Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, obviously, we've been talking about inflation a lot lately, but I think there's like one category of inflation, or one category of goods inflation that really sort of like hits people, resonates with people emotionally more than others. It's mayonnaise obviously. Yeah, so I wrote that article about mayonnaise specifically, but it has to be food inflation, Like this is the one
thing that sort of strikes fear into everyone's hearts. And it's probably where people are where you start thinking about inflation expectations the most. It's people who are actually going to the grocery store, who are looking at the price of coffee or a banana or something like that, and they can see on a day to day basis whether or not it's going up. Yeah, exactly. So it's like we could talk about like CPI and aggregant and oh big portion of that is say like used cars, but
how often do you buy a used car? For most people, that's like a pretty rare purchase, so you don't like see it in your face you see it in the grocery store. Everyone sees it who goes shopping, whether it's the price of milk, whether it's the price of vegetables, the price of meat. For the most part, it's got many of these items have gone up significantly in the last year. And of course the thought of like, okay, the rise it costs like literally feed your family is
a pretty big deal. Like it's about is sort of you know, if you're thinking about, like, well, what forms your view of inflation, that that is probably gasoline prices for people who don't live in a big city are probably like they're the two big ones, food and gas. But food, I mean, there's something about it. It's almost like it's tied to modern civilization as well, right, because you're not supposed to think about how the supermarket works.
You're not supposed to think about how, you know, the food, the vegetables, the meat or whatever get from the farm to your table. You're not supposed to think about supply chains. But when you start thinking about them, it's usually in a really negative and worrying way, and that's when things kind of start to fall apart. So I don't know, I feel like the modern supermarket is sort of at the heart of the way we live nowadays, so when
things go badly there, people start to freak out. It kind of feels like a big theme of a lot of our episodes lately is like we wish we didn't have to talk about these things, and it's a bad sign that we are. But anyway, so food inflation not great, and food prices have gone up considerably over the last year, and there are very reasons for this. But one thing that we've really seen over the last year, and we did one episode on it in the early Scott ran
over the University of Illinois is grains. And of course grains are consumed by humans, but they're also by animals, so the higher grain prices feeds into higher meat and dairy prices and so forth. And one of the interesting things about grains, I think historically, or soft commodities in general, agricultural commodities, is that they often seem like of the
commodity complex, more disconnected sometimes from the macros. So you can like grains maybe affected by drought or other conditions, whereas something like you know, copper might just be like a reflection or oil might be reflection of the macro economy boom or bust. Grains and other soft commodities, they might have more idiosyncratic factors like what was the weather in Brazil like? Or what was the weather in Iowa like? And so it's kind of like a it's a niche
that sort of. I think a lot of people don't spend a lot if you're not in it, don't a lot spend a lot of time like think about specifically. Yeah, I think that's right. I mean I think rarely does the price wheat go up because g d P is at like four or five or something like that. Yeah, exactly, So a recovery could obviously increase the price of gasoline or copper, but usually we don't really associate the price
of like, yeah, wheat or corn with the cycle. That being said, right now, we are seeing this boom in grains, particularly wheat, so we corn, and soy or as they call them in the industry, beans. They're all up a lot from the last year. Corn and beans have actually come off their highs a little bit. They're not up, but wheat is very high. So there's a lot of to get into it. There's a lot of stuff going on at this space. I'm very excited we're going to
be talking about wheat, corn and beans. That sounds great. I mean, this kind of falls into our category of getting really really micro and niche this year. But also it's kind of a weird one because on the one hand, these are all individual markets, but on the other hand, they do have one or two things in common. You know. One thing is the weather, which you already mentioned, and that's played into a lot of the issues that we've
seen recently. And the other is fertilizer. And I know, yeah, I don't know much about fertilizer, but the one thing I do know about it um only because I lived in Abu Dhabi for a while. But most people think of it as like cow poop, you know, just the stuff that you get from somewhere, organic material that you put on your farmland and things grow. But it's actually
the product of a really intense chemical process. And it feels to me like the weird thing about fertilizer is it's this big chemical process with an actual supply chain, but at the same time, it doesn't really have the same infrastructure as other commodities like oil and gas. And I think this is probably a year when we've really felt that. So that's the one thing I know about fertilizers,
and I'm interested to talk more about it. And because fertilizer is connected to energy, and because energy is connected to everything else, this is the one way very clearly in which the macro cycle impacting grains. All right, let's get to it. I am very excited about our guest. We're gonna be speaking about all things grains with Angie Setser. She is a co found of Conscious r o I, which is a new company that consults on all kinds
of things grains for farmers, investors, and so on. Previous to that, she was the vice president of grain at a Citizens Elevator in Michigan for ten years. So a true grain veteran. Uh, Angie, thank you so much for coming out odd lots, Thanks for having me. I'm excited to be here. But can I ask a really embarrassing question to start? Of course, the more embarrassing the better. Let's break that ice. So I lived in Illinois for a while, the south of Chicago. I lived in the Midwest.
There were a lot of cornfields and other farms around me, and stuff you used to work for Citizens elevator. How does a grain elevator work? Again, I drove by them on the way to school all the time as a kid from like age two to twelve, and I actually don't know really like why what the how elevators work? Well? That means they're working right right idea. You never had to learn, so you never had to worry about it.
