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Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Alloway.
And I'm Joe Wisenthal.
Joe, there's a running joke on this podcast. There's a few of them, but one of the running jokes is farmers are always complaining about something.
They are they are always complaining about something, But you know what, it's okay. We need to eat to live. Food is pretty important for sort of human civilization, flourishing, et cetera. So if the worst is that they complain a little bit about how Musiah they're getting for their corn or whatever, I'm okay with that.
Well, to be fair, we also know that one of the defining news stories of the past few decades has been the hollowing out of America's small scale agricultural industry and farmers. So if you are an independent farmer, there is a lot to complain about.
To be fair, totally, and again with the caveat that it's always tough. Very recently, a couple of weeks ago, we did the episode about surging fertilizer prices. In that conversation, you know, we talked about the fertilizer to corn chart, and it is not a good ratio. Now, you know, there are many ways to represent an industry, but if you just wanted one, that's a very clean way. Fertilizer
prices way up. Obviously, given the situation in Iran, corn price is not nearly anywhere close to their all time highs or anything like that. So just by at least one measure, that is a clear squeeze. Right.
So we recorded our fertilizer episode, I guess a week or two ago at this point. I think at the time when we were discussing it, the possibility that the closure of the Strait of Hormuz could actually push up fertilizer prices, a lot of people weren't necessarily that aware of this dynamic. Since then, it has gone very mainstream, and you have officials in the US government talking about sourcing alternative fertilizer from Morocco or Venezuela to try to
offset some of the pain. There is some slightly good news if you are a farmer, which is that we are seeing grain prices start to go up. But to your point, again, it is not at all clear that it's going to be enough to offset higher input costs like fertilizer or oil totally.
Well, anyway, you know, we did that episode several weeks ago about what it was like to do agribusiness in tough markets like particularly Venezuela, Ukraine and so forth. And I recall at the very end of that conversation, and this was obviously before the fertilizer spike. Yeap, our guests who we were talking to said we got a good history lesson about Venezuela and Ukraine, but they also said, at some point we should talk about the pain that American farmers are in right now and so then, so
that was already the condition. There was sort of this tease. Things weren't great. Then you get the fertilizer spike. So it's like, it seems like a good time to have that conversay.
Yeah, we were going to wait a little bit to do that episode, but it turns out that now is actually the perfect time for the perfect guests. Once again, we are going to be speaking with Jeff Kazen and Mike Rolfson. They are the founders of Agris Academy. So Jeff and Mike, thank you so much for coming back on Odd Blots. Really appreciate it. First question. You know, when we spoke to you last time, we were very focused on Venezuela and Ukraine and your experience working at
Cargil earlier. But can you just tell us what Agress Academy actually does. Jeff, why don't we start with you?
Yeah, thanks for having us on again. So, Agress Academy is not a broker and advisory business. Mike and I each have thirty years of in depth either commodity or involvement in the egg industry, and we decided we wanted to start an education and consulting business, so we educate. We have a producer practice where we educate producers on one level how to manage risk and understand the future side of risk, and on another level how to merchandise
like professional grain operation. Because a lot of farms have become effectively elevator managers, there was a gap and still is a tremendous knowledge gap en farmers around the world. We generally have North American students and clients. And then we also have a commercial business where we work with businesses that work with various all kinds of commodities, where we help them understand the risk walk through how they're consolidating that risk, how they're managing that risk in best
practice form in a boutique consulting type of arrangement. So we have both practices and a super rewarding business. Kind of a second career for both of us as we kicked it off and we wanted to be in a very differentiated part of the market that wasn't well well covered, and that's been a fantastic We've been in business now for four years and grow very very steadily each year.
Mike, just in case anyone hadn't listened to the episode with the two of you before, and just to sort of add on to it, Jeffer saying, just give us, like the quick your background, your bio, and the long experience that you have had in that a space.
Yeah, about two thirds of my career was spent in Cargill doing an array of commercial things, mostly in risk management, trading, global supply chain type of things. I got at the end there after a stint that Jeff and I both did through their emerger and acquisition and corporate strategy group.
I pivoted to ventures, got hooked on that, and I left Cargole in two thousand and nine, But since then I've been in some sort of an ag tech oriented, venture capital oriented type thing and nag across the array
of topics sub segments with an egg. Jeff and I have kicked this off what about three and a half four years ago now, And one thing I think that helps this conversation today is sure we've probably touched through students or through more direct relationships, almost four hundred farms now in the US and Canada, so we definitely know the vagaries of where this input situation falls in, who's positioned and well or otherwise, and what's really going on when it hits the farm gate.
