Author: Steven Klose

Steven Klose, Tiffany Lashmet, and Jordan Shockley

Managing a farm or ranch is hard to say the very least.  Running your own business of any kind is difficult, but the nature of production agriculture is particularly challenging.  Long production cycles seem to magnify every decision, while the feedback loop between decision and outcome is delayed and unclear.  Operating in a competitive environment with little-to-no market power or influence, ag producers are price takers when it comes to purchasing inputs and price takers when it comes to selling commodities.  When it comes to the production process, you could say… weather takers.  Layer on top of this the pressure many producers feel of maintaining the family’s legacy, and it’s easy to get to the point of questioning “how much more can I take?”

It is not lost on us and our team of Southern Ag Today authors that offering management advice on Monday mornings is a little like a football fan offering quarterback advice from the comfort of the recliner.  We try to keep the tips, data, tools, and other information as relevant as possible, and one of our measuring sticks for topics is whether or not our producer audience actually has the time to do anything with the information.  Because we know your job is busy and overwhelming, we can confidently say you have no choice but to make time for today’s management topic.

Stress. It can weigh heavy, affecting your emotional, physical, and mental health. 

Among the endless list of things to manage, the stress of it all feels like another not-so-manageable thing you have to deal with. Too often, your physical and mental well-being take a back seat to everything else that must be done.  Remember, this is very much like the oxygen mask on the airplane.  Your health, both physical and mental, must be priority number one.  You take good care of your equipment and livestock.  Don’t ignore yourself. You are the most important asset on the farm/ranch.

Recently, I had a small leak in the seam on the side of my water heater. It was small. The problem wasn’t urgent. The drain pan & drain line were working as they should. And, of course I was busy.  For longer than I care to admit, each day/week held more important tasks than finding a plumber.  I’m sure you know how this ends.  There came a day when the water heater burst.  In that moment, I was managing the consequences of not managing my priorities.  Overwhelming stress and your health can be like that.  

We want to encourage you. Don’t ignore your health, especially if you have been putting off some nagging mental or physical issue.  There’s no better time than now to address it.  Of course, with the extra pressures of this time of year, if the mental stress has already pushed you too far, please check out some of the immediate mental health resources available.  Farm Hope and AgriStress Helpline are two programs available in Texas.  The 988 Suicide & Crisis Lifeline is available nationwide. To find local help in your state, check out the National Agricultural Law Center’s compilation of Stress & Mental Health resources here:  https://nationalaglawcenter.org/center-publications/family/mentalhealth/

As 2025 comes to a close, we wish you a Happy Holiday Season and the best of Health and Prosperity in 2026. 

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Klose, Steven, Tiffany Lashemt, and Jordan Shockley. “Management Priority #1.” Southern Ag Today 5(51.1). December 15, 2025. Permalink

A decade ago, our friends & colleagues, Extension Economists across the Southern region, developed a comprehensive collection of articles in Surviving the Farm Economy Downturn.  Well… what is old is new again.  The issues addressed in that publication are all too relevant today.  With stagnant crop prices and elevated costs of production, the resulting thin margins in crop production make for a challenging economic environment, to say the least. Side note: it was this early collaboration that also marked the beginning of Southern Ag Today.

Back in February, we highlighted 5 key farm management strategies from the collection (see  Managing Through Tough Times).  Today, we’re focusing on one particular article discussing the borrower/lender relationship.  While most annual operating loan renewals are in place for the crop year, it’s a good time to emphasize the idea that the borrower/lender relationship should be ongoing throughout the year.  Key takeaways from Working With Your Ag Lender in Good Times and Bad:

Partnership

The dynamics of the borrower/lender relationship are unique. Much more than a simple customer transaction, both parties are dependent and literally invested in the business of the other.  As such, both should consider it a partnership and expect to work together.

Full Disclosure/Trust

A good partnership needs to be built on trust.  Both parties should be open about their business as it affects the other.  Borrowers should disclose any changes to original plans and/or other transactions that affect repayment capacity.  Lenders should fully disclose their processes, standards, credit decisions, and timing, which could affect the borrower’s access to capital and business operations.  

Communication

Communication should be continual.  Don’t leave your credit discussion to that once a year loan renewal process.  Both sides should be willing to have ongoing discussions about progress, ideas, successes, and challenges.  Importantly, don’t just engage in communication because you have something to say.  Start a conversation for the sake of what you need to hear.  

Know your business

One of the things that makes a borrower a good partner is that they know and can explain their own business very well.  A manager who is on top of their game builds confidence in the lender.  The same is true for making a lender a good partner.  Borrowers want lenders who are well-versed in the operations of their credit institution.