But yeah, I mean a grain elevator. Really the entire beginning of the industry was we had this massive amount of harvest that came off one time of year, right like, so the farmers spent all year long producing this crop and it had to go somewhere. And traditionally, the demand sector obviously is set up to handle all of the harvest coming off. It needs to be kind of rationed
out throughout the year, if you will. And so that was why a grain elevator started, as we needed to have a place locally for the farmers to be able to harvest their crops, bring them in, and then it was the elevator's job to kind of work throughout the year to kind of put the grain out into the demand structure, whether that was export, whether that was feeding
uh animals or you know. Now in the last fifteen years or so, renewable fuels or by ethanol, biodiesel, whatever, and so a grain elevator's job really is just to help facilitate the harvest, take the grains in at harvest time.
My job, as as the vice president of grain at the elevator or was to hedge that use the futures market to kind of offset my future's risk, and then trade the spreads in the market structure that carry we say carry or inversions and grain as opposed to you know those fancy fun cantango and backwardation like we're just very simple, I guess, but you know, the monitor what the spreads are doing, and trade the basis which is the difference between the cash price and futures. You know.
As responsible for being in charge with trading with the elevators handling, you know, I was a basis traders what
that was called. But like I said, my job was to take in the grain at harvest time, help facilitate that harvest for my customers, and then spend the rest of the year kind of putting it out into the market structure depending on you know, where the demand was most present and where the market opportunities were the best and and then hopefully get it empty or or get everything kind of put away to do it all over again the following year. So I have another really basic
um question. But you know, Joe laid out the sort of trio of cash grain, so corn, soybeans, and wheat. What is it that those three have in common? Like what makes them a unified market? Um? Or like why do we talk about them as a trio? And then secondly, are most people in this space would they be involved in all three of those at any one time or would you specialize in one market in particular? It really depends, um.
I think the reason that we talk about them as a trio is because they they are the most actively traded. They were the cornerstone to a certain extent of the Chicago Board of Trade, and so we see this sort of there the I don't know, the top three produced crops, I guess you could say, and the ones with the bulk of the demand and supply structure around the world, And so I feel like they just kind of all
get lumped in with one another. They tend to trade um within a certain level of of a ratio, especially corn and wheat, when really it depends on where you're located. You know, for instance, an elevator in Iowa, where they do not grow hardly any wheat. They grow some, but
not a lot out there. You know, they're not going to focus on wheat at all, whereas someone in in our neck of the woods, in my neck of the woods in Michigan, you know, wheat is one of the top three in the rotation, and therefore you need to have an understanding of how that wheat market works. There are people that are are specialized traders. You know. I have friends that they're one and only job is to trade wheat in the Pacific Northwest, and so they trade
white wheat, soft soft white wheat. I mean, wheat is one of those things where we say wheat as though it's under this big umbrella. But there's five different classes of of wheats, and so yeah, there are some specialized traders. You know, some folks you start to talk about wheat
and they completely glaze over. Others you start to talk about wheat and they get all excited, like, oh, did you see what's going on with You know VSR, which is a variable storage rate that Semi introduced a few years back, and you know some of these other things, and so it really just depends on where the person is located and what their specific job is as to
whether or not they're they're really kind of specialized. But I would say from an overall standpoint that why they kind of just get lumped in together is that they are the most actively traded, and I think they're the market that you see the majority of that outside interest in, and they just kind of have somehow become, you know, by proxy, their representatives of all things egg, even though there's a whole slew of other crops that that people handle, cotton, sorghum,
you know, potatoes, vegetables, all of these other things, but corn, wheat and beans tend to be the the end all and be all of of agriculture. Then, honestly, how I'm not sure, but I think most of that is simply because of the cbot and where that started. So I want to get into soon like what's going on in
the market. But one other sort of I don't know if the market structure question is how much fungibility is there in farmland that allows armors to say, switch up space in a given year, reallocating between one grain versus another, depending on conditions, Let's say the price of soy or in this case, these days, wheat prices are very high. To what degree can typical farm or pivot and reallocate acreage to one of the other. Much of that just depends on the crop and what's going on from a
weather situation. Let's say winter wheat right now, so specifically Chicago and Kansas City wheats are are your wheats that are planted in the fall, And so right now for us, for instance, in Michigan, the weather has been less than ideal throughout much of October. You know, we had one of the top fifteen wettest October's on record, and that really doesn't necessarily facilitate getting that wheat crop planted. You
can't really get a wheat crop mut it in. And now we're expecting snow this weekend, and some of those thinks. So I may have had some customers that were intending on increasing their wheat acres due to the high costs or high value of of wheat for next year. Now we're with eight dollar week on in July two for Chicago, and so they would have had this desire perhaps to increase their weet acres by ten something of that nature.
But if they weren't able to get it planted prior to the start of October when the weather really went sideways on us, they're not going to you know, the same could be said for corn in the spring. If if we miss that window of opportunity for planting or something of that nature, then they may be forced into
planning soybeans. You know. For now, I would say though, that it's it's kind of a toss up for most growers going into the new crop year, going into next spring, you know, whereas if they are able to get the crop off, they're looking at different opportunities when it comes to you know, returns on investment and some of these other things. They may be able to switch up their rotation. But for most farmers, what they will tell you is
that it's very rotationally driven. It's best for the soil to kind of keep in mind soil weed control, pest control, all of these things, to kind of say, okay, well, we grew corn last year, we're probably gonna switch to
beans this year. Michigan here, like I said, we have a three crop rotation, and so a lot of times you'll see corn the following year beans and then wheat planted in the fall after that bean crop, and then corn again the following year, and so for a lot of those folks out there, they'll stick to that rotation.