Yeah.
So on that note, why don't you tell us where we are in the sort of agricultural calendar at the moment, Because one of the things we learned from our previous fertilizer episode is that fertilizer prices are going up kind of right when people need it most, which is the spring planting season. But my understanding is some people would be buying spot fertilizer right now, some people have already
got their supplies secured. And I'm also very curious about where we stand in terms of planting decisions, whether people are still making those right now, or whether or not people have already decided what they're going to plant for the year.
Yeah, I guess I'll this Jeff, and I'll take this one on to start. So, when we're really talking about a North American farmer here right towards the end of the South American or South Southern hemisphere harvest, whether that's generally Australia, Argentina, Brazil, you know, we've already started planting corn in places like Texas, even into Mississippi. We have clients that have already started and it was eight below in Minneapolis and we're not even close here in the
Upper Midwest. So a lot of the certain amounts of nitrogen actually is put down actually in the fall in the northern tier where the ground freezes and things kind of go into a stasis. For the winner. A fair amount, and we're really really talking about nitrogen fertilizer here is probably maybe the one that's giving the world the most heartache at the moment. Some of it's pre bought, prepositioned.
I would say the vast majority of what it needs to be used in the US crop is already either here in warehouses or on its way because you have to remember it's a long supply chain, and if we're going to plant in earnest starting in early April into what we would call the corn belt, that product already has to be here. So you can see that in pricing, the full call it replacement price of something like your rea coming out of the air peninsular area is not
reflected in US values. So it's one of these you generally as a trader with price replacement, but full replacement is actually not coming through at the moment. I want to think, I don't know the name. Some stone Cks people have been putting that out on X kind of keeping people upraised of what that is. So you're not actually getting the full brunt because a lot of that in the northern hemisphere is already here.
I was prepping for this and the University of Illinois puts out a really good series of reports, I believe under Farm Docs Daily I believe it's called. And the figure they threw out, at least the one I saw, what I believe was around seventy five percent of fertilizer has already been purchased, okay plus so.
Okay, well that's I guess that that is relatively good news that a lot of it's already been purchased, perhaps before the spike. But we're going to talk obviously about what conditions are like. We're recording this March seventeenth, twenty twenty six. Well, let's talk about what conditions were like February seventeenth, twenty twenty six, because at the end of our last conversation several weeks ago, you're like, you know, we should really talk about this squeeze that's already sort
of facing American farmers. So why don't you take us back to February twenty twenty six or January twenty twenty six and just talk about the sort of general macro conditions that the people you're working with we're already facing prior to the fertilizer spike.
So let's just take you back. So I want to take your listeners to how farming works in the US. We have a little bit of an insight that is a little bit maybe they haven't seen. So what has been happening and why you continue to hear from the farm community about the squeeze. If you look at prices, right, we sent you some price charts, I'm sure you'll be able to put those in. We basically since twenty sixteen, the futures prices have not changed. So imagine a business
since twenty sixteen where your output as prices have not changed. Then, on the flip side, when you look at let's call it inflation, land prices, I don't have. These exacts have probably doubled, okay, right, Equipment prices are probably up forty percent, the cost of living, think about things like health insurance, all these things. Right, you would look at that massive increase in prices and look at that and say, these
businesses have to be insolvent. So the first piece of the puzzle I want to take your listener down is land. So when you produce in the big markets, let's call it corn, soybeans, cotton, softweet. And I'll apologize because I'm not going to cover every crop here the kind of that Midwest market. We'll just use Midwest corn. It is
a tremendous driver of land value. If you take a cost to grow an acre of corn, and let's use an example, it's one thousand dollars an acre to grow the corn, and you're in central Illinois and you're on an ideal parcel called a square section, nice flat, black and square. The land rents probably going to be half your costs, okay, And so obviously you can see that tremendous inflation in land rent or the value of the land.
