Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, obviously,
Speaker 1: we've been talking about inflation a lot lately, but I
Speaker 1: think there's like one category of inflation, or one category
Speaker 1: of goods inflation that really sort of like hits people,
Speaker 1: resonates with people emotionally more than others. It's mayonnaise obviously. Yeah,
Speaker 1: so I wrote that article about mayonnaise specifically, but it
Speaker 1: has to be food inflation, Like this is the one
Speaker 1: thing that sort of strikes fear into everyone's hearts. And
Speaker 1: it's probably where people are where you start thinking about
Speaker 1: inflation expectations the most. It's people who are actually going
Speaker 1: to the grocery store, who are looking at the price
Speaker 1: of coffee or a banana or something like that, and
Speaker 1: they can see on a day to day basis whether
Speaker 1: or not it's going up. Yeah, exactly. So it's like
Speaker 1: we could talk about like CPI and aggregant and oh
Speaker 1: big portion of that is say like used cars, but
Speaker 1: how often do you buy a used car? For most people,
Speaker 1: that's like a pretty rare purchase, so you don't like
Speaker 1: see it in your face you see it in the
Speaker 1: grocery store. Everyone sees it who goes shopping, whether it's
Speaker 1: the price of milk, whether it's the price of vegetables,
Speaker 1: the price of meat. For the most part, it's got
Speaker 1: many of these items have gone up significantly in the
Speaker 1: last year. And of course the thought of like, okay,
Speaker 1: the rise it costs like literally feed your family is
Speaker 1: a pretty big deal. Like it's about is sort of
Speaker 1: you know, if you're thinking about, like, well, what forms
Speaker 1: your view of inflation, that that is probably gasoline prices
Speaker 1: for people who don't live in a big city are
Speaker 1: probably like they're the two big ones, food and gas.
Speaker 1: But food, I mean, there's something about it. It's almost
Speaker 1: like it's tied to modern civilization as well, right, because
Speaker 1: you're not supposed to think about how the supermarket works.
Speaker 1: You're not supposed to think about how, you know, the food,
Speaker 1: the vegetables, the meat or whatever get from the farm
Speaker 1: to your table. You're not supposed to think about supply chains.
Speaker 1: But when you start thinking about them, it's usually in
Speaker 1: a really negative and worrying way, and that's when things
Speaker 1: kind of start to fall apart. So I don't know,
Speaker 1: I feel like the modern supermarket is sort of at
Speaker 1: the heart of the way we live nowadays, so when
Speaker 1: things go badly there, people start to freak out. It
Speaker 1: kind of feels like a big theme of a lot
Speaker 1: of our episodes lately is like we wish we didn't
Speaker 1: have to talk about these things, and it's a bad
Speaker 1: sign that we are. But anyway, so food inflation not great,
Speaker 1: and food prices have gone up considerably over the last year,
Speaker 1: and there are very reasons for this. But one thing
Speaker 1: that we've really seen over the last year, and we
Speaker 1: did one episode on it in the early Scott ran
Speaker 1: over the University of Illinois is grains. And of course
Speaker 1: grains are consumed by humans, but they're also by animals,
Speaker 1: so the higher grain prices feeds into higher meat and
Speaker 1: dairy prices and so forth. And one of the interesting
Speaker 1: things about grains, I think historically, or soft commodities in general,
Speaker 1: agricultural commodities, is that they often seem like of the
Speaker 1: commodity complex, more disconnected sometimes from the macros. So you
Speaker 1: can like grains maybe affected by drought or other conditions,
Speaker 1: whereas something like you know, copper might just be like
Speaker 1: a reflection or oil might be reflection of the macro
Speaker 1: economy boom or bust. Grains and other soft commodities, they
Speaker 1: might have more idiosyncratic factors like what was the weather
Speaker 1: in Brazil like? Or what was the weather in Iowa like?
Speaker 1: And so it's kind of like a it's a niche
Speaker 1: that sort of. I think a lot of people don't
Speaker 1: spend a lot if you're not in it, don't a
Speaker 1: lot spend a lot of time like think about specifically. Yeah,
Speaker 1: I think that's right. I mean I think rarely does
Speaker 1: the price wheat go up because g d P is
Speaker 1: at like four or five or something like that. Yeah, exactly,
Speaker 1: So a recovery could obviously increase the price of gasoline
Speaker 1: or copper, but usually we don't really associate the price
Speaker 1: of like, yeah, wheat or corn with the cycle. That
Speaker 1: being said, right now, we are seeing this boom in grains,
Speaker 1: particularly wheat, so we corn, and soy or as they
Speaker 1: call them in the industry, beans. They're all up a
Speaker 1: lot from the last year. Corn and beans have actually
Speaker 1: come off their highs a little bit. They're not up,
Speaker 1: but wheat is very high. So there's a lot of
Speaker 1: to get into it. There's a lot of stuff going
Speaker 1: on at this space. I'm very excited we're going to
Speaker 1: be talking about wheat, corn and beans. That sounds great.
Speaker 1: I mean, this kind of falls into our category of
Speaker 1: getting really really micro and niche this year. But also
Speaker 1: it's kind of a weird one because on the one hand,
Speaker 1: these are all individual markets, but on the other hand,
Speaker 1: they do have one or two things in common. You know.
Speaker 1: One thing is the weather, which you already mentioned, and
Speaker 1: that's played into a lot of the issues that we've
Speaker 1: seen recently. And the other is fertilizer. And I know, yeah,
Speaker 1: I don't know much about fertilizer, but the one thing
Speaker 1: I do know about it um only because I lived
Speaker 1: in Abu Dhabi for a while. But most people think
Speaker 1: of it as like cow poop, you know, just the
Speaker 1: stuff that you get from somewhere, organic material that you
Speaker 1: put on your farmland and things grow. But it's actually
Speaker 1: the product of a really intense chemical process. And it
Speaker 1: feels to me like the weird thing about fertilizer is
Speaker 1: it's this big chemical process with an actual supply chain,
Speaker 1: but at the same time, it doesn't really have the
Speaker 1: same infrastructure as other commodities like oil and gas. And
Speaker 1: I think this is probably a year when we've really
Speaker 1: felt that. So that's the one thing I know about fertilizers,
Speaker 1: and I'm interested to talk more about it. And because
Speaker 1: fertilizer is connected to energy, and because energy is connected
Speaker 1: to everything else, this is the one way very clearly
Speaker 1: in which the macro cycle impacting grains. All right, let's
Speaker 1: get to it. I am very excited about our guest.
Speaker 1: We're gonna be speaking about all things grains with Angie Setser.
Speaker 1: She is a co found of Conscious r o I,
Speaker 1: which is a new company that consults on all kinds
Speaker 1: of things grains for farmers, investors, and so on. Previous
Speaker 1: to that, she was the vice president of grain at
Speaker 1: a Citizens Elevator in Michigan for ten years. So a
Speaker 1: true grain veteran. Uh, Angie, thank you so much for
Speaker 1: coming out odd lots, Thanks for having me. I'm excited
Speaker 1: to be here. But can I ask a really embarrassing
Speaker 1: question to start? Of course, the more embarrassing the better.
Speaker 1: Let's break that ice. So I lived in Illinois for
Speaker 1: a while, the south of Chicago. I lived in the Midwest.
Speaker 1: There were a lot of cornfields and other farms around me,
Speaker 1: and stuff you used to work for Citizens elevator. How
Speaker 1: does a grain elevator work? Again, I drove by them
Speaker 1: on the way to school all the time as a
Speaker 1: kid from like age two to twelve, and I actually
Speaker 1: don't know really like why what the how elevators work? Well?
Speaker 1: That means they're working right right idea. You never had
Speaker 1: to learn, so you never had to worry about it.