But if mother nature says something different, like what we saw in two thousand nineteen where we just literally could not get the crop planted until the middle of June, for a lot of folks at that point they may
have switched over into soybeans or or something different. And so for the most part, there there are a lot of ways that farmers can kind of change their mind or maybe reevaluate what they intend to plant, but for the most part, they tend to keep it in line with with what their local market structure asks for, with what their soil is asking for. And you know what they've done from a traditional standpoint, maybe for the last several years. So why don't we go ahead and talk
about what's going on in prices? So a big run up in wheat, soybeans have dropped from um, a pretty big spike over the past year or so, and corn doing relatively better than soy but not that great. What
exactly is going on? A ton of things? It's amazing, Um, you know what's taken place here and thinking back over the last fourteen fifteen months, and so that's one of the biggest things I'd say is you almost have to start from the beginning, right, Uh, this September two thousand and twenty, So a year ago September, we saw these massive ending stock estimates from the U. S d A. We we thought we were going to be flirting with
a three billion bush will carry out. And so to put that the perspective for corn, you know, a tight or a pipeline minimum where we say that we're we're at the low end of supplies is around it alien bushel. And so last September we were expecting three times what would be a minimum pipeline amount. It was burdensome, was the words being used quite often. Then the same could
be said for soybeans. We were expecting close to a billion bushel worth of carry out and insteps China, and all of a sudden we get this conversation of a China stockpiling, cheap prices, trade war phase one and all of these things, and so China steps in and just starts buying in a way that we had never seen before. Honestly, I mean, it was it was like someone had flipped a switch. It didn't matter what prices were doing, it
didn't matter what it would cost to get there. They were just told to buy, and they were buying, you know. And and so that started really kind of the sudden turn, and we had what you would call a bullish response to a Barish report. And that was the first sign
that things were probably going to be quite different. And you know, around about a year ago, I remember it, right around Thanksgiving time was when we started to talk about the inflation, you know, and what was gonna happen from an inflation trade standpoint, and suddenly the macro side of of everything came back into focus, um, which was the first time we had seen any sort of macro
conversation I'd say two thou eighteen. We probably flirted with it for a minute, but really, you know, we're we're talking two thousand eight, two thousand nine type inflationary conversations
obviously when you look at inflation data. And so we had this sort of combination of significant increases in demand via China and then suddenly the U s d A was like, oops, we we overestimated last year's crop pretty substantially, and we started to see this reduction in overall supply, and so you could say that it was a perfect
storm of bullishness. I mean it just you had the inflation really putting the gas to the fire, and then you had these supply and demand so like as you were saying at the start of the show, you know, we tend to just focus on what's weather doing. You know,
what are we going to use for exports? And and most of the time folks don't even care what's going on in grains because we just kind of trade back and forth, maybe get some seasonal rallies here or there, but from an overall standpoint, we never have to worry
about running out or any of this. Well, China, like I said, stepped in and bought well beyond what you would traditionally see them take in from a corn standpoint, especially soybeans were a bit of a surprise, but then you saw them really come in and and buy that corn. But in addition to that, then you had these Brazilian issues.
You started with a low or a slow start to monsoon, no moisture in Brazil, so they were unable to really get the crop planted and tell around January when traditionally you like to see the bulk of the crop planet October November. That had major implications on the US export window. UH. And export window traditionally closes for soybeans around the first
part of January, you know, into February. Last year or at the start of this year, we were exporting beans to China into March because Brazil's crop wasn't ready to make its way into the export pipeline. That slow start to their soybean crop hurt or slowed their ability to
get their corn crop planted. Put that corn crop, you know, into that important window of production falling right when the dry period starts, so the mansunal moisture and Brazil tends to shut off last part of April into May, so that's when the majority of the corn crop was trying
to mature. You know, we had this this amazing uh if you can call it, that drought and Brazil take place and really just take their second crop corn production expectations from around a hundred and twenty million metric ton down to eighty five. So we had these just this wild series of events that made it a feel as though we were never going to see corn and soybeans go down again, only to actually have a pretty reasonable production season. In the US. We actually are looking at
probably having a record large soybean crop. We're gonna be flirting with a record yield and corn and so that's helped kind of stabilize some of that supply and taken some of that story away, but poor wheats still on that track. We didn't get the memo that we were supposed to calm down because we had auction shortages. We had this massive drought in the Canadian prairies and in the northern portion of the US where spring wheed is grown,
so production there was off substantially. And then of course we have this fall weather here where we could be looking at another reduction in production, specifically in the soft red wheat area, the Chicago weeed area. And then there's questions as to what the heck is going on in Russia. The Russia is obviously continuing to limit what they're exporting. You're seeing some continued food inflation stories. The the industry
itself is changing there. What you used to see was the farmer having to force supplies into the market structure as they were harvesting. Similar what we had talked about earlier with the U S Elevator. Now they're building space, they're keeping the crops closer to home. They're finding that that gives them some power, and so that's really changing what we're seeing from the overall global supply and demand situation.
And there's a million different little stories that you could point to in any one day that would be either bullish or bearish price. And right now, with that inflation under that we're seeing, or that inflationary support, it's keeping prices supported even if the fundamental story, especially for like soybeans, isn't as bullish as what it was six months ago.