And a lot of land is rented, right and just if you look at the capital constraints and the challenge we're i mean as farmers with land and land rental values is it's not trading basis. It's economic create value creation anymore. It's trading like gold. Okay. So the investor community has maybe pulled back a little bit. Land prices are actually stable at a very high value today, but it represents if you think about, yeah, fertilizer is going up, it's actually in the last ten years, isn't the one
that's gone up as a percentage the most right? Land by far. And when you get the promise that cap rates are going to be two percent net and you're going to get six percent a year, which has actually has happened up until maybe the last twenty four months, it's attracted a lot outside investors. It's not correlated very well to you know, other out investments. So it provides
a nice portfolio effect to the thing. But it's gotten to such levels right that on a cash flow basis, it makes very little sense on the investment and land you're banking that you know at two percent, you're really banking that you're going to continue to get appreciation at six percent forever. And that is actually running it, in my opinion, the law of big numbers. So the other thing that you need to understand that has driven land rent, and I think you alluded to it around small farms,
is federal crop insurance. You may have heard about this, right, but it's highly subsidized. And if you think about when you look go out, you spend one thousand dollars an acre to grow a crop, right, it would be seemed to be quite risky. But if you can now, particularly with some additional subsidies, you can ensure most of the loss away through Federal crop insurance, which is highly subsidized.
One thing you're like, I do farm at scale in my post cardio life, so very involved in this, and think of it as a call option where all of a sudden you've been able to hedge off the downside, but you continue to run the upside for yourself. And so what that's done is it's really stabilized land values. And it's also made rents bid up to basically no margin because they'll go the farmers will try to get bigger. Right, we're looking for economies of scale and efficiency, and it
runs like a call option. If you graft it out right, you lose the downside and you have this hockey stick effect to the upside. So that has driven land rends extremely high and a lot of places, so you're really getting a lot of pressure from your number one cost, which is land price. Number two generally be fertilizer. But remember, as a percentage, if you've bid the ground up, and
this is probably why you're getting a lot. If you've bid the ground up to a zero margin, and then all of a sudden you have a shock to the fertilizer system. Now your theorem medical margin that was basically you bid to zero to gain scale, and now you're one hundred dollars an acre negative, right, And then you push that through. When you farm a thousand acres, you've lost one hundred thousand dollars. You farm two hundred thousand,
two hundred acres, and it just keeps them well. It gets to be big numbers because the farms have gotten big, and so that's where you really when you get a shock like fertilizer shock, when you're late in the system. Right, you've already agreed on land rents, you've agreed on basically most of your input costs are locked down at this point, and all of a sudden you don't have everything covered. It puts you into negative pretty quick, and so margins
are very very tight. And in fact, you've seen some of these various government payments that have been pushed through. A lot of those are going straight through the system. So you think about the farmer, right, he's using that money he or she actually, I should say, to pay off various pay the land rent, or make the payment on equipment or things like that. That money is getting
passed through. That's why sometimes you hear the farmers, you say, they complain all the time, like I don't even get the benefit of this, you know, bridge payment or whatever the latest name is. It's because it's passing straight through the system. Which that's why they grumble that. You know, it all goes to the various egg co and John Deere and Nutrient and some of these companies that people are looking at as investment becomes.
Sort of a hyper channel the monetary inflation. This last mechanism that Jeff described, because that money basically passes through the all of the producer and then ping pongs in the system on the inputs on it.
Say a little bit more about land rents, And the reason I ask is because I read I found a random book in a used bookstore called Trees, Why Do You Wait? And it was like an anthropological study of two towns, two farming towns. I think they were actually in North Dakota, both of them in the late nineteen eighties, and so a lot of it is about how farmers
make individual decisions. And so one thing I'm very curious about is the factors going into whether a farmer can outright own the land versus rent the land, because certainly in the nineteen eighties, in these two small North Dakota towns, there's a lot of grumbling about the landowners themselves, and I think a lot of people in the towns were upset that they would rent land from usually older people who would then leave the town and go to Florida
in the winter and just charge an extraordinarily high amount for the right to farm. That particular piece of acreage. So I'm very curious what are the factors that go into whether a farmer ends up owning or renting.
So in today's values, right, farmers generally that are in the business own a mixture of They have some own land and some rented land, and they basically will leverage the own land or look at the average kind of land cost and they'll buy strategic pieces. In today's market, the piece across the fence, right, the one that they've watched for years and years, and so you see a lot of that. And of course we also have an investor community, and we also have a ten to thirty
one exchange community. All these solar farms and data centers are bringing massive amounts of capital back into land, and it's really I mean, we have personal friends that are being bought out for development. We watched farms trade for solar and so you know when they've traded tremendous values and the farmers like to rotate that back, that capital
back in. But when you look at the returns for very prime farmland, and I'll be light on this, and you're going to pay fifteen thousand dollars an acre Iowa Illinois, and I'll probably be a little bit light basis today's values, but for easy figuring. So if you want ten percent cap rate, you have to have a land round of fifteen hundred dollars, right, And that's never going to work, right,
That's going to be more than the gross revenue. So you end up with land rents that have been pushed as high as they can stand to this kind of I'm using this example of this prime real estate at five hundred dollars, this very square, very efficient piece. Not every piece of land would garner even garner that kind
of rent. So it's very hard. You can't make the thing cash flow on its own and today's values, I said, it has divorced itself from its economic So then you're back to renting, right, and then you're in that game of securing land based it secures across efficient equipment scale, and so you're back to you know, renting at and quite frankly, we do see this all the time where
rents have gotten so high. If grandma had one hundred acres that you know, all of a sudden she can rent out for five hundred dollars an acre, right, it's fifty thousand dollars.