Speaker 1: But yeah, I mean a grain elevator. Really the entire
Speaker 1: beginning of the industry was we had this massive amount
Speaker 1: of harvest that came off one time of year, right like,
Speaker 1: so the farmers spent all year long producing this crop
Speaker 1: and it had to go somewhere. And traditionally, the demand
Speaker 1: sector obviously is set up to handle all of the
Speaker 1: harvest coming off. It needs to be kind of rationed
Speaker 1: out throughout the year, if you will. And so that
Speaker 1: was why a grain elevator started, as we needed to
Speaker 1: have a place locally for the farmers to be able
Speaker 1: to harvest their crops, bring them in, and then it
Speaker 1: was the elevator's job to kind of work throughout the
Speaker 1: year to kind of put the grain out into the
Speaker 1: demand structure, whether that was export, whether that was feeding
Speaker 1: uh animals or you know. Now in the last fifteen
Speaker 1: years or so, renewable fuels or by ethanol, biodiesel, whatever,
Speaker 1: and so a grain elevator's job really is just to
Speaker 1: help facilitate the harvest, take the grains in at harvest time.
Speaker 1: My job, as as the vice president of grain at
Speaker 1: the elevator or was to hedge that use the futures
Speaker 1: market to kind of offset my future's risk, and then
Speaker 1: trade the spreads in the market structure that carry we
Speaker 1: say carry or inversions and grain as opposed to you
Speaker 1: know those fancy fun cantango and backwardation like we're just
Speaker 1: very simple, I guess, but you know, the monitor what
Speaker 1: the spreads are doing, and trade the basis which is
Speaker 1: the difference between the cash price and futures. You know.
Speaker 1: As responsible for being in charge with trading with the
Speaker 1: elevators handling, you know, I was a basis traders what
Speaker 1: that was called. But like I said, my job was
Speaker 1: to take in the grain at harvest time, help facilitate
Speaker 1: that harvest for my customers, and then spend the rest
Speaker 1: of the year kind of putting it out into the
Speaker 1: market structure depending on you know, where the demand was
Speaker 1: most present and where the market opportunities were the best
Speaker 1: and and then hopefully get it empty or or get
Speaker 1: everything kind of put away to do it all over
Speaker 1: again the following year. So I have another really basic
Speaker 1: um question. But you know, Joe laid out the sort
Speaker 1: of trio of cash grain, so corn, soybeans, and wheat.
Speaker 1: What is it that those three have in common? Like
Speaker 1: what makes them a unified market? Um? Or like why
Speaker 1: do we talk about them as a trio? And then secondly,
Speaker 1: are most people in this space would they be involved
Speaker 1: in all three of those at any one time or
Speaker 1: would you specialize in one market in particular? It really depends, um.
Speaker 1: I think the reason that we talk about them as
Speaker 1: a trio is because they they are the most actively traded.
Speaker 1: They were the cornerstone to a certain extent of the
Speaker 1: Chicago Board of Trade, and so we see this sort
Speaker 1: of there the I don't know, the top three produced crops,
Speaker 1: I guess you could say, and the ones with the
Speaker 1: bulk of the demand and supply structure around the world,
Speaker 1: And so I feel like they just kind of all
Speaker 1: get lumped in with one another. They tend to trade
Speaker 1: um within a certain level of of a ratio, especially
Speaker 1: corn and wheat, when really it depends on where you're located.
Speaker 1: You know, for instance, an elevator in Iowa, where they
Speaker 1: do not grow hardly any wheat. They grow some, but
Speaker 1: not a lot out there. You know, they're not going
Speaker 1: to focus on wheat at all, whereas someone in in
Speaker 1: our neck of the woods, in my neck of the
Speaker 1: woods in Michigan, you know, wheat is one of the
Speaker 1: top three in the rotation, and therefore you need to
Speaker 1: have an understanding of how that wheat market works. There
Speaker 1: are people that are are specialized traders. You know. I
Speaker 1: have friends that they're one and only job is to
Speaker 1: trade wheat in the Pacific Northwest, and so they trade
Speaker 1: white wheat, soft soft white wheat. I mean, wheat is
Speaker 1: one of those things where we say wheat as though
Speaker 1: it's under this big umbrella. But there's five different classes
Speaker 1: of of wheats, and so yeah, there are some specialized traders.
Speaker 1: You know, some folks you start to talk about wheat
Speaker 1: and they completely glaze over. Others you start to talk
Speaker 1: about wheat and they get all excited, like, oh, did
Speaker 1: you see what's going on with You know VSR, which
Speaker 1: is a variable storage rate that Semi introduced a few
Speaker 1: years back, and you know some of these other things,
Speaker 1: and so it really just depends on where the person
Speaker 1: is located and what their specific job is as to
Speaker 1: whether or not they're they're really kind of specialized. But
Speaker 1: I would say from an overall standpoint that why they
Speaker 1: kind of just get lumped in together is that they
Speaker 1: are the most actively traded, and I think they're the
Speaker 1: market that you see the majority of that outside interest in,
Speaker 1: and they just kind of have somehow become, you know,
Speaker 1: by proxy, their representatives of all things egg, even though
Speaker 1: there's a whole slew of other crops that that people handle, cotton, sorghum,
Speaker 1: you know, potatoes, vegetables, all of these other things, but corn,
Speaker 1: wheat and beans tend to be the the end all
Speaker 1: and be all of of agriculture. Then, honestly, how I'm
Speaker 1: not sure, but I think most of that is simply
Speaker 1: because of the cbot and where that started. So I
Speaker 1: want to get into soon like what's going on in
Speaker 1: the market. But one other sort of I don't know
Speaker 1: if the market structure question is how much fungibility is
Speaker 1: there in farmland that allows armors to say, switch up
Speaker 1: space in a given year, reallocating between one grain versus another,
Speaker 1: depending on conditions, Let's say the price of soy or
Speaker 1: in this case, these days, wheat prices are very high.
Speaker 1: To what degree can typical farm or pivot and reallocate
Speaker 1: acreage to one of the other. Much of that just
Speaker 1: depends on the crop and what's going on from a
Speaker 1: weather situation. Let's say winter wheat right now, so specifically
Speaker 1: Chicago and Kansas City wheats are are your wheats that
Speaker 1: are planted in the fall, And so right now for us,
Speaker 1: for instance, in Michigan, the weather has been less than
Speaker 1: ideal throughout much of October. You know, we had one
Speaker 1: of the top fifteen wettest October's on record, and that
Speaker 1: really doesn't necessarily facilitate getting that wheat crop planted. You
Speaker 1: can't really get a wheat crop mut it in. And
Speaker 1: now we're expecting snow this weekend, and some of those thinks.
Speaker 1: So I may have had some customers that were intending
Speaker 1: on increasing their wheat acres due to the high costs
Speaker 1: or high value of of wheat for next year. Now
Speaker 1: we're with eight dollar week on in July two for Chicago,
Speaker 1: and so they would have had this desire perhaps to
Speaker 1: increase their weet acres by ten something of that nature.
Speaker 1: But if they weren't able to get it planted prior
Speaker 1: to the start of October when the weather really went
Speaker 1: sideways on us, they're not going to you know, the
Speaker 1: same could be said for corn in the spring. If
Speaker 1: if we miss that window of opportunity for planting or
Speaker 1: something of that nature, then they may be forced into
Speaker 1: planning soybeans. You know. For now, I would say though,
Speaker 1: that it's it's kind of a toss up for most
Speaker 1: growers going into the new crop year, going into next spring,
Speaker 1: you know, whereas if they are able to get the
Speaker 1: crop off, they're looking at different opportunities when it comes
Speaker 1: to you know, returns on investment and some of these
Speaker 1: other things. They may be able to switch up their rotation.