That was great, and I think that was like this sort of like perfect storm of all the things you described at the planting conditions and the Chinese buying and the issues in Brazil, the issues in Canada, and you really see how it all comes together. I want to drill down a little bit more, and I think you sort of um drove home a little bit what we were talking about in the beginning, which that normally we don't think of grains as being part of the macro
cycle the same way we do with other commodities. But this time we're getting both at once. We're getting these sort of unusual things with the conditions globally and the macro considerations. I want to get into some of the macro. One thing I'm just curious about is like farm labor. How challenged are we talk about it with all different industries we hear about all the time. Howell our farmers right now from a hiring perspective, and how much our
labor markets putting stress on farmers. They're definitely, I mean that tends to be a common issue that we have an agriculture Even before this whole entire conversation about employment and you know, and and struggles with finding folks, we always tend to I mean it, let's be honest, Like agriculture is not the most glamorous industry to work in, especially when it comes to corn, soybeans, wheat, some of
those things. You know, the majority of the year, you don't necessarily need to work an exceptional amount of hours if you're just you know, row cropping. But then those two or three months out of the year, these folks are working almost twenty four hours a day, seven days a week. And and no one who doesn't have a solid investment or you know, as I like to put it, mud in their blood, you know what I mean, they're not passionate about the agriculture side of things. You know,
no one's going to be excited about doing that. And so one of the things that we're somewhat fortunate in and in my portion of agriculture, this isn't the same for vegetable producers and folks the labor intensive crop, but in corn, soybeans, and wheat, technology and the expansion of technology and the expansion of equipment. The bigger the equipment, the easier it is for one guy or gal to
to harvest. You know, we've we've expanded the size of of grain carts in the field to where you know, they can the combine can put a thousand bushels of corn on a cart before it has to go to the semi. You know. One of the biggest things that we're really struggling with, and I think everyone can agree throughout this the industry. You know, one of the things that we're really struggling with, when it comes down to it,
is is trucker's and and truck labor. They're being able to move it from point A to point B. You know, and as a result of a lot of the customers that I'm working with, we may be evaluating or re evaluating. You know, where we would traditionally send soybeans into the export hub that is Toledo at the fall, we may instead take a lesser price to go into the beam
crusher to the north. There's something of that nature where you know, you can make three trips a day versus trying to make one just simply because you don't have the amount of trukers that you you used to, and
so it's it's been one of those things. I think the biggest sector that that will continue to be impacted on the employment side especially will be those elevators, those commercial setups, just simply because it's hard to find someone that is willing to work the long hours that are needed to run that elevator and to work with the several different farmers that come in. And it's it's not the most glamorous job at all, but it's definitely an
important one. But at the same time, even with costs going up and all of these other things, the elevator or the commercial unless they're an end user, unless they're an ethanol plant or an exporter, or something of that nature. They're getting squeezed as well because their margins aren't getting that much better or good enough to where they can really kind of incentivize with higher pay to their employees. And so that's where you're starting to see some of
that real squeeze come in. Is is the groups that are trying to facilitate that harvest, you know, I eat those commercial elevators or those that are trying to move the bushels, you know, like try ers or or someone of that nature. Well, so this is something that I want to ask you, but what exactly are the input costs that go into farming these types of grains? So, you know, you just discussed labor. I imagine equipment is
a big part of it. Uh. We talked a bit about fertilizer at the intro, But like, what are actually the things that go into producing these different types of grains and how have those various components been impacting the price recently. There's a ton of of input costs that you could take into consideration. Where you have to take into consideration, you know, I think the biggest one for a lot of folks is land and we've seen land
values obviously going up. The old line they're not making any more of it is definitely true, right, And so you've seen land costs go up exponentially. We're starting to see urban sprawl impact that you know, in my neck the woods they lived just outside of the Lansing area, and the amount of farm fields that have went into subdivisions over the last five years is really satively astounding,
you know. And and with prices lower, margins tight, a farmer can't necessarily compete with a developer when it comes to purchasing some of these land uh pieces that come up for sale. So it's a land uh costs. Obviously, there is the cost of living that a farmer has to take into consideration if they are full time farmer, healthcare, you know, the cell phone, the new pickup, the all of these things, you know kind of come into play.
And then when it comes to actually producing the crop, you're obviously looking at fertilizer, chemicals, seed, you know, your equipment costs continue to grow exponentially. You know, all of
these things kind of come into play. And so there's always been that old line that the you know, the farmer buys retail and sells wholesale and we're definitely seeing that at this point is everything that that we need to produce the crop has gone up and value and obviously the futures values and the price that the farmer is getting for selling his or her crop has gone up as well, but they're definitely not matching one to one.
You know, there was a sweet spot there probably sometime in March maybe that we had hit where the price going up had matched the cost of inputs going up. And and now we're starting to see inputs stay elevated. Uh well, values come down a bit. And so yeah, I mean there's you name it, the farmer. It probably touches it in some way, shape or form in order to to have that business and bring the crop to the pipeline. So one of the things that's very timely.
Right now, we're recording this one day November eight. It will be out in a couple of days. We don't know what's gonna change by then, but there's a significant strike a deer impairing production. And I have to assume, and I don't know anything specifically about this, my gut is because of everything these days that tractors and parts for repairing tractors were not an abundant supply even before the strike, because I'm just sort of assuming that every
part of the supply change is stressed. How much anxiety is this causing. Is the causing farmers and worries about production of new farming equipment. It's definitely something that's that's on the radar, I think as we I think the anxiety was much higher at the start of harvest because there were some true concerns over what would happen if you had a breakdown and needed a part and you
were unable to get it. You know, as we're wrapping up harvest here, we're we're expected to be around nine complete on sweeping harvest and complete on corn, so we're we're into that final stretch, and so much of that anxiety is kind of started to back off a little bit. I mean, at the start of harvest, there were some
real concerns. I had growers that were needing to drive you know, five, six, seven, eight hours to grab apart at a dealership that maybe wasn't local in the state or anywhere to be found in the state, you know, And and so there was some real concern over what happens if I suffer catastrophic breakdown. You know, what am I going to do? How are they going to make sure that I'm able to get back and and rolling again?