Yeah, not bad.
Say it's two hundred acres, right, not bad. Right, head to a low tax stadium, yeah, and enjoy some life. So you get a lot. It's very hard to justify as a farm buying land, but we still do buy some right strategic pieces I think is what generally in today's environment where you get. But there are all kinds of actors I think might want to comment here, but we often hear they say you're not going to make any more land, right, and I really don't we get
into this thing. I don't. That's not really true.
Right.
The Brazilians are adding two million acres a year, maybe more the Indonesians and can add palm plantations at a tremendous rate there. Obviously there's lots of potential in Africa still to be unlocked. And then the technology and efficiency per acre has just exploded. And that's actually if you look at that chart and say, Jeff, you started saying the prices aren't any higher, you have this huge inflationary fact. How are farmers surviving? And the answer is we've had
tremendous productivity gains in farming, particularly North American farming. The country quietly should be very proud of its aag sector. It's done just it quickly adopts things. It drives technology adoption at a tremendous rate. That's lowering its unit costs. And that's how we've been surviving for the last ten years. If we have lower ever squeeze by inflation, you've got to survive in productivity.
Mike, No, Jeff nailed it.
You know.
If you look at the charts, the blips aside, say around the twenty one drought in South America and then the twenty two issue with the Ukrainian war, if you look at it averaged out or even snapshot from ten years ago to today, we're almost dead on the same numbers. So it's being made up via efficiency gains in a significant manner. But the fact of the matter, though is, and I'm sure in your world you've heard this many times, the real rate of the inflation adjusted real rate of
commodities over time will fall. They do if you chart. I think the best way to do this is chart gold against anything. And you can even pick some things that have maybe been hotter in the moment, like cocoa last year or cattle recently. And if you do a long term chart of any basically priced taking very elastic supply response commodity, they will all over time, and then if you plot it against gold, it's a stunning chart.
Yeah.
To be fair, anything these days looks pretty bad relative to gold. But I certainly take the point, and to some extent that is the definition of grass, right, that all of you know, grains and proteins and stuff get cheaper over time as we become a wealthier society. But I certainly take that point. Talk to us about trade and the last year, because I could think of like
a few different dimensions. First of all, you always have the President talk about it, We're going to get a good deal for our soybean farmers, so I'd never quite sure where that is. Second of all, though I imagine that you know, especially certain just you mentioned equipment costs and tariffs on certain goods, I imagine has created a squeeze. Talk to us about the last year and how changing trade patterns have affected the farmers that you work with.
Yeah, So the first thing that hit us, right obviously was the trade challenge with China, right, largest buyer of soybeans in the world, and that obviously pushes supply back into the US, and the Brazilians actually get a different signal, economic signal, because prices actually rise in Brazil right up under neath the tariff barrier, up right just below where the US value is, and so you get a signal
into the Brazilian market to expand. Actually, and the other thing I have a very concern about in that is, as we've worked through it, we have sold they the Chinese have bought just enough US beans to keep the Brazilian the honest that's it, and that's it.
Can you explain, sorry, can you clarify what that means?
So what they do is because the Brazilians say, hey, you're not going to buy any US beans period, right, their prices just keep going higher and higher and higher, wall all of a sudden. I think the day that they did finally buy a few Brazilian cargoes, I think the Brazilian beans probably lost a dollar bushel that US cargos bought the US cargoes, and it sends a signal so that the US, the brazil Brazilian beans just can't
get away too far away. The Chinese expectively have used US as I see what you're saying as a lever to keep that going. But so you got expansion. Brazil and of course Argentina under the new regime doing much better as far as and you can see they had an all time record wheat crop there, and so you've
got two competitors that are doing relatively well. The other concern I have with this is trying not to be political, is back when we embargoed the Russians, it sent a signal to the world's the world community that we were not a stable supplier.
