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Inflation coming? Here's how to get ready

Agriculture.com Staff 11/24/2009 @ 8:34am

Ag finance expert Dave Kohl of Virginia Tech believes that at some point the nation's federal debt levels will lead to inflation. Here's what you can do to get ready.

"First of all, you've got to look at your debt levels," Kohl says. "And you've got to look at interest expense as a percent of your gross income.

"One thing I like to do is run a financial scenario and see the bottom-line margin," he says. "Then look at the effect of an interest rate increase of 1%, 2%, on the bottom line.

"If you're extremely vulnerable, now is probably a time to lock in some of those interest rates if the package is appropriate," he says.

It's similar to locking in a profitable corn price with a futures hedge. And it can apply to any variable-rate loans you may have for livestock, machinery, or land.

"Watch the core inflation rate that's reported once a month," Kohl says. That's the Bureau of Labor Statistics consumer price index, excluding volatile energy and food prices.

Currently it's about1.5%. If it's above 2% or 2.5%, the Federal Reserve is likely to act to slow inflation by raising interest rates, he says.

"Also watch the prices of copper and gold," he advises. "Copper is used in a lot of manufacturing products and is a sign that people are building. Gold reflects uncertainty.

"I think your short-term interest rates will stay fairly low through the first of the year, unless we have a catastrophic event," he says.

"As you move into the next decade, there's going to be pressure to increase interest rates," he says. "Don't take it off the dashboard. That oil indicator light could come on at any time."

Ag finance expert Dave Kohl of Virginia Tech believes that at some point the nation's federal debt levels will lead to inflation. Here's what you can do to get ready.

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