Speaker 1: But for most farmers, what they will tell you is
Speaker 1: that it's very rotationally driven. It's best for the soil
Speaker 1: to kind of keep in mind soil weed control, pest control,
Speaker 1: all of these things, to kind of say, okay, well,
Speaker 1: we grew corn last year, we're probably gonna switch to
Speaker 1: beans this year. Michigan here, like I said, we have
Speaker 1: a three crop rotation, and so a lot of times
Speaker 1: you'll see corn the following year beans and then wheat
Speaker 1: planted in the fall after that bean crop, and then
Speaker 1: corn again the following year, and so for a lot
Speaker 1: of those folks out there, they'll stick to that rotation.
Speaker 1: But if mother nature says something different, like what we
Speaker 1: saw in two thousand nineteen where we just literally could
Speaker 1: not get the crop planted until the middle of June,
Speaker 1: for a lot of folks at that point they may
Speaker 1: have switched over into soybeans or or something different. And
Speaker 1: so for the most part, there there are a lot
Speaker 1: of ways that farmers can kind of change their mind
Speaker 1: or maybe reevaluate what they intend to plant, but for
Speaker 1: the most part, they tend to keep it in line
Speaker 1: with with what their local market structure asks for, with
Speaker 1: what their soil is asking for. And you know what
Speaker 1: they've done from a traditional standpoint, maybe for the last
Speaker 1: several years. So why don't we go ahead and talk
Speaker 1: about what's going on in prices? So a big run
Speaker 1: up in wheat, soybeans have dropped from um, a pretty
Speaker 1: big spike over the past year or so, and corn
Speaker 1: doing relatively better than soy but not that great. What
Speaker 1: exactly is going on? A ton of things? It's amazing, Um,
Speaker 1: you know what's taken place here and thinking back over
Speaker 1: the last fourteen fifteen months, and so that's one of
Speaker 1: the biggest things I'd say is you almost have to
Speaker 1: start from the beginning, right, Uh, this September two thousand
Speaker 1: and twenty, So a year ago September, we saw these
Speaker 1: massive ending stock estimates from the U. S d A.
Speaker 1: We we thought we were going to be flirting with
Speaker 1: a three billion bush will carry out. And so to
Speaker 1: put that the perspective for corn, you know, a tight
Speaker 1: or a pipeline minimum where we say that we're we're
Speaker 1: at the low end of supplies is around it alien bushel.
Speaker 1: And so last September we were expecting three times what
Speaker 1: would be a minimum pipeline amount. It was burdensome, was
Speaker 1: the words being used quite often. Then the same could
Speaker 1: be said for soybeans. We were expecting close to a
Speaker 1: billion bushel worth of carry out and insteps China, and
Speaker 1: all of a sudden we get this conversation of a
Speaker 1: China stockpiling, cheap prices, trade war phase one and all
Speaker 1: of these things, and so China steps in and just
Speaker 1: starts buying in a way that we had never seen before. Honestly,
Speaker 1: I mean, it was it was like someone had flipped
Speaker 1: a switch. It didn't matter what prices were doing, it
Speaker 1: didn't matter what it would cost to get there. They
Speaker 1: were just told to buy, and they were buying, you know.
Speaker 1: And and so that started really kind of the sudden turn,
Speaker 1: and we had what you would call a bullish response
Speaker 1: to a Barish report. And that was the first sign
Speaker 1: that things were probably going to be quite different. And
Speaker 1: you know, around about a year ago, I remember it,
Speaker 1: right around Thanksgiving time was when we started to talk
Speaker 1: about the inflation, you know, and what was gonna happen
Speaker 1: from an inflation trade standpoint, and suddenly the macro side
Speaker 1: of of everything came back into focus, um, which was
Speaker 1: the first time we had seen any sort of macro
Speaker 1: conversation I'd say two thou eighteen. We probably flirted with
Speaker 1: it for a minute, but really, you know, we're we're
Speaker 1: talking two thousand eight, two thousand nine type inflationary conversations
Speaker 1: obviously when you look at inflation data. And so we
Speaker 1: had this sort of combination of significant increases in demand
Speaker 1: via China and then suddenly the U s d A
Speaker 1: was like, oops, we we overestimated last year's crop pretty substantially,
Speaker 1: and we started to see this reduction in overall supply,
Speaker 1: and so you could say that it was a perfect
Speaker 1: storm of bullishness. I mean it just you had the
Speaker 1: inflation really putting the gas to the fire, and then
Speaker 1: you had these supply and demand so like as you
Speaker 1: were saying at the start of the show, you know,
Speaker 1: we tend to just focus on what's weather doing. You know,
Speaker 1: what are we going to use for exports? And and
Speaker 1: most of the time folks don't even care what's going
Speaker 1: on in grains because we just kind of trade back
Speaker 1: and forth, maybe get some seasonal rallies here or there,
Speaker 1: but from an overall standpoint, we never have to worry
Speaker 1: about running out or any of this. Well, China, like
Speaker 1: I said, stepped in and bought well beyond what you
Speaker 1: would traditionally see them take in from a corn standpoint,
Speaker 1: especially soybeans were a bit of a surprise, but then
Speaker 1: you saw them really come in and and buy that corn.
Speaker 1: But in addition to that, then you had these Brazilian issues.
Speaker 1: You started with a low or a slow start to monsoon,
Speaker 1: no moisture in Brazil, so they were unable to really
Speaker 1: get the crop planted and tell around January when traditionally
Speaker 1: you like to see the bulk of the crop planet
Speaker 1: October November. That had major implications on the US export window. UH.
Speaker 1: And export window traditionally closes for soybeans around the first
Speaker 1: part of January, you know, into February. Last year or
Speaker 1: at the start of this year, we were exporting beans
Speaker 1: to China into March because Brazil's crop wasn't ready to
Speaker 1: make its way into the export pipeline. That slow start
Speaker 1: to their soybean crop hurt or slowed their ability to
Speaker 1: get their corn crop planted. Put that corn crop, you know,
Speaker 1: into that important window of production falling right when the
Speaker 1: dry period starts, so the mansunal moisture and Brazil tends
Speaker 1: to shut off last part of April into May, so
Speaker 1: that's when the majority of the corn crop was trying
Speaker 1: to mature. You know, we had this this amazing uh
Speaker 1: if you can call it, that drought and Brazil take
Speaker 1: place and really just take their second crop corn production
Speaker 1: expectations from around a hundred and twenty million metric ton
Speaker 1: down to eighty five. So we had these just this
Speaker 1: wild series of events that made it a feel as
Speaker 1: though we were never going to see corn and soybeans
Speaker 1: go down again, only to actually have a pretty reasonable
Speaker 1: production season. In the US. We actually are looking at
Speaker 1: probably having a record large soybean crop. We're gonna be
Speaker 1: flirting with a record yield and corn and so that's
Speaker 1: helped kind of stabilize some of that supply and taken
Speaker 1: some of that story away, but poor wheats still on
Speaker 1: that track. We didn't get the memo that we were
Speaker 1: supposed to calm down because we had auction shortages. We
Speaker 1: had this massive drought in the Canadian prairies and in
Speaker 1: the northern portion of the US where spring wheed is grown,
Speaker 1: so production there was off substantially. And then of course
Speaker 1: we have this fall weather here where we could be
Speaker 1: looking at another reduction in production, specifically in the soft
Speaker 1: red wheat area, the Chicago weeed area. And then there's
Speaker 1: questions as to what the heck is going on in Russia.
Speaker 1: The Russia is obviously continuing to limit what they're exporting.