And the Soviets in the.
Talking we're gonna go way back.
Good, good, that's good. We love we love history. On the podcast Talk to Us the edition, Yeah, tell.
Us about that. Yeah. So when that happened, right, that caused a flood of capital to pour in to Brazil Argentina, right, particularly the Japanese which were the large buyer, global buyer and the global trade back then. But others poured money into infrastructure to get an alternative. And you would do the same thing, right if you were you had one grocery store that was supplied and you and all of a sudd and they said either do what I want or you'd go find a secondary fire. And that is
absolutely happening. Boring capital is pouring into an alternative Marcus. So it's a long term challenge in what this trade dispute has done.
That's my conser So you're saying that history is repeating in the sense that the proximate Okay, there's a bunch of trade barriers, etc. Going on, and so the move is internationally just invest more in non American farms to expand that supply, and so you see more, say Chinese investment in Brazil and Chinese investment elsewhere, so that they just have alternate various buyers of alternate sources outside.
Of the US.
Yeah, that is absolutely got it.
I know you said you didn't want to get too political, but I do feel like I have to ask. We know that farmers in America overwhelmingly supported Trump two point zero, even though they had already had the experience of Trump one point oh, which also involved trade restrictions which from what I remember, were harmful to things like soybean prices.
What's the rationale for farmers seemingly being hurt by trade restrictions and tariffs but still overwhelmingly supporting a president who loves tariffs in his own words?
Again, I can't speak for every farmer, and there's a very wide but I do think that in the previous administration, there were i'll call them bridge payments. Okay, the generally made up a lot of that gap, a lot of that other pieces of a puzzle on taxes. We've had tremendous challenges with regulation in farming that was promised right and there are you know, whether that's particularly things around emissions,
water regulation, some things that became very burdensome. And so there were a lot of reasons that not every farm. We have farms on both sides here, but a lot of farms did support the platform that Trump ran on in the previous election. There are a number of other things besides just the tariffs. They also the sense of fair trade, access to markets. We import a lot of things from Canada, but we can't export a limber of things to Canada. Milk is one of the dairy products.
I think we're focused on grain, but there are significant capital investments in this country and everything on the livestock and protein side out there also that we haven't even broached.
And another example the EU. Obviously, the EU has a protected grain market like no place on Earth. So one thing I can say, if given the opportunity, ninety nine plus percent of row crop producers in the United States would love nothing more than to just remove all trade regulation or trade barriers shall we say tariffs or otherwise to global grain production, because they would do extremely well in an environment like that.
Yeah, American farmers are playing to the rules. They didn't get to say it the rules. They'll play to the rules that they're given. But if you let them loose, they are tremendously productive. We have also the gifts that this country has with waterways, transportation, rule of law is very important, private property ownership rules, things that make the US a little less the Canadian producer extremely competitive in
the world. Ever more, we continue to get more and more government intervention, and we've been through it before and we'll deal with it as it comes.
What about are labor costs a factor or is it mostly the type of crops that you deal with? Is it's so mechanized that labor is just not a particularly important dial or factor of the cost.
In that example, thousand dollars an acre cost, Labor is a tiny amount of that. Ingrain farming has become extremely efficient, but in all the crops that you think around vegetable farming, right, things that are very labor intense. It's absolutely an issue, right, and immigration robotics, although you see more and more right, is labor costs rise? Yeah, it's a huge issue in certain crops and quite frankly, crops that consumers are more
familiar with day to day. Right. A consumer doesn't eat a soybean or crunch on a hard piece of corn, right, But when it becomes strawberries, lettuce, carrots, right, it's still a very labor intensive operation.
And the livestock side is another good example I think where labor costs are squeezing and certainly part of the immigration issue too.
My son likes raw corn, by the way, I guess he doesn't raw corn. Yeah, well he does directly off the cop Yeah, yeah, he does. Just fresh corn, pre cooked. I mean it's not the fried corn corn sweet corn, yeah, sweet o sweet corn.
Okay, Yeah, it's very confused.
You wouldn't want to bite into a fully cured fifteen percent moisture.