Because that's that's the biggest thing. We get a tiny window of opportunity to get the cross off, and if you're unable to do so, unable to get that crop off because of a piece of equipment or a lack of a part or something of that nature, you know, that's that's something that keeps you up at night, just
that concern. And so, having made it to the bulk of the tail end of harvest without much in the way of absolute shutdowns, you know across the industry, we're breathing a little easier, but it's definitely something that's going to cause great concern. You've seen an exponential increase in used equipment costs and other things, and so that's going
to make some folks think twice before. Perhaps. I think we're getting to that tipping point when I say that folks think twice before trading in an old piece of equipment for a new one or something of that nature. I think you're going to start to see some of the same things that you're seeing in the auto industry, you know, kind of start to take place a little bit when it comes to equipment. You know, most farmers right now have the bulk of their equipment needs covered.
Would they like to upgrade, potentially, sure, But are they going to think twice about it, you know before they just dive in head first and and and make a purchase that they may not need to be making. You know, yes, they're gonna start to really kind of re evaluate some of the demand that they have surrounding these pieces of equipment. And so I think you'll see eventually a point where we hit a bit in the way of an impasse.
But you know, we'll see what happens. If the supply chain can kind of get back up and and running, you know, then they won't. I've seen a lot of folks talking about switching away from deer into other types of equipment. But the supply chain disruption is across everything, and so it's not just a dear thing. It's not just a case thing. It's not just a New Holland thing, you know, and I think the farmers are aware of that.
It goes back to the housing industry. You know, like a lot of folks would love to to maybe move to a new house and maybe they can sell their house for an exceptional profit and they're they're well ahead, but they can't find a new house. And so it's the same thing, you know in equipment is you could get rid of whatever piece of equipment that you have, but can you replace it, and if you can, what
that replacement costs look like. And so there's a lot of tough decisions kind of being made, or folks are thinking twice about maybe making some of these changes that they would have made otherwise because of the disruption that we're seeing in the cost increases. And so it's not a requirement to upgrade to a new combine every year, and so these guys will probably sit tight for a
little bit and see what happens. But it definitely remains concerning, you know, just as in any other portion of you know, the demand the demand structure out there, Like if I go to the store next tomorrow, is they're going to be toilet paper, you know, And it's the same except for now it's if I need a new belt to keep my piece of equipment running, will it be there? Um? And so I think you are seeing some additional you know, purchases instead of that, well, I can go to the
store tomorrow and it will be there. You know, you're seeing the same in agriculture, to where I'm going to make sure that I have it on hand so I don't have to worry about that. So just before we move off deer and equipment, you know, we're talking about the strike and maybe farmers wanting to have more parts
or equipment on hand. One other longer standing issue that regarding deer I know is, and I've seen articles about this, is right to repair and this idea that like tractors and combines, like cars are getting more and more high tech, and there are more pieces of software than they are just pieces of metal and parts put together, and that this is a sort of anxiety that there becomes a sort of lock in where the farmer becomes very dependent on the vendor of the or on the equipment manufacturer.
How much is this something that people talk about and trying to weather through law or something else, trying to change it such that the owner of the piece of equipment is not as perpetually dependent on the man you
facture for permanent ability to repair their own goods. It's a huge deal I mean, it's definitely something that that folks are cogniitive and and they're they're fighting every day, you know, to a certain extent, I would say, you know, those of us in agriculture are just kind of so used to being like, well, it is what it is, you know, and so they aren't necessarily um standing up
or or fighting. You know, there may be relying on other people to kind of fight the good fight, and then they're standing in the background saying, yeah, what he said, you know, to a certain extent um, but it's definitely something that's huge and something that we need to be aware of and paying attention to. And and you know, it plays a role, you know, and it's a beautiful thing.
You know. It's technology is has made it to where we don't have some of those concerns over employees and things of that nature because we're able to kind of
do more with with less people. But it's definitely concerning when you know, you do have growers that are ready to start planting the crop, and maybe because this piece of equipment is not properly communicating with this piece of equipment, they're shut down for sometimes days at a time, and and Honestly, a lot of the folks that are are tasked with fixing these things locally may not have the level of education or understanding of what they're working with
in order to do so quickly, you know, in a time that they need to. And so it's definitely something that is a major factor, and it is only going to continue to be a factor in the industry as we kind of continue to to you know, add in that that technology and and we say it's for our own good, and in a lot of ways that it definitely is. But it still can cause some of these pretty major issues that that can slow up production or
slow up harvest or or whatever. And it's something that we hope to see remedied in a cooperative manner, like we understand the reason behind it in some circumstances. But at the same time, you know, there really should be some ways that we can kind of bypass or make sure that it doesn't shut folks down for for days at a time, you know, in those instances that that
takes place. I have a related question, but just going back to the input costs that we were discussing, if everything is going up, then you know, presumably the farmers can pass some of the costs on to customers, But is there anything they can do to try to offset those expenses to reduce their own costs? Like, are there different production techniques to be more efficient? Um, presumably you can you know, try to rotate into crops with a higher yield or a better return and things like that.