Speaker 1: You're seeing some continued food inflation stories. The the industry
Speaker 1: itself is changing there. What you used to see was
Speaker 1: the farmer having to force supplies into the market structure
Speaker 1: as they were harvesting. Similar what we had talked about
Speaker 1: earlier with the U S Elevator. Now they're building space,
Speaker 1: they're keeping the crops closer to home. They're finding that
Speaker 1: that gives them some power, and so that's really changing
Speaker 1: what we're seeing from the overall global supply and demand situation.
Speaker 1: And there's a million different little stories that you could
Speaker 1: point to in any one day that would be either
Speaker 1: bullish or bearish price. And right now, with that inflation
Speaker 1: under that we're seeing, or that inflationary support, it's keeping
Speaker 1: prices supported even if the fundamental story, especially for like soybeans,
Speaker 1: isn't as bullish as what it was six months ago.
Speaker 1: That was great, and I think that was like this
Speaker 1: sort of like perfect storm of all the things you
Speaker 1: described at the planting conditions and the Chinese buying and
Speaker 1: the issues in Brazil, the issues in Canada, and you
Speaker 1: really see how it all comes together. I want to
Speaker 1: drill down a little bit more, and I think you
Speaker 1: sort of um drove home a little bit what we
Speaker 1: were talking about in the beginning, which that normally we
Speaker 1: don't think of grains as being part of the macro
Speaker 1: cycle the same way we do with other commodities. But
Speaker 1: this time we're getting both at once. We're getting these
Speaker 1: sort of unusual things with the conditions globally and the
Speaker 1: macro considerations. I want to get into some of the macro.
Speaker 1: One thing I'm just curious about is like farm labor.
Speaker 1: How challenged are we talk about it with all different
Speaker 1: industries we hear about all the time. Howell our farmers
Speaker 1: right now from a hiring perspective, and how much our
Speaker 1: labor markets putting stress on farmers. They're definitely, I mean
Speaker 1: that tends to be a common issue that we have
Speaker 1: an agriculture Even before this whole entire conversation about employment
Speaker 1: and you know, and and struggles with finding folks, we
Speaker 1: always tend to I mean it, let's be honest, Like
Speaker 1: agriculture is not the most glamorous industry to work in,
Speaker 1: especially when it comes to corn, soybeans, wheat, some of
Speaker 1: those things. You know, the majority of the year, you
Speaker 1: don't necessarily need to work an exceptional amount of hours
Speaker 1: if you're just you know, row cropping. But then those
Speaker 1: two or three months out of the year, these folks
Speaker 1: are working almost twenty four hours a day, seven days
Speaker 1: a week. And and no one who doesn't have a
Speaker 1: solid investment or you know, as I like to put it,
Speaker 1: mud in their blood, you know what I mean, they're
Speaker 1: not passionate about the agriculture side of things. You know,
Speaker 1: no one's going to be excited about doing that. And
Speaker 1: so one of the things that we're somewhat fortunate in
Speaker 1: and in my portion of agriculture, this isn't the same
Speaker 1: for vegetable producers and folks the labor intensive crop, but
Speaker 1: in corn, soybeans, and wheat, technology and the expansion of
Speaker 1: technology and the expansion of equipment. The bigger the equipment,
Speaker 1: the easier it is for one guy or gal to
Speaker 1: to harvest. You know, we've we've expanded the size of
Speaker 1: of grain carts in the field to where you know,
Speaker 1: they can the combine can put a thousand bushels of
Speaker 1: corn on a cart before it has to go to
Speaker 1: the semi. You know. One of the biggest things that
Speaker 1: we're really struggling with, and I think everyone can agree
Speaker 1: throughout this the industry. You know, one of the things
Speaker 1: that we're really struggling with, when it comes down to it,
Speaker 1: is is trucker's and and truck labor. They're being able
Speaker 1: to move it from point A to point B. You know,
Speaker 1: and as a result of a lot of the customers
Speaker 1: that I'm working with, we may be evaluating or re evaluating.
Speaker 1: You know, where we would traditionally send soybeans into the
Speaker 1: export hub that is Toledo at the fall, we may
Speaker 1: instead take a lesser price to go into the beam
Speaker 1: crusher to the north. There's something of that nature where
Speaker 1: you know, you can make three trips a day versus
Speaker 1: trying to make one just simply because you don't have
Speaker 1: the amount of trukers that you you used to, and
Speaker 1: so it's it's been one of those things. I think
Speaker 1: the biggest sector that that will continue to be impacted
Speaker 1: on the employment side especially will be those elevators, those
Speaker 1: commercial setups, just simply because it's hard to find someone
Speaker 1: that is willing to work the long hours that are
Speaker 1: needed to run that elevator and to work with the
Speaker 1: several different farmers that come in. And it's it's not
Speaker 1: the most glamorous job at all, but it's definitely an
Speaker 1: important one. But at the same time, even with costs
Speaker 1: going up and all of these other things, the elevator
Speaker 1: or the commercial unless they're an end user, unless they're
Speaker 1: an ethanol plant or an exporter, or something of that nature.
Speaker 1: They're getting squeezed as well because their margins aren't getting
Speaker 1: that much better or good enough to where they can
Speaker 1: really kind of incentivize with higher pay to their employees.
Speaker 1: And so that's where you're starting to see some of
Speaker 1: that real squeeze come in. Is is the groups that
Speaker 1: are trying to facilitate that harvest, you know, I eat
Speaker 1: those commercial elevators or those that are trying to move
Speaker 1: the bushels, you know, like try ers or or someone
Speaker 1: of that nature. Well, so this is something that I
Speaker 1: want to ask you, but what exactly are the input
Speaker 1: costs that go into farming these types of grains? So,
Speaker 1: you know, you just discussed labor. I imagine equipment is
Speaker 1: a big part of it. Uh. We talked a bit
Speaker 1: about fertilizer at the intro, But like, what are actually
Speaker 1: the things that go into producing these different types of
Speaker 1: grains and how have those various components been impacting the
Speaker 1: price recently. There's a ton of of input costs that
Speaker 1: you could take into consideration. Where you have to take
Speaker 1: into consideration, you know, I think the biggest one for
Speaker 1: a lot of folks is land and we've seen land
Speaker 1: values obviously going up. The old line they're not making
Speaker 1: any more of it is definitely true, right, And so
Speaker 1: you've seen land costs go up exponentially. We're starting to
Speaker 1: see urban sprawl impact that you know, in my neck
Speaker 1: the woods they lived just outside of the Lansing area,
Speaker 1: and the amount of farm fields that have went into
Speaker 1: subdivisions over the last five years is really satively astounding,
Speaker 1: you know. And and with prices lower, margins tight, a
Speaker 1: farmer can't necessarily compete with a developer when it comes
Speaker 1: to purchasing some of these land uh pieces that come
Speaker 1: up for sale. So it's a land uh costs. Obviously,
Speaker 1: there is the cost of living that a farmer has
Speaker 1: to take into consideration if they are full time farmer, healthcare,
Speaker 1: you know, the cell phone, the new pickup, the all
Speaker 1: of these things, you know kind of come into play.
Speaker 1: And then when it comes to actually producing the crop,
Speaker 1: you're obviously looking at fertilizer, chemicals, seed, you know, your
Speaker 1: equipment costs continue to grow exponentially. You know, all of
Speaker 1: these things kind of come into play. And so there's
Speaker 1: always been that old line that the you know, the
Speaker 1: farmer buys retail and sells wholesale and we're definitely seeing
Speaker 1: that at this point is everything that that we need
Speaker 1: to produce the crop has gone up and value and
Speaker 1: obviously the futures values and the price that the farmer
Speaker 1: is getting for selling his or her crop has gone
Speaker 1: up as well, but they're definitely not matching one to one.
Speaker 1: You know, there was a sweet spot there probably sometime
Speaker 1: in March maybe that we had hit where the price
Speaker 1: going up had matched the cost of inputs going up.