Absolutely, he would not being today, But Tracy, have I I've probably told this story. Did I ever tell you about the time I talked to the palm oil magnate at the top at the night club tower. There's really noisy nightclub at the top of the Petronas towers in Kualampoor, and I met there, Oh you have, and there's this palm oil magnate. It was super loud in there, and he was like, Joe, let me tell you why palm oil is just the best business in the world. It
goes into everything. It goes into women's lipstick, it goes into this, it goes into that, and then this is like the key thing relevant. He's like, because of like the nature of the trees. At least as of the time, it was very difficult to mechanize and so unlike say there was always going to because labor is going it was such an important part of picking palm oils, like Malaysia will always have this cost advantage over richer countries. And so yes, he was very he was.
But now they're talking about mechanized ways.
Yeah, I think I think they are making it more mechanized and robots will eventually come for it. But at least at the time he was really giving me the hard sell on palm oil is the future.
And yet you came back from your trip without having, but yeah, I did not buy all the Yeah.
Okay.
So one of the things I wanted to ask is how farmers actually make the decision on what they're going to plant each year. I'm sure some of it is just based on their own experience and the type of land they have, but it also seems like there are all these other factors that they would be considering future prices that they could get for things, or input costs. Maybe certain crops, for instance, consume or need more nitrogen,
which is now going up in price. So what are all the individual factors that go into making those decisions every year?
Well as the farmer of the group. I guess I'll have to take this one, so I'd say, obviously economics. We do look economics, although I think farmers tend to look a little bit more backward than forward because you really don't know until you have yield right, and so fundamentally you can only take forward looking economics. So far, crop rotation is very important, disease breaking, equipment utilization, storage utilization, and it also depends in the you know, what are
your choices. Certain parts of the country have a lot more choices. We've kind of left out cotton has been severely depressed. Cotton is a very flexible crop in a sense that you could replace that with a soybean potentially a little bit of corn. Peanuts is a big crop in the Southeast, highly government regulated. So what you switch to crop insurance is a huge piece of the puzzle. What can what levels can you ensure? You may grow a crop that doesn't look profitable, but because of the
levels you can guarantee revenue. Those things got but you don't. You don't get tremendous switches in most places because you just if you go all corn. We saw a lot more corn last year. Actually, you can suddenly find yourself in a severe storage problem because you trade a fifty bushel and acre soybean for a two hundred bushel and an acre corn, and you actually have that in the
far West. Even as we speak, there is grain piled across Minnesota, North Dakota, South Dakota, Nebraska because we had a lot more corn on corn acres rotation and we outran our storage and we had a great crop.
So this is something else I wanted to ask about, which is like the decision to put something in storage and then when you actually decide to sell it, because this is again one thing I hadn't really realized was such a thing in the US until I read that book.
But also it seems to be relevant again today because we are seeing grain prices start to go up a little bit given the Iran situation, and so I'm reading stories on Agweek in places like that saying that farmers are all rushing to sell all the corn that they had in storage from last year.
Corn really moves for our grain really moves for two main reasons in terms of having to move. As Jeff already alluded to, storage is one and cash needs is the other. And the real value of storage space in North America is that first sort of ninety days into harvest into harvest, and afterwards after that it becomes again
more of a personal decision, a personal marketing decision. There's an approach we teach that forces producers to think more an actual grain merchandising and risk management group like the group we work for in the past, would think. So they're actual drivers for that. Economic drivers might change than
the way they did it before. But yes, flat prices that are better are just that, and it will bring grain to market, especially when we were seeing prices we haven't seen for quite some time, and as Jeff said, we had a really good crop and a lot still sitting around. So yeah, in the last month, a tremendous amount of physical grain is moved to hit these higher prices.
Who makes a lot of money when there's a ton of supply and everyone wants storage, do those storage rents go way up at that time?
Yeah, that's a great question. Farmers ask us that all the time. So, yes, space gets more valuable right up to a point, and then that point, you know, it keeps.
The value of space keeps rising until it grabs an incremental space and the next thing, you know, the easy space gets filled first, and then space value gets higher, and then the next thing, you know, you're filling a salt mine somewhere, and then you get out to the far west where you have cold or dryer they actually pile the grain and cover it millions and millions and millions of bushels, which kind of caps out the value of space. So that really starts to set that value
of space. But yes, it does flex over time. And now farmers have invested in a lot of space, and one of the things we teach is how to utilize that space like a grain elevator, and how to earn like a merchandiser. That's a piece, a big piece of what we do in our farmer producer business.
Interesting, So zooming out for a second, I am looking at a chart from the American Farm Bureau Federation. Twenty twenty five was very higher for farm bankruptcies overall, and we're you know, it's not at the levels of like when they were doing the Farm Made concerts in the nineteen eighties or so forth, but it's clearly ticked up the highest that looks like certainly since the pandemic. When a farmer declares bankruptcy, how did they wind up in
that situation? I mean, we everyone's facing the same stresses. But what had to have happened to kick off that sequence of events such that a farmer files Chapter twelve.