Is there anything that you're seeing now that people are trying to do? Yeah, Yeah, I mean I think you're you're seeing some real growth in in the understanding of
agronomic influences in producing a crop. We've seen some folks over the last few years, you know, when you talk about fertilizers and and you know kind of some of that input side of things, you've got you know, NP and K that you know, really kind of ore important components, you know what I mean, You've got your nitrogen and your phosphates and your potassium, and you have all these different things and so P and K or your phosphates
and potassium. And over the last few years, they've been relatively cheap comparatively speaking, we've had reasonable supply, and we've had the ability to kind of use them and and really invest in increasing these yields via these these inputs and these components, and so some growers are telling me this year they're spending some extra money on soil sampling, perhaps are going even further into the soil sampling than what they were traditionally do, going more into a grid
sort of standpoint to where they're seeing every portion of the field to to see where they may have the ability to skip um some of these inputs P and K specifically, they can't necessarily avoid using nitrogen, but some of these cost savings that they're seeing elsewhere, they're going to to spend on utilizing some some other forms of
nitrogen or having access to it. You know. One of the things that we've seen that's very different than what we saw in two thousand eight and two thousand nine because a lot of growers now have the ability to store these inputs that they may need well ahead of what traditionally would be the spring season. And so for a lot of folks, they may have actually purchased and took possession, you know, late summer on some of their fertilizers and some of the other things that they may
need in order to produce the crop. And so that helps them to avoid some of these pinches that we're seeing that took place, you know, after the big hurricane hit the Gulf, and after China decided they were going to restrict you know, phosphate exports and Russia stepped in, and you know some of these other things that have taken place that have happened and and really ramped up prices here over the last couple three months. Some of these guys haven't necessarily seen that big brunt. You know.
In addition to that, we have some regenerative forms and agriculture where we are using continuous cover and some of these other things that we're doing that are actually helping the soil produce their own its own nitrogen or helping it to better handle, you know, if we run into
drought situations or some of these other things. And so from an overall stand point, you know, it's easy to think that, oh, well, the farmer goes out and he just sticks the crop in and if it rains, then we have a crop, and if it doesn't then oh no. But the reality is that these guys are are and guys and gals are investing heavily into all forms of technology, you know when it comes to crop production, and are are looking at you know, variable rate technology where the
soil dictates what they apply, and and some of these other things that are really kind of helping them to you know, potentially reduce their demand when the costs increase enough to where it's it's harmful to margin, you know, to kind of stay as it is or to do
everything as they've always done. And so that's one of the things that that we we aren't talking about much, you know, is the fact that the farmer is so used to to being somewhat flexible in what he or she does when it comes to their production techniques that they're looking at every single way that they can in order to kind of reduce some of those costs, reduce maybe some of the demand on the input side, and really work to continue to facilitate producing you know, large
crops via the technology that they're able to use. You know, we we touched on this at the beginning, but you know, I'm thinking about you in your you know, your day to day job, advising farmers and helping them to anticipate things. Let's talk a little bit more about fertilizer because again, fertilizer prices, as we know, highly a function of energy prices, It makes it a very macro story. Fertilizer prices are through the roof. And so when farmers I think about margins,
obviously fertilizers important. What are you telling clients about fertilizer and how how are they impacting margins? What are you anticipating them to do, and what are the knock on effects to actual growing from this recent search? Yeah, well, I mean I'm I am letting the farmer talk to me on what the he or she is seeing when it comes to inputs, because they are such an it is such an individualized approach, you know, the different farmers.
You know, there isn't all in passing sort of prescription when it comes to growing your crops. So different soil types and and and different farm types and and different crops kind of utilize different um inputs, especially when it comes to fertilizer and things of that nature. And so the conversations that we've been having have been more on what are you seeing from a cost standpoint? Have you booked it? Did you not book it? Are you looking at booking next year? You know? What what are your
thoughts on that? And I would say the majority of the growers that I work with, have in some way, shape or form spoken for booked, taken possession of. You know, are looking at having those fertilizer costs locked in, and so we take a look at, okay, based on your general production history, what you typically can intend to produce on that crop, based on your costs, where you've seen increases. You know, seed costs are up about five percent. You know,
fertilizers where that huge increases is coming from. And I would say that there's a huge push of a story that farmers aren't going to produce or we're going to
reduce the production because of these costs. So I would say all of the growers that I have talked to that have actually sat down and looked through uh a return on investment projection or looked through a cost analysis on what they're they're seeing from an increased versus a year ago, and what they're expecting to produce, and where the current crop prices are and all of these things,
they're still capable of booking a relatively reasonable margin. You know, in some cases, especially for the growers who may have booked their inputs early, let's say August time frame or something of that nature, and are looking at five fifty December twenty two futures, they're actually looking at the potential of having a better margin on new crop than where
they were at a year ago when looking ahead. And so we're just having a conversation about taking a realistic approach to what you need to utilize from an input standpoint, making sure that you know, the biggest question that we have are the biggest concern that we have is whether or not will be able to get our hands on
the inputs, the fertilizer and things of that nature. And so luckily for us, we still have four months to kind of hope and pray, because I think that's the point we're at in this supply chain disruption now is just simply hoping and praying that it corrects itself at some point. But we do have some time for those that haven't taken it in or taken actual possession. We do have some time to hopefully see some of that production catch up and folks to kind of get their
wits about them in the industry. You know, one of the things that we are seeing is if you look at a fertilizer chart from O A into oh nine, you know, we saw this peak sort of happened in November, and it was a straight fall free fall from there.