Speaker 1: And and now we're starting to see inputs stay elevated.
Speaker 1: Uh well, values come down a bit. And so yeah,
Speaker 1: I mean there's you name it, the farmer. It probably
Speaker 1: touches it in some way, shape or form in order
Speaker 1: to to have that business and bring the crop to
Speaker 1: the pipeline. So one of the things that's very timely.
Speaker 1: Right now, we're recording this one day November eight. It
Speaker 1: will be out in a couple of days. We don't
Speaker 1: know what's gonna change by then, but there's a significant
Speaker 1: strike a deer impairing production. And I have to assume,
Speaker 1: and I don't know anything specifically about this, my gut
Speaker 1: is because of everything these days that tractors and parts
Speaker 1: for repairing tractors were not an abundant supply even before
Speaker 1: the strike, because I'm just sort of assuming that every
Speaker 1: part of the supply change is stressed. How much anxiety
Speaker 1: is this causing. Is the causing farmers and worries about
Speaker 1: production of new farming equipment. It's definitely something that's that's
Speaker 1: on the radar, I think as we I think the
Speaker 1: anxiety was much higher at the start of harvest because
Speaker 1: there were some true concerns over what would happen if
Speaker 1: you had a breakdown and needed a part and you
Speaker 1: were unable to get it. You know, as we're wrapping
Speaker 1: up harvest here, we're we're expected to be around nine
Speaker 1: complete on sweeping harvest and complete on corn, so we're
Speaker 1: we're into that final stretch, and so much of that
Speaker 1: anxiety is kind of started to back off a little bit.
Speaker 1: I mean, at the start of harvest, there were some
Speaker 1: real concerns. I had growers that were needing to drive
Speaker 1: you know, five, six, seven, eight hours to grab apart
Speaker 1: at a dealership that maybe wasn't local in the state
Speaker 1: or anywhere to be found in the state, you know,
Speaker 1: And and so there was some real concern over what
Speaker 1: happens if I suffer catastrophic breakdown. You know, what am
Speaker 1: I going to do? How are they going to make
Speaker 1: sure that I'm able to get back and and rolling again?
Speaker 1: Because that's that's the biggest thing. We get a tiny
Speaker 1: window of opportunity to get the cross off, and if
Speaker 1: you're unable to do so, unable to get that crop
Speaker 1: off because of a piece of equipment or a lack
Speaker 1: of a part or something of that nature, you know,
Speaker 1: that's that's something that keeps you up at night, just
Speaker 1: that concern. And so, having made it to the bulk
Speaker 1: of the tail end of harvest without much in the
Speaker 1: way of absolute shutdowns, you know across the industry, we're
Speaker 1: breathing a little easier, but it's definitely something that's going
Speaker 1: to cause great concern. You've seen an exponential increase in
Speaker 1: used equipment costs and other things, and so that's going
Speaker 1: to make some folks think twice before. Perhaps. I think
Speaker 1: we're getting to that tipping point when I say that
Speaker 1: folks think twice before trading in an old piece of
Speaker 1: equipment for a new one or something of that nature.
Speaker 1: I think you're going to start to see some of
Speaker 1: the same things that you're seeing in the auto industry,
Speaker 1: you know, kind of start to take place a little
Speaker 1: bit when it comes to equipment. You know, most farmers
Speaker 1: right now have the bulk of their equipment needs covered.
Speaker 1: Would they like to upgrade, potentially, sure, But are they
Speaker 1: going to think twice about it, you know before they
Speaker 1: just dive in head first and and and make a
Speaker 1: purchase that they may not need to be making. You know, yes,
Speaker 1: they're gonna start to really kind of re evaluate some
Speaker 1: of the demand that they have surrounding these pieces of equipment.
Speaker 1: And so I think you'll see eventually a point where
Speaker 1: we hit a bit in the way of an impasse.
Speaker 1: But you know, we'll see what happens. If the supply
Speaker 1: chain can kind of get back up and and running,
Speaker 1: you know, then they won't. I've seen a lot of
Speaker 1: folks talking about switching away from deer into other types
Speaker 1: of equipment. But the supply chain disruption is across everything,
Speaker 1: and so it's not just a dear thing. It's not
Speaker 1: just a case thing. It's not just a New Holland thing,
Speaker 1: you know, and I think the farmers are aware of that.
Speaker 1: It goes back to the housing industry. You know, like
Speaker 1: a lot of folks would love to to maybe move
Speaker 1: to a new house and maybe they can sell their
Speaker 1: house for an exceptional profit and they're they're well ahead,
Speaker 1: but they can't find a new house. And so it's
Speaker 1: the same thing, you know in equipment is you could
Speaker 1: get rid of whatever piece of equipment that you have,
Speaker 1: but can you replace it, and if you can, what
Speaker 1: that replacement costs look like. And so there's a lot
Speaker 1: of tough decisions kind of being made, or folks are
Speaker 1: thinking twice about maybe making some of these changes that
Speaker 1: they would have made otherwise because of the disruption that
Speaker 1: we're seeing in the cost increases. And so it's not
Speaker 1: a requirement to upgrade to a new combine every year,
Speaker 1: and so these guys will probably sit tight for a
Speaker 1: little bit and see what happens. But it definitely remains concerning,
Speaker 1: you know, just as in any other portion of you know,
Speaker 1: the demand the demand structure out there, Like if I
Speaker 1: go to the store next tomorrow, is they're going to
Speaker 1: be toilet paper, you know, And it's the same except
Speaker 1: for now it's if I need a new belt to
Speaker 1: keep my piece of equipment running, will it be there? Um?
Speaker 1: And so I think you are seeing some additional you know,
Speaker 1: purchases instead of that, well, I can go to the
Speaker 1: store tomorrow and it will be there. You know, you're
Speaker 1: seeing the same in agriculture, to where I'm going to
Speaker 1: make sure that I have it on hand so I
Speaker 1: don't have to worry about that. So just before we
Speaker 1: move off deer and equipment, you know, we're talking about
Speaker 1: the strike and maybe farmers wanting to have more parts
Speaker 1: or equipment on hand. One other longer standing issue that
Speaker 1: regarding deer I know is, and I've seen articles about this,
Speaker 1: is right to repair and this idea that like tractors
Speaker 1: and combines, like cars are getting more and more high tech,
Speaker 1: and there are more pieces of software than they are
Speaker 1: just pieces of metal and parts put together, and that
Speaker 1: this is a sort of anxiety that there becomes a
Speaker 1: sort of lock in where the farmer becomes very dependent
Speaker 1: on the vendor of the or on the equipment manufacturer.
Speaker 1: How much is this something that people talk about and
Speaker 1: trying to weather through law or something else, trying to
Speaker 1: change it such that the owner of the piece of
Speaker 1: equipment is not as perpetually dependent on the man you
Speaker 1: facture for permanent ability to repair their own goods. It's
Speaker 1: a huge deal I mean, it's definitely something that that
Speaker 1: folks are cogniitive and and they're they're fighting every day,
Speaker 1: you know, to a certain extent, I would say, you know,
Speaker 1: those of us in agriculture are just kind of so
Speaker 1: used to being like, well, it is what it is,
Speaker 1: you know, and so they aren't necessarily um standing up
Speaker 1: or or fighting. You know, there may be relying on
Speaker 1: other people to kind of fight the good fight, and
Speaker 1: then they're standing in the background saying, yeah, what he said,
Speaker 1: you know, to a certain extent um, but it's definitely
Speaker 1: something that's huge and something that we need to be
Speaker 1: aware of and paying attention to. And and you know,
Speaker 1: it plays a role, you know, and it's a beautiful thing.