Yeah, in our farm management practice, which is a part of this business, we see a lot. So let's be first off, you got dig deeper in those numbers. I'll venture to guess that the dairy numbers are in there, and we have a structural change in dairy to these mega dairy efficiencies that have that business model has taken over, and so it's put intense pressure on even the mid
size dairy farm. So you've got a lot of that and that's that's a very emotional type of farming, I want to say, because you're there every day with those lot, with that livestock. It's hard to explain to somebody who hasn't been with an animal since it was born and is with it for seven or eight years to get forced out that way, it's really challenging. We don't see
it in the grain side. A lot of it has to do with the payments, right, It's been tight, and you're watching working capital and farms are different, but we don't see a lot of Chapter twelve. You don't see it, and we're not seeing farms being forced to sale. We're not seeing wholesale equipment sales that are bankruptcy driven in the grain side in most markets, I think rice has been particularly difficult. We're not huge into that kind of
Arkansas area. I think cotton has been very, very challenging. We really haven't seen a credit contraction, right, which is what you would think would happen from working capital. A lot of working capital is provided through the farm credit system. Right, the quasi backed agencies, and we have very rarely even in the last cycle because they're renewing their operating loans. Here in the last couple of months there has been a very few pullbacks, and then quite frankly, it's still
very competitive where you can borrow money. It call it six and a half to seven and a half percent for short term versus a government treasury at three and a half three point six. So as investors, right, that's a good spread. And there still is a lot of equity in farms. It's in the land, so you can get farms that get tripped up through expansion and you have equity, but it's locked through into the land values, and that can be where you get into trouble. You
just get short term operating capital squeeze. But the banks are not, to the best of what we see, are not really heavily pulling back on operating notes at this point.
Yeah, it goes back to the land point that we made earlier in equity. And when you compare now to the farm aid stuff in the late eighties, much better balance sheets at the producer level now versus then. And also remember you had interest rates in the upper teams, right, So it's just very different now because obviously there's a squeeze, but it's not remotely like that.
So I realized we're already running out of time and we could kind of keep going for ages. But just to get back to the current situation, what are you hearing from your network of farming contacts right now about how they're feeling about the around situation, Because as we mentioned in the intro, there are these push pull factors that are going on right now.
Yeah, we as you know, as we connect with the farmers and I have my own farm. First off, we've had some opportunities to hedge off some grain for new crop have some relatively interesting levels, and lots of our clients have taken a time to at least get some grain sold.
You forward sold the upcoming.
We can we can forward sell the upcoming crop we've taken advantage of on the old crop right, which we talked about a little bit earlier. We obviously are very very concerned about the fertilizer prices on the pieces we don't have locked up, and you know, and that constant squeeze across all inflationary I think the inflation is the piece that drives us. I'm going to call us being the proverbial us because we don't feel like we're in control.
A number of suppliers and the A sector operate in olig olig oligopoly, right, and so you'll hear a lot about whether that seed fertilizer, particularly in cattle processing, and you know that's a big issue. We're very aware of it. When you put in trade barriers, you actually isolate other competitors out right. They are probably critical to keeping costs down at the farm. So farmers feel very threatened about the supplier environment that they're in, and probably with good reason.
I've never seen anything personally illegal go on, but I see lots of behavior that is legal to operate in that oligopoly environment. And so it's it's really disconcerting if you think about running a business where your suppliers are two. You know, there's what three maybe four seed companies left genetics. You're processing the cattle, which, by the way, you know, at least on the calf sides at all time record profits. But they're still concerned because you only have realistically three
or four buyers. Hogs are highly consolidated, chickens very consolidated fertilizer. So that's probably one of the angst. We have policies another big piece of the angst because we're I think without these payments, we don't know whether those are going to come or not. That's floated a lot of farms in the last year, and so that's very disconcerning because you could change the administration to administration, you can't hedge that or know what the numbers are going to look like.
Lots of uncertainty.
But do you have one piece of advice for your client, like right now is right now in this environment? Like okay, they that's what they're telling you. What are you telling them to do right now?