Now with everything that's happening macro and everything that's happening with China Russia, you know, we we fought the fertilizer industry in the US, fought against imports on one of the larger you know, suppliers of of fertilizer, and so that kind of restricted some of that supply, you know, coming in and things of that nature. We don't anticipate this sort of free fall, you know, obviously, and a lot of that's going to depend on what happens from
a macro standpoint. If if the global economy starts to cool and maybe retract, then obviously everything changes and energies and everything changes value wise. But for the most part, you know, one of the things that is unfortunate when it comes to corn, soybeans, and wheat production is there's never been in the history of the world the time where the market stopped and said to the farmer, mr farmer,
are you making money here? It really doesn't care. And so one of the things that we we really have to to keep in mind is is farming is from a supply standpoint, is not as elastic as other industries. You can't just you know, let the ground go fallow for two months and then plant a crop in August or something of that nature, you know what I mean, Like we're we're kind of locked in. You you have to do it. You're gonna do it, and you're going
to figure out how to make it work. Now, mother nature tends to have the final say, and some of these other factors that play obviously a play a role. But from an overall standpoint, for the growers that I'm talking to right now, the majority of them are keeping in line with what would be their normal rotaneation. Maybe they've made some changes. They're going to grow soybeans instead of corn on some ground that you know is less productive when it comes to corn, and maybe it needs
more fertilizers or something of that nature. But from an overall standpoint, talking with the folks that I'm talking to, they're just going to kind of keep on and and the farmer is an eternal optimist. He or she wouldn't be in the industry if they weren't overly optimistic about
potential and things of that nature. And so for the majority of the folks, that I talked to, They're just going to stay the course and and do everything they can to produce a good, high quality crop, and when all of is sudden done, they hope that they make
money doing it. So I was going to ask you what it would take to bring the market into equilibrium, but then I realized, like, what actually is equilibrium in this context, Like what would you or the average farmer consider to be like a market that is roughly in balance, It would be you know, similar to the production costs we saw a year ago with around a four five to four fifty futures value in corn specifically, you know,
that's kind of a sweet spot. Everyone was really excited when we saw the turnaround from you know, that three dollar COVID low to you know, breaking above four dollars and actually sustaining the move towards four fifty. It was as we saw the market start to move towards five and then six and then closer to seven, you know, speaking corn prices specifically, where folks started to say, oh no, now we're now we're really working our way towards unintended consequences.
And so most folks that I talked to would tell you could you give us last year's cost of production with like a four to four fifty futures price, and and that would be a nice sweet spot, and you know, we're we might get to see it. It It might happen for like a day as things pass and we go back the other way, you know. And and that's just something that we've grown accustomed to in the industry, is that there there really isn't equilibrium, and if it's there,
it doesn't last long. I'm starting to realize, like there's not many agriculture tourists like I can like sort of like pretend maybe like in a week, like oh, I
say something smart about supply and demand on copper. I really feel like it would take me a year, a year years before I could even pretend to say something smart about grains, because they're just, as you say, so many moving parts, and the idea of equilibrium is almost like a nonsensical idea whether they're just so many different variables. And I'm really starting to appreciate in this conversation why it feels like the grains conversations so separated from other markets.
I want to ask you, though, you know you're talking about like the higher fertilizer prices. You don't really expect them to have a big supply impact on grains because again, they're going to find a way to make it work. So far there still is room for margin. Maybe it'll come down, etcetera. What about them for the consumer of grains? And I'm thinking, you know, obviously people are concerned about meat prices and so obviously a big consumer of corn and soy. I don't know if animals corn and soy.
They oh they do. If corn prices get too expensive and wheats cheap, you'll see it flip flop. But right now, obviously that's not happening. It's the opposite. I didn't interesting, So what happened? Well, how are they How are the end buyers of the grands reacting? And I know that's sort of like they have their carriage costs because and dairy cows, you know, they have to I read something that because they have to feed them for a lot longer, they might allocate away from dairy. But what is the
ramification of these elevated prices on on the maat farmers. Yeah, I would say the biggest thing that you see or what the biggest ramification will be and this is kind of a dual component, or I'll give you a dual answer to it. But you know, one of the lines in the industry has always been you feed cheap corn with the scoop shovel, you feed expensive corn with a tea spoon. And so one of the things that you're going to see is some folks will start to to
really kind of move away from feeding a lot of corn. Now, obviously, you have to feed your animal, and so that's that's their number one. And you know, animal stewardship and making sure that they have a healthy, high quality product to offer into the global pipeline is the most important. And you know, and not to use too many cliches, but a lot of times cattle producers will tell you that every year is a million million dollar year. It's just a matter of if it's a red or a black one.
And I just say, by the way, we could do a whole episode on farmer cliches, and I think Tracy and I would really, really And I've enjoyed all of these ones because more the more the mirror, I enjoy all the anyway, keep a million of them. That's just we all have something that we can say, but really when it comes down to it is is you know, as a as a cattle feeder, as a hog feeder,
as a poultry feeder, whatever that may be. You know, a dairy farmer, they will do whatever it takes in order to keep their animals healthy, happy, and well fed. But they will look at alternatives. They will look at ways that we can up or you know, kind of change the ration of of what they're feeding. And that the ration is obviously the components of what they feed,
whether that's distillers grain, which is a byproduct of ethanol. Alright, well, ethanol production right now, because of the the energy markets, ethanol production has set a record in the last two weeks.
We are producing a huge amount of ethanol, and so as a result, every time we produce a gallon of ethanol, we're producing several pounds of distillers grain, which is a high energy cattle feed, and so we are kind of maybe we're increasing the amount of corn we're using for ethanol in the short term, but we're offsetting that corn, those corn needs by producing a larger amount of distillers
that can be sold into the countryside and fed. And so there's going to be a lot of sort of give and take and trying to find, you know, what's a cheap source of energy, what is a cheap source of protein. We're also crushing a lot of soybeans due to renewable diesel in the increase in and soy oil demand and vegetable oils from around the world, and so as a result, when you crush soybeans, you also produce several pounds of soybean meal, which is a high protein
feed source for the animals. And so we are seeing some give and take and some you know, sort of ebbs and flows of the overall supply versus demand structure in the market. Obviously, high feed costs will spill over
into production and the desire to expand production. And one of the industries that will see that happen the most in is going to be beef, simply because it takes about eighteen months to get an animal from birth to too ready to be harvested, so to speak, and ready to move into into the grocery store near you, you know what I mean, And and so it takes an
exceptional amount of time. So if you see high feed costs start to discourage folks from breeding, cattle in order to feed or fatten to put into the pipeline, which we've seen. We saw, you know, a year and a half ago, you know, sort of this move that instead of retaining heifers and and breeding them to have more beef cattle, we moved them into the pipeline because it wasn't cost effective to to continue to feed them or to put more mouths you know, on the in the feedlot.
