The Federal Reserve increased federal interest rates by a quarter of a percent this week. At the Professional Dairy Producers of Wisconsin Business Conference, Mike North of EverAG says the increase was unavoidable.
“Yeah, there’s no question. We have an inflation issue that needs to be addressed. We’ve now put together two successive months of record high year over year, inflation, that wasn’t paralleled since the 1980s, when obviously runaway inflation and consequently, much higher interest rates were the standard. And as we look at the broader economy, I think the other thing we have to realize, too, is that we need to see some things kind of brought back into balance.”
So, when will farmers and consumers see the impact? North says it’s already in play. “The market got way out in front of this and if you go back and you take a look at where rates are on the forward curve, the private market has already traded out in front of this move and has been there for the last six months. We’ve been trading against the three to five percent inflation rate, we’ve been ultimately preparing for a hike, and private markets have already moved rates back to pre-COVID levels.”
North says the bigger question will be how producers can get in front of price inflation. “The interest rate is one part of it, but I really do believe that we have to rebalance the supply chain to really stop that, because part of why we’re dealing with these prices isn’t just about inflation, it’s about the compromised state of the flow in our economy. We’ve got to get the flow of products through our system to be fluid again. The start and stop of product right now, the slowdown at ports, the lack of available trucks and drivers and lack of capacity at processing plants and manufacturing plants, that kind of stuff is having an impact on those prices, too.”
North expects the current environment to continue. “For the short term, yes. In markets like this, where there is a lot of question around the future availability of product, absolutely. Because as we talked about Ukraine it is possible that 25 to 30 percent of their ground will not get planted. They are a big supplier to the world market, and as long as we have risk in that particular market, the way we do, and we do, bottom line is, is that premium on the front end of this market is going to remain.”