Well, one thing, as we already talked about, is look these gift horses in a good way and hedge a little bit off for next year because we are at new crop levels we describe new crop as next fall in trader language, at numbers that we haven't seen for a while. So let's go ahead and take advantage of that and see what happens. As you folks probably very well know, crude and corner incredibly correlated. I think they have an R square north of ninety five with some
of our very tight relationships. We're having producers sit in their easy chair on Sunday nights when the overnight's open after a weekend of crazy news and everyone's doom scrolling and crud's up twenty and corn's up twenty cents following it. Maybe if you only have a little bit hedge for next year, go into your account and hedge a little more. So we've been taking advantage of some of these wild market swings, often a weird times for whatever reason, the
last couple Sunday nights have been absolutely wild. Yeah, So just pay a little bit more attention and win these little battles along the way we refer to as winning the details. Take advantage of those things. Why you can.
I think what we teach in class right is around discipline. Right, the discipline and hearts are really good. So understanding your actual risk, managing that risk off, that's just your risk profile, staying steady right, things that people who trade commodities for a living do and understand. And then there are huge amounts of physical details around cash management and storage and things like that that are still out there. So that's really where we bring out the disciplined approach around this
and becoming risk managers. We always one of the first things we say is that if you want to make a jump as a producer, you become a risk manager to the farm instead of a speculator. And that's how the biggest companies, right, they have risk managers, whether they're commodity companies or people who use a lot of commodities, right, they have people that risk manage and they focus on margin.
And so we've really tried to bring that discipline through our classes and through our one on one relationships out to the farm which never had access to this type of education. That's where a business came in, disciplined thought process that their buyers use.
If you look at all the companies that have been around forever in the commodity side, they're all hyper disciplined. They all share the same culture and approaches and their hedges, and we try to have that mindset lead into the practice of our students and clients.
All right, Jeff and Mike, thank you once again for coming back on all thoughts. Truly the perfect guests at the perfect time, So really appreciate it.
Yeah, thanks for having us appreciate it.
It's fun to hear that you know, we're in our New York City apartments like doom scrolling Sunday night futures, and we're all doing the same thing. The farmers out in the middle of the country and those of us all we're all looking at that open but thank you so much, those are bland you beat.
Thank you so Joe. That was really really interesting, and I feel like even though we spoke for quite a while, we've still only scratched the surface. It's a big topic, right, But one of the things that stood out there was the importance of land, yes, ladin costs, and also competition from abroad, because I hadn't really thought about that before.
We are used to hearing the phrase that buy land, they're not making any more of it, But if you're deforesting Brazil or Indonesia, it turns out you are making more farm land.
No.
I thought that was a great point. There's been a lot of interest in reporting, including from our Bloomberg colleagues, about specifically Chinese agriculture investments in Brazil and how much they're building up that linkages and so obviously still today as they put it, you know, Trump tries to make some soybean sales and the American farmer sort of has it. They could play each other off, discipline the Brazilian farmer
by buying some American beans, et cetera. But there is this really big farm ecosystem that continues to grow, also continues to get very productive. They're using some of the top of the line Chinese equipment, which we know is very good, and yeah, that's going to continue to undercut the American exporter.
Do you think the farming evolution and the productivity revolution is going to be a good analogy for AI for everyone else, for the white collar working class, you.
Know, it's I don't know, probably not, but it is interesting. There was actually something out literally today. I think some hdge fun put a thing like trying to push back some of the doom scenarios, and they're like, oh, you know, we used to be so much agriculture based, then it
went away, but we have other jobs, et cetera. But that was like one sector, you know, Like, I'm not very like, I'm not very comforted by any historical analogy where the technology just applies to one sector of the like, oh, like bank tellers didn't disappear after the ATM was introduced. There was one, right, and we're talking about the whole knowledge, but like the entire the human brain being replicated. So I'm not no, I'm not that. I don't take too much comfort from that.
All right.
It's bad and it's tough for farmers.
Yes, no, that's my point. My point is that the experience of small scale farmers can be coming to all of us because it's it's just going to be about scale and capital investment. Yeah, how big your tractor is?
I know?
All right?
Shall we leave it there, Let's leave it there.
This has been another episode of the Authots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm Jill Wisenthal. You can follow me at the Stalwart. Follow Mike and Jeff they're at Agris Academy. Follow our producers Kerman Rodriguez at Kerman armand dash Ol Bennett at Dashbod and Keil Brooks at Kilbrooks. And for more odd Laws content, go to Bloomberg dot com slash odd loads where of a daily newsletter and all of our episodes, and you can chat about all these topics twenty four to seven in our discord Discord dot gg slash odlines.
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