fed" raised the overnight borrowing rate a half a percentage point to a target of 4.375%. To add insult to injury, all indications point to rates staying high through next year, with no plan to reduce rates until 2024.

How did we get here? Inflation levels have steadily increased to the highest level in more than 40 years. (but you already know that if you've bought anything in the past 12 months...) To combat that, officials believe raising rates will take money out of the economy, which will reduce demand and lower consumer prices.

So, the Fed has steadily been raising the Fed Funds Rate throughout 2022 as seen here:

*Add the December 14 rate change (+50 bps) to get the current target of 4.25% to 4.5%

What does this mean for the producer? In short, the cost of borrowing money is going up again. Banks make money off the "spread" on their loans. Which means they pay a rate for deposits and/or borrowing money from Central Banks and then turn around and lend that money to producers at a higher rate. The difference in rates is the "spread."

Oversimplified Example: Bank pays 4% to someone who deposits $100K in a CD with the Bank. Farmer needs $100K operating line of credit and asks to borrow that $$ from the Bank. Bank lends $100K to Farmer at 6% interest rate. Bank makes 2% "profit" on the $100K.

How should you respond? 

• Talk to your banker ASAP to let them know what your needs will be for 2023

• Crunch the numbers on large capital asset purchases using updated rates to determine ROI and breakevens

• Try to lock in fixed rates vs. variable rates. Predictability is key to managing cashflow

• Cut unnecessary expenses and boost revenues through creative marketing channels

• Throw all extra cash at high-interest rate debt... less debt = less stress

• Don't mortgage the farm to invest in crypto...

The Gravel Road has got your back. Reach out and we can help you walk through options.

'TIS THE [round bale] SEASON

Winter's here... trust me, I just looked out the window.

That means feeding cattle round bales of hay. This may come as a shock to some of you, but bales are actually used for more than the farmkid playground....

Alfalfa is at ~$250/ton and grass at ~$200/ton here in the midwest. Reducing waste of this increasingly expensive feed is key to profitability. So which round bale feeder is the right choice?

Here is the list ranked first to worst:

• 1. Cone Feeder 

  • Waste: 3.5%

  • Price: $1,200

  • $ Waste/ton: $7.87

  • Breakeven: 26.40 tons

• 2. Ring Feeder

  • Waste: 6.1%

  • Price: $750

  • $ Waste/ton: $13.75

  • Breakeven: 16.50 Tons

• 3. Trailer

  • Waste: 11.4%

  • Price (per bale): $1,375

  • $ Waste/ton: $25.65

  • Breakeven: 30.25 tons

• 4. Cradle

  • Waste: 14.6%

  • Price: $850

  • $ Waste/ton: $32.85

  • Breakeven: 18.70 Tons

• 5. Bale Processor on ground (not a feeder, but a common method)

  • Waste: 17.2%

  • Price: (Didn't allocate a price due to the tractor and processor being used for bedding/other tasks)

  • $ Waste/ton: 38.70

  • Breakeven: N/A

• 6. Rolling out on ground (also not a feeder)

  • Waste: 20.2%

  • Price: N/A

  • $ Waste/ton: 45.45

  • Breakeven: N/A

Keep an eye out for a future SPECIAL EDITION where we break down winter feeding economics for cattle, sheep, goats, horses, etc...

THIS WEEK'S EDITION IS BROUGHT TO YOU BY

Shakopee Creek Hampshires and Showpigs

Shakopee Creek is a family hobby operation focused on raising purebred Hampshire show prospects and breeding stock. They combine performance, production, and phenotype to deliver the ideal balanced showpigs. These pigs provide value to every swine production model while crushing competition at every level of the showring.

Update: For the first time ever, Shakopee Creek will also have Duroc show prospects available for Spring 2023.

You owe it to your kids to get them the best showpigs available... buy one from Shakopee Creek!

Click here to visit their Facebook page

SEEDS

• Can you compost during the winter? This handy article answers this frequent question.

  • Here's a fact sheet for composting for the home gardener

  • Here's a guideline for using animal manure in your compost

  • Here's some tips on purchasing compost

• Vertical Farming Strawberries: Winter Farm, in Canada, recently raised $46M to build and expand a vertical farm dedicated to growing strawberries indoors.

• Grants for Farmers Markets: The USDA has a federal grant program that funds the development and expansion of producer-to-consumer markets. In 2022, 55 grants spread across 28 states were funded to the tune of ~$13M. Tell your local coordinator to apply for 2023.

MEME OF THE WEEK

That's a wrap, folks.

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