Speaker 1: You know. It's technology is has made it to where
Speaker 1: we don't have some of those concerns over employees and
Speaker 1: things of that nature because we're able to kind of
Speaker 1: do more with with less people. But it's definitely concerning
Speaker 1: when you know, you do have growers that are ready
Speaker 1: to start planting the crop, and maybe because this piece
Speaker 1: of equipment is not properly communicating with this piece of equipment,
Speaker 1: they're shut down for sometimes days at a time, and
Speaker 1: and Honestly, a lot of the folks that are are
Speaker 1: tasked with fixing these things locally may not have the
Speaker 1: level of education or understanding of what they're working with
Speaker 1: in order to do so quickly, you know, in a
Speaker 1: time that they need to. And so it's definitely something
Speaker 1: that is a major factor, and it is only going
Speaker 1: to continue to be a factor in the industry as
Speaker 1: we kind of continue to to you know, add in
Speaker 1: that that technology and and we say it's for our
Speaker 1: own good, and in a lot of ways that it
Speaker 1: definitely is. But it still can cause some of these
Speaker 1: pretty major issues that that can slow up production or
Speaker 1: slow up harvest or or whatever. And it's something that
Speaker 1: we hope to see remedied in a cooperative manner, like
Speaker 1: we understand the reason behind it in some circumstances. But
Speaker 1: at the same time, you know, there really should be
Speaker 1: some ways that we can kind of bypass or make
Speaker 1: sure that it doesn't shut folks down for for days
Speaker 1: at a time, you know, in those instances that that
Speaker 1: takes place. I have a related question, but just going
Speaker 1: back to the input costs that we were discussing, if
Speaker 1: everything is going up, then you know, presumably the farmers
Speaker 1: can pass some of the costs on to customers, But
Speaker 1: is there anything they can do to try to offset
Speaker 1: those expenses to reduce their own costs? Like, are there
Speaker 1: different production techniques to be more efficient? Um, presumably you
Speaker 1: can you know, try to rotate into crops with a
Speaker 1: higher yield or a better return and things like that.
Speaker 1: Is there anything that you're seeing now that people are
Speaker 1: trying to do? Yeah, Yeah, I mean I think you're
Speaker 1: you're seeing some real growth in in the understanding of
Speaker 1: agronomic influences in producing a crop. We've seen some folks
Speaker 1: over the last few years, you know, when you talk
Speaker 1: about fertilizers and and you know kind of some of
Speaker 1: that input side of things, you've got you know, NP
Speaker 1: and K that you know, really kind of ore important components,
Speaker 1: you know what I mean, You've got your nitrogen and
Speaker 1: your phosphates and your potassium, and you have all these
Speaker 1: different things and so P and K or your phosphates
Speaker 1: and potassium. And over the last few years, they've been
Speaker 1: relatively cheap comparatively speaking, we've had reasonable supply, and we've
Speaker 1: had the ability to kind of use them and and
Speaker 1: really invest in increasing these yields via these these inputs
Speaker 1: and these components, and so some growers are telling me
Speaker 1: this year they're spending some extra money on soil sampling,
Speaker 1: perhaps are going even further into the soil sampling than
Speaker 1: what they were traditionally do, going more into a grid
Speaker 1: sort of standpoint to where they're seeing every portion of
Speaker 1: the field to to see where they may have the
Speaker 1: ability to skip um some of these inputs P and
Speaker 1: K specifically, they can't necessarily avoid using nitrogen, but some
Speaker 1: of these cost savings that they're seeing elsewhere, they're going
Speaker 1: to to spend on utilizing some some other forms of
Speaker 1: nitrogen or having access to it. You know. One of
Speaker 1: the things that we've seen that's very different than what
Speaker 1: we saw in two thousand eight and two thousand nine
Speaker 1: because a lot of growers now have the ability to
Speaker 1: store these inputs that they may need well ahead of
Speaker 1: what traditionally would be the spring season. And so for
Speaker 1: a lot of folks, they may have actually purchased and
Speaker 1: took possession, you know, late summer on some of their
Speaker 1: fertilizers and some of the other things that they may
Speaker 1: need in order to produce the crop. And so that
Speaker 1: helps them to avoid some of these pinches that we're
Speaker 1: seeing that took place, you know, after the big hurricane
Speaker 1: hit the Gulf, and after China decided they were going
Speaker 1: to restrict you know, phosphate exports and Russia stepped in,
Speaker 1: and you know some of these other things that have
Speaker 1: taken place that have happened and and really ramped up
Speaker 1: prices here over the last couple three months. Some of
Speaker 1: these guys haven't necessarily seen that big brunt. You know.
Speaker 1: In addition to that, we have some regenerative forms and
Speaker 1: agriculture where we are using continuous cover and some of
Speaker 1: these other things that we're doing that are actually helping
Speaker 1: the soil produce their own its own nitrogen or helping
Speaker 1: it to better handle, you know, if we run into
Speaker 1: drought situations or some of these other things. And so
Speaker 1: from an overall stand point, you know, it's easy to
Speaker 1: think that, oh, well, the farmer goes out and he
Speaker 1: just sticks the crop in and if it rains, then
Speaker 1: we have a crop, and if it doesn't then oh no.
Speaker 1: But the reality is that these guys are are and
Speaker 1: guys and gals are investing heavily into all forms of technology,
Speaker 1: you know when it comes to crop production, and are
Speaker 1: are looking at you know, variable rate technology where the
Speaker 1: soil dictates what they apply, and and some of these
Speaker 1: other things that are really kind of helping them to
Speaker 1: you know, potentially reduce their demand when the costs increase
Speaker 1: enough to where it's it's harmful to margin, you know,
Speaker 1: to kind of stay as it is or to do
Speaker 1: everything as they've always done. And so that's one of
Speaker 1: the things that that we we aren't talking about much,
Speaker 1: you know, is the fact that the farmer is so
Speaker 1: used to to being somewhat flexible in what he or
Speaker 1: she does when it comes to their production techniques that
Speaker 1: they're looking at every single way that they can in
Speaker 1: order to kind of reduce some of those costs, reduce
Speaker 1: maybe some of the demand on the input side, and
Speaker 1: really work to continue to facilitate producing you know, large
Speaker 1: crops via the technology that they're able to use. You know,
Speaker 1: we we touched on this at the beginning, but you know,
Speaker 1: I'm thinking about you in your you know, your day
Speaker 1: to day job, advising farmers and helping them to anticipate things.
Speaker 1: Let's talk a little bit more about fertilizer because again,
Speaker 1: fertilizer prices, as we know, highly a function of energy prices,
Speaker 1: It makes it a very macro story. Fertilizer prices are
Speaker 1: through the roof. And so when farmers I think about margins,
Speaker 1: obviously fertilizers important. What are you telling clients about fertilizer
Speaker 1: and how how are they impacting margins? What are you
Speaker 1: anticipating them to do, and what are the knock on
Speaker 1: effects to actual growing from this recent search? Yeah, well,
Speaker 1: I mean I'm I am letting the farmer talk to
Speaker 1: me on what the he or she is seeing when
Speaker 1: it comes to inputs, because they are such an it
Speaker 1: is such an individualized approach, you know, the different farmers.
Speaker 1: You know, there isn't all in passing sort of prescription
Speaker 1: when it comes to growing your crops. So different soil
Speaker 1: types and and and different farm types and and different
Speaker 1: crops kind of utilize different um inputs, especially when it
Speaker 1: comes to fertilizer and things of that nature. And so
Speaker 1: the conversations that we've been having have been more on
Speaker 1: what are you seeing from a cost standpoint? Have you
Speaker 1: booked it? Did you not book it? Are you looking
Speaker 1: at booking next year? You know? What what are your
Speaker 1: thoughts on that? And I would say the majority of
Speaker 1: the growers that I work with, have in some way,
Speaker 1: shape or form spoken for booked, taken possession of. You know,
Speaker 1: are looking at having those fertilizer costs locked in, and
Speaker 1: so we take a look at, okay, based on your
Speaker 1: general production history, what you typically can intend to produce
Speaker 1: on that crop, based on your costs, where you've seen increases.