Know your partner’s business.

We all remember a Grandmother telling us, “Mind your own business.”  At some point, she probably also told you to “put yourself in the other person’s shoes.”  In this case, it is the business of both partners to put themselves in the other’s shoes.  Each should take the time to understand how the other operates, their incentives, their profit structure, and how they make decisions.  Listen and learn from each other, and… always listen to your Grandmother.

Check out the full article (pg. 38), as well as the other articles in Surviving the Farm Economy Downturn.  

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Klose, Steven, and Jordan Shockley. “Working With Your Ag Lender.” Southern Ag Today 5(23.1). June 2, 2025. Permalink

No… not crop yields, we are talking about bond yields and rising interest rates.  As the Federal Reserve began battling inflation a little more than a year ago with interest rate hikes, Dr. Anderson and I discussed the progression of inflation, interest rates, and the nature of yield curves in a series of articles here on Southern Ag Today.   Over the course of the last 14 months, the Fed has incrementally pushed the Federal Discount Rate to 5.25% as of late May 2023, up from 0.25% in March 2022.  

In “Careful on the Curves” from July 13, 2022, we described yield curves for Treasury bills/notes.  Without repeating too much of that discussion, the yield curve is simply the structure of market interest rates or yields for instruments (treasury bills or corporate bonds) with varying maturity dates.  The shape of the yield curve can reveal a sense of what the market expects with regard to inflation and future economic conditions.  

Typically, yields increase as the maturity length of a financial instrument increases creating an upward sloping yield curve.  This fairly normal yield relationship reflects the expectation that investors require a higher yield to commit to longer-maturing investments but also suggests relative stability in other factors, such as inflation, economic growth, and market volatility.

Figure 1 shows the progression of the yield curve at the end of each quarter from September 2021 through May 2023.  In today’s market, we find the unusual (up-side-down) inverted yield curve where long-term yields are below short-term yields.  By September 2022, the curve between 3Yr and 10Yr maturities was inverted.  In December 2022, the inversion progressed to cover 6Mo to 10Yr maturities.  In the first quarter of 2023, longer-term rates declined relative to Q3 & Q4 of 2022.  Combined with continued upward pressure from the Fed on short-term rates, today we see the strongest downward sloping curve spanning 1Mo to 10Yr maturities.

There is a well-known quip that economists have predicted 10 of the last 5 recessions.  That line is particularly apt in a discussion of the yield curve.  An inverted yield curve has frequently been a precursor to recession – that’s why people take notice when it happens.  Unfortunately, there is no such thing as a sure thing when it comes to economic indicators; which is too bad because that would make economic forecasting a whole lot easier.  What the inverted yield curve tells us for certain is that the current economic situation is particularly uncertain.  As we write this, the market is trying to figure out how the government is going to navigate the imminent approach of the debt ceiling limit, whether the Fed will continue on their path of raising interest rates, and what OPEC plans to do with oil production.  And those are just a handful of the big-ticket items in play.  These significant market events will be taking place within – and being influenced by – a domestic and international political situation that is tense, to say the least.  So what is a decision maker to do with the inverted yield curve?  The old adage ‘hope for the best, prepare for the worst, comes to mind.  More concretely, that means preparing for two or three quarters of recession (e.g., by minimizing exposure to short-run interest rate risk and protecting equity).  While a recession is not a foregone conclusion, the probability is too high to prudently ignore.

Figure 1.  Treasury Yield by Maturity: Selected Daily Yields, 2021 to 2023

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Interest rates and inflation are closely linked phenomena.  As we discussed last week, expectations about inflation can provide insights to the direction of our overall economy.  The yield curve is another place where the market interest rates reveal a sense of what the market expects with regard to inflation and future economic conditions.

The yield curve is simply the structure of market interest rates for instruments (treasury bills or corporate bonds) with varying maturity dates.  Ordinarily, the yield curve is expected to slope upwards: that is, as maturity length on a financial instrument increases, the yield on that instrument increases as well, reflecting the normal expectation that investors have to receive a higher yield to commit to longer-maturing investments.  In addition to the higher real interest and risk premiums associated with longer-maturing investments, expectations about inflation are embedded in the relationship between time to maturity and yield. 

A steep yield curve (longer term rates are much higher than shorter term rates) can suggest the market expects higher inflation, economic growth, and/or volatility.  A flatter curve (little difference between short and long term rates) can signal lower inflation expectations and more stability.  Sometimes the yield curve inverts or slopes downward, with yields declining as maturity increases.  An inverted yield curve signals expectations of deflation and is a fairly reliable indicator of an impending recession.  