And so as a result, we're seeing at in in higher beef costs. We've seen cash cattle work their way up towards one thirty, which is is you know, considerably high. It was only a year ago that we were below a dollar a pound, and so you've seen some of that happen. Hogs have seen a huge burst to the upside because of what we thought would be some continued
Chinese demand. Again that hogs have kind of been the canary in the coal mine to a certain extent because that huge increase in Chinese demand because of the loss of the Chinese herd, and and then since the recovery that happened a year ago, you know, it's kind of hurt the hog values. Now hogs are a six to eight month to a year, they are much quicker sort of turn them off, shut you know, turn them on,
shut them off, sort of of market structure. Same can be said for poultry, and so you'll see the high feed costs try to carry over into the the value of meat at the grocery store. But again just going back to like crop production. You know, honestly no one stops and asks the cattle feed or what it cost
to produce that that head of beef. We don't really notice that there's been an issue or that there's been you know, this high feed cost kind of carried over until it gets harder to find the beef at the grocery store. It costs you, you know, eight dollars a pound for a steak or something of that nature. And so we'll see it, but it's not necessarily something that you'll see the feeder maintain a solid level of margin
or anything of that nature. They just have to kind of absorb it and hope, again, just like the road crop producer, that when they get to the end of everything, that they were able to eat out some sort of profit. Angie I, there was so much we just learned from you in the last hour your your twitter bio says you're a cash grain super nerd, and you totally lived up to the hype of your yourself description. That was fantastic. I learned a ton and really appreciate you coming on
odd Luck. Thank you so much for having me. I had a blast. This is fun. Absolutely, that was great. Andrew fancy as we were good. Okay, the number of moving parts in like the grain conversation, it really sort
of blows my mind. Yeah. I mean, not only are you talking about different types of grains, but like each one of them seems to be affected by different things, like even a different type of fertilizer and then a different type of weather pattern, and then you know, different types of grains feed into different types of well feedstock for cows and chickens and pigs and things like that. There's a lot going on. But Atie was really great at breaking down like all these different things at the
same time. No, it's great. You know, it's something I thought about. Another thing that sort of makes the grain
market interesting is um. I guess the seasonality of plantings is probably like another you know, there's not oil season, right, I mean, I don't know, maybe there is a little bit of seasonality in some places with like industrial commodities, but by large, you know, it's like if there's oil somewhere, you're taking out of the ground two seven any time a year, or if there's coppers somewhere, you're taking it
out of the ground all the time. I do think like with grains, it's obvious like you could have like high fertilizer across right now, but if like the growing season was a couple of months ago, then maybe it
doesn't have a big effect. I would say, like, this doesn't feel like an area for like macro tourists to like start trading graind Like I would advise people to like be really careful if say, like you were like, oh I want to I want to start trading corn or whatever, because like the number of like variables that like go into well, yeah, this time of year is not when the you know the conditions but you know three three weeks ago, or the weather like at the
beginning of October, whatever it is, it seemed like to make it really intimidating for an outsider. Well even the professionals, I mean struggle to forecast a lot of these things, right, and and you mentioned, um, the what was it the agricultural department like underestimating or I can't remember that, was it underestimating or overestimating the initial corn harvest last year
overestimating and then it came in smaller than expected. So like, even the people who do this every day, day in and day out, can get things very wrong, much like financial journalists. And it really makes me appreciate that we have food, I mean obviously like that, like because all these things go into it. And granted there is food inflation right now, there are not widespread food shortages, but given the complexity of all of this, I am I'm
grateful once again for the farmers of America. Well, it kind of reminds me like just in the intro of supermarkets being like the foundation of modern society, there's just such an enormous mismatch between like the day to day immediacy that a supermarket demands versus these sort of like eternal seasonal nature of actually growing food and the idea that you have to plan everything out, you have to wait for the right season to actually plant things, and
then of course you have to wait for them to grow until you can harvest them or slaughter them if they're animals. It just seems like such a mismatch between the time it takes to actually do that and the time frame that people demand that their vegetables or their meat or whatever actually shows up on the shelves in
their local grocery store. I like that. Andie said that one of the perhaps solutions for high fertilizer costs is prayer that like, you know, there's always so much like you know, if there's like a literally you know, it's one thing to say, like, okay, the price rations the market or whatever, but you know, there hasn't actually been I guess, a real physical shortage where a farmer who needs fertilizer like can't get it, at least according to at least that is my takeaway from Andie's but that
could in theory at a happened at some point, and she's like, yeah, maybe we just have to pray that sometime in the next three or four months the market sort of balances out. But maybe so maybe that'll be one Maybe that'll be one solution to the to the to the issue. Well, it would certainly be a sort of like time honored technique. I guess praying to the gods harvest Okay, yeah, that's exactly right. Farmers have been doing that for a few for a long time, I think, yeah,
all right, this is getting weird. Um, shall we leave it here? Let's leave it there, all right. This has been another episode of the ad Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthal. You can follow me on Twitter at the Stalwark. Follow our guest Angie sets Her. She is at Goddess of Grain. Follow our producer Laura Carlson. She's at Laura. I'm Carlson. Followed the Bloomberg head of podcast,
Francesca Levi at Francesca Today. And check out all of our podcast at Bloomberg under the handle podcasts. Thanks for listening.