Speaker 1: You know, seed costs are up about five percent. You know,
Speaker 1: fertilizers where that huge increases is coming from. And I
Speaker 1: would say that there's a huge push of a story
Speaker 1: that farmers aren't going to produce or we're going to
Speaker 1: reduce the production because of these costs. So I would
Speaker 1: say all of the growers that I have talked to
Speaker 1: that have actually sat down and looked through uh a
Speaker 1: return on investment projection or looked through a cost analysis
Speaker 1: on what they're they're seeing from an increased versus a
Speaker 1: year ago, and what they're expecting to produce, and where
Speaker 1: the current crop prices are and all of these things,
Speaker 1: they're still capable of booking a relatively reasonable margin. You know,
Speaker 1: in some cases, especially for the growers who may have
Speaker 1: booked their inputs early, let's say August time frame or
Speaker 1: something of that nature, and are looking at five fifty
Speaker 1: December twenty two futures, they're actually looking at the potential
Speaker 1: of having a better margin on new crop than where
Speaker 1: they were at a year ago when looking ahead. And
Speaker 1: so we're just having a conversation about taking a realistic
Speaker 1: approach to what you need to utilize from an input standpoint,
Speaker 1: making sure that you know, the biggest question that we
Speaker 1: have are the biggest concern that we have is whether
Speaker 1: or not will be able to get our hands on
Speaker 1: the inputs, the fertilizer and things of that nature. And
Speaker 1: so luckily for us, we still have four months to
Speaker 1: kind of hope and pray, because I think that's the
Speaker 1: point we're at in this supply chain disruption now is
Speaker 1: just simply hoping and praying that it corrects itself at
Speaker 1: some point. But we do have some time for those
Speaker 1: that haven't taken it in or taken actual possession. We
Speaker 1: do have some time to hopefully see some of that
Speaker 1: production catch up and folks to kind of get their
Speaker 1: wits about them in the industry. You know, one of
Speaker 1: the things that we are seeing is if you look
Speaker 1: at a fertilizer chart from O A into oh nine,
Speaker 1: you know, we saw this peak sort of happened in November,
Speaker 1: and it was a straight fall free fall from there.
Speaker 1: Now with everything that's happening macro and everything that's happening
Speaker 1: with China Russia, you know, we we fought the fertilizer
Speaker 1: industry in the US, fought against imports on one of
Speaker 1: the larger you know, suppliers of of fertilizer, and so
Speaker 1: that kind of restricted some of that supply, you know,
Speaker 1: coming in and things of that nature. We don't anticipate
Speaker 1: this sort of free fall, you know, obviously, and a
Speaker 1: lot of that's going to depend on what happens from
Speaker 1: a macro standpoint. If if the global economy starts to
Speaker 1: cool and maybe retract, then obviously everything changes and energies
Speaker 1: and everything changes value wise. But for the most part,
Speaker 1: you know, one of the things that is unfortunate when
Speaker 1: it comes to corn, soybeans, and wheat production is there's
Speaker 1: never been in the history of the world the time
Speaker 1: where the market stopped and said to the farmer, mr farmer,
Speaker 1: are you making money here? It really doesn't care. And
Speaker 1: so one of the things that we we really have
Speaker 1: to to keep in mind is is farming is from
Speaker 1: a supply standpoint, is not as elastic as other industries.
Speaker 1: You can't just you know, let the ground go fallow
Speaker 1: for two months and then plant a crop in August
Speaker 1: or something of that nature, you know what I mean,
Speaker 1: Like we're we're kind of locked in. You you have
Speaker 1: to do it. You're gonna do it, and you're going
Speaker 1: to figure out how to make it work. Now, mother
Speaker 1: nature tends to have the final say, and some of
Speaker 1: these other factors that play obviously a play a role.
Speaker 1: But from an overall standpoint, for the growers that I'm
Speaker 1: talking to right now, the majority of them are keeping
Speaker 1: in line with what would be their normal rotaneation. Maybe
Speaker 1: they've made some changes. They're going to grow soybeans instead
Speaker 1: of corn on some ground that you know is less
Speaker 1: productive when it comes to corn, and maybe it needs
Speaker 1: more fertilizers or something of that nature. But from an
Speaker 1: overall standpoint, talking with the folks that I'm talking to,
Speaker 1: they're just going to kind of keep on and and
Speaker 1: the farmer is an eternal optimist. He or she wouldn't
Speaker 1: be in the industry if they weren't overly optimistic about
Speaker 1: potential and things of that nature. And so for the
Speaker 1: majority of the folks, that I talked to, They're just
Speaker 1: going to stay the course and and do everything they
Speaker 1: can to produce a good, high quality crop, and when
Speaker 1: all of is sudden done, they hope that they make
Speaker 1: money doing it. So I was going to ask you
Speaker 1: what it would take to bring the market into equilibrium,
Speaker 1: but then I realized, like, what actually is equilibrium in
Speaker 1: this context, Like what would you or the average farmer
Speaker 1: consider to be like a market that is roughly in balance,
Speaker 1: It would be you know, similar to the production costs
Speaker 1: we saw a year ago with around a four five
Speaker 1: to four fifty futures value in corn specifically, you know,
Speaker 1: that's kind of a sweet spot. Everyone was really excited
Speaker 1: when we saw the turnaround from you know, that three
Speaker 1: dollar COVID low to you know, breaking above four dollars
Speaker 1: and actually sustaining the move towards four fifty. It was
Speaker 1: as we saw the market start to move towards five
Speaker 1: and then six and then closer to seven, you know,
Speaker 1: speaking corn prices specifically, where folks started to say, oh no,
Speaker 1: now we're now we're really working our way towards unintended consequences.
Speaker 1: And so most folks that I talked to would tell
Speaker 1: you could you give us last year's cost of production
Speaker 1: with like a four to four fifty futures price, and
Speaker 1: and that would be a nice sweet spot, and you know,
Speaker 1: we're we might get to see it. It It might happen
Speaker 1: for like a day as things pass and we go
Speaker 1: back the other way, you know. And and that's just
Speaker 1: something that we've grown accustomed to in the industry, is
Speaker 1: that there there really isn't equilibrium, and if it's there,
Speaker 1: it doesn't last long. I'm starting to realize, like there's
Speaker 1: not many agriculture tourists like I can like sort of
Speaker 1: like pretend maybe like in a week, like oh, I
Speaker 1: say something smart about supply and demand on copper. I
Speaker 1: really feel like it would take me a year, a
Speaker 1: year years before I could even pretend to say something
Speaker 1: smart about grains, because they're just, as you say, so
Speaker 1: many moving parts, and the idea of equilibrium is almost
Speaker 1: like a nonsensical idea whether they're just so many different variables.
Speaker 1: And I'm really starting to appreciate in this conversation why
Speaker 1: it feels like the grains conversations so separated from other markets.
Speaker 1: I want to ask you, though, you know you're talking
Speaker 1: about like the higher fertilizer prices. You don't really expect
Speaker 1: them to have a big supply impact on grains because again,
Speaker 1: they're going to find a way to make it work.
Speaker 1: So far there still is room for margin. Maybe it'll
Speaker 1: come down, etcetera. What about them for the consumer of grains?
Speaker 1: And I'm thinking, you know, obviously people are concerned about
Speaker 1: meat prices and so obviously a big consumer of corn
Speaker 1: and soy. I don't know if animals corn and soy.