Figure 1 shows the yield curve for Treasury bills/notes with maturities from one month to 10 years for the last day of April 2022 compared yield curves from February 2020 and November 2007. 

Figure 1.  Treasury Yield by Maturity: Selected Daily Yields, 2007 to 2022

Clearly, in the recessionary environments of 2007 and 2020, the yield on long-maturity instruments was much lower relative to short-maturity instruments than would generally be expected.

Recent changes in the shape of the yield curve trace out the development of inflation expectations in the post pandemic period.  Figure 2 shows the daily yield curve in two-month intervals beginning with the last trading day in August 2021. 

Figure 2.  Treasury Yield by Maturity: Selected Daily Yields, 2021 to 2022

Not only have rates increased since last summer, but the slope of the yield curve has changed.  For maturities ranging from 1-month to 2-years, the curve has grown considerably more steep as of June 2022, likely indicating expecations of a continued struggle with inflation in the near term.  However, for maturities over the range of 1-year to 10-years, the curve has become flatter (compare October 2021 with June 2022).  The yield curve has not inverted as, for example, in 2007, which would suggest strong expectations of an imminent recession.  However, the longer term portion of the curve becoming flatter suggests an outlook of at least a slowdown in the economy that eventually gets inflation under control. 

Klose, Steven and John D. Anderson. “Careful on the Curves.” Southern Ag Today 2(29.3). July 13, 2022. Permalink

When referencing prices, nominal simply means the actual quoted price of a good at a given time.  Real is a concept used to remove the inflation effect on prices and compare the true value of a good in different time periods.  For example, the US average price of gasoline recently hit $5/gallon.  To truly understand how expensive today’s prices are, we would have to account for inflation and adjust past gas prices to be quoted in 2022 dollars.  The inflation adjustment makes it a “real” value comparison.

Real and Nominal also have a unique meaning when it comes to interest rates, and again inflation is a key component.  Nominal interest rates are the value you see quoted for a loan, a certificate of deposit, or yield on a bond.  The total nominal interest rate is made up of several components: the real interest rate, a risk premium, and expected inflation.  The real interest rate is the underlying cost of using someone else’s capital for a period of time.  The risk premium accounts for the uncertainty of the loan due to the credit worthiness of the borrower and/or how the loan is to be used.  Finally, expected inflation is added to account for the change in purchasing power between original loan proceeds and the loan repayment at a later date.  If, for example, a lender was expecting 5% inflation over the next year, the real interest rate was around 1.5%, and the risk premium was another 1% (the lender thinks the borrower is a trustworthy fellow), he would quote a nominal interest rate of 7.5%. 

Expected inflation is an important part of the greater economic picture today.  Peoples’ feelings and expectations about future inflation influence how they buy, sell, borrow, lend, and negotiate prices in the market place.  In no small part, expected inflation can create a self-fulfilling prophesy.  All of this brings us to an interesting bit of economic data that gives us a hint at today’s market expectations for inflation.  Nominal interest rate quotes are readily available, but the components as described above are not transpartent in those quotes; at best, they can be estimated.  One such estimate is known as the TIPS spread or the 5-Year Breakeven Inflation Rate.  TIPS refers to Treasury Inflation-Protected Securites which are adjusted to offset inflation.  The nominal yield for regular Treasury notes includes real interest rates, virtually no risk, and market expectations for inflation.  The yield on TIPS has the same components but excludes expected inflation, therefore the market’s expectation of inflation is revealed in the spread, or yield difference, between the two types of notes.  Figure 1 shows the TIPS spread on five-year Treasury notes over the past twenty years.  The TIPS spread quickly rose from near zero at the onset of the pandemic to a high of 3.5% in mid to late March.  The spread has since fallen back to around 2.75% as of last week.  The decline over the last three months coincides with the Fed’s more aggressive action to fight inflation.  It’s too early to tell if the Fed’s higher interest rates are slowing down inflation, but this early indication in the TIPS spread suggests market expectations are improving with regard to inflation.  If your glass if half full, it’s an encouraging step it the right direction.  If your glass is half empty, a decline in inflation expections also reflects a growing concern about a future recession.  In reality, both interpretations are relevant regardless of how much water is in your glass.    

Figure 1. Daily Yield Difference between Regular and Inflation-Protected 5-Year Treasury Notes

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Klose, Steven, and John D. Anderson. “Influential Expectations.” Southern Ag Today 2(28.3). July 6, 2022. Permalink