Speaker 1: They oh they do. If corn prices get too expensive
Speaker 1: and wheats cheap, you'll see it flip flop. But right now,
Speaker 1: obviously that's not happening. It's the opposite. I didn't interesting,
Speaker 1: So what happened? Well, how are they How are the
Speaker 1: end buyers of the grands reacting? And I know that's
Speaker 1: sort of like they have their carriage costs because and
Speaker 1: dairy cows, you know, they have to I read something
Speaker 1: that because they have to feed them for a lot longer,
Speaker 1: they might allocate away from dairy. But what is the
Speaker 1: ramification of these elevated prices on on the maat farmers. Yeah,
Speaker 1: I would say the biggest thing that you see or
Speaker 1: what the biggest ramification will be and this is kind
Speaker 1: of a dual component, or I'll give you a dual
Speaker 1: answer to it. But you know, one of the lines
Speaker 1: in the industry has always been you feed cheap corn
Speaker 1: with the scoop shovel, you feed expensive corn with a
Speaker 1: tea spoon. And so one of the things that you're
Speaker 1: going to see is some folks will start to to
Speaker 1: really kind of move away from feeding a lot of corn. Now, obviously,
Speaker 1: you have to feed your animal, and so that's that's
Speaker 1: their number one. And you know, animal stewardship and making
Speaker 1: sure that they have a healthy, high quality product to
Speaker 1: offer into the global pipeline is the most important. And
Speaker 1: you know, and not to use too many cliches, but
Speaker 1: a lot of times cattle producers will tell you that
Speaker 1: every year is a million million dollar year. It's just
Speaker 1: a matter of if it's a red or a black one.
Speaker 1: And I just say, by the way, we could do
Speaker 1: a whole episode on farmer cliches, and I think Tracy
Speaker 1: and I would really, really And I've enjoyed all of
Speaker 1: these ones because more the more the mirror, I enjoy
Speaker 1: all the anyway, keep a million of them. That's just
Speaker 1: we all have something that we can say, but really
Speaker 1: when it comes down to it is is you know,
Speaker 1: as a as a cattle feeder, as a hog feeder,
Speaker 1: as a poultry feeder, whatever that may be. You know,
Speaker 1: a dairy farmer, they will do whatever it takes in
Speaker 1: order to keep their animals healthy, happy, and well fed.
Speaker 1: But they will look at alternatives. They will look at
Speaker 1: ways that we can up or you know, kind of
Speaker 1: change the ration of of what they're feeding. And that
Speaker 1: the ration is obviously the components of what they feed,
Speaker 1: whether that's distillers grain, which is a byproduct of ethanol. Alright, well,
Speaker 1: ethanol production right now, because of the the energy markets,
Speaker 1: ethanol production has set a record in the last two weeks.
Speaker 1: We are producing a huge amount of ethanol, and so
Speaker 1: as a result, every time we produce a gallon of ethanol,
Speaker 1: we're producing several pounds of distillers grain, which is a
Speaker 1: high energy cattle feed, and so we are kind of
Speaker 1: maybe we're increasing the amount of corn we're using for
Speaker 1: ethanol in the short term, but we're offsetting that corn,
Speaker 1: those corn needs by producing a larger amount of distillers
Speaker 1: that can be sold into the countryside and fed. And
Speaker 1: so there's going to be a lot of sort of
Speaker 1: give and take and trying to find, you know, what's
Speaker 1: a cheap source of energy, what is a cheap source
Speaker 1: of protein. We're also crushing a lot of soybeans due
Speaker 1: to renewable diesel in the increase in and soy oil
Speaker 1: demand and vegetable oils from around the world, and so
Speaker 1: as a result, when you crush soybeans, you also produce
Speaker 1: several pounds of soybean meal, which is a high protein
Speaker 1: feed source for the animals. And so we are seeing
Speaker 1: some give and take and some you know, sort of
Speaker 1: ebbs and flows of the overall supply versus demand structure
Speaker 1: in the market. Obviously, high feed costs will spill over
Speaker 1: into production and the desire to expand production. And one
Speaker 1: of the industries that will see that happen the most
Speaker 1: in is going to be beef, simply because it takes
Speaker 1: about eighteen months to get an animal from birth to
Speaker 1: too ready to be harvested, so to speak, and ready
Speaker 1: to move into into the grocery store near you, you
Speaker 1: know what I mean, And and so it takes an
Speaker 1: exceptional amount of time. So if you see high feed
Speaker 1: costs start to discourage folks from breeding, cattle in order
Speaker 1: to feed or fatten to put into the pipeline, which
Speaker 1: we've seen. We saw, you know, a year and a
Speaker 1: half ago, you know, sort of this move that instead
Speaker 1: of retaining heifers and and breeding them to have more
Speaker 1: beef cattle, we moved them into the pipeline because it
Speaker 1: wasn't cost effective to to continue to feed them or
Speaker 1: to put more mouths you know, on the in the feedlot.
Speaker 1: And so as a result, we're seeing at in in
Speaker 1: higher beef costs. We've seen cash cattle work their way
Speaker 1: up towards one thirty, which is is you know, considerably high.
Speaker 1: It was only a year ago that we were below
Speaker 1: a dollar a pound, and so you've seen some of
Speaker 1: that happen. Hogs have seen a huge burst to the
Speaker 1: upside because of what we thought would be some continued
Speaker 1: Chinese demand. Again that hogs have kind of been the
Speaker 1: canary in the coal mine to a certain extent because
Speaker 1: that huge increase in Chinese demand because of the loss
Speaker 1: of the Chinese herd, and and then since the recovery
Speaker 1: that happened a year ago, you know, it's kind of
Speaker 1: hurt the hog values. Now hogs are a six to
Speaker 1: eight month to a year, they are much quicker sort
Speaker 1: of turn them off, shut you know, turn them on,
Speaker 1: shut them off, sort of of market structure. Same can
Speaker 1: be said for poultry, and so you'll see the high
Speaker 1: feed costs try to carry over into the the value
Speaker 1: of meat at the grocery store. But again just going
Speaker 1: back to like crop production. You know, honestly no one
Speaker 1: stops and asks the cattle feed or what it cost
Speaker 1: to produce that that head of beef. We don't really
Speaker 1: notice that there's been an issue or that there's been
Speaker 1: you know, this high feed cost kind of carried over
Speaker 1: until it gets harder to find the beef at the
Speaker 1: grocery store. It costs you, you know, eight dollars a
Speaker 1: pound for a steak or something of that nature. And
Speaker 1: so we'll see it, but it's not necessarily something that
Speaker 1: you'll see the feeder maintain a solid level of margin
Speaker 1: or anything of that nature. They just have to kind
Speaker 1: of absorb it and hope, again, just like the road
Speaker 1: crop producer, that when they get to the end of everything,
Speaker 1: that they were able to eat out some sort of profit.
Speaker 1: Angie I, there was so much we just learned from
Speaker 1: you in the last hour your your twitter bio says
Speaker 1: you're a cash grain super nerd, and you totally lived
Speaker 1: up to the hype of your yourself description. That was fantastic.
Speaker 1: I learned a ton and really appreciate you coming on
Speaker 1: odd Luck. Thank you so much for having me. I
Speaker 1: had a blast. This is fun. Absolutely, that was great.
Speaker 1: Andrew fancy as we were good. Okay, the number of
Speaker 1: moving parts in like the grain conversation, it really sort
Speaker 1: of blows my mind. Yeah. I mean, not only are
Speaker 1: you talking about different types of grains, but like each
Speaker 1: one of them seems to be affected by different things,
Speaker 1: like even a different type of fertilizer and then a
Speaker 1: different type of weather pattern, and then you know, different
Speaker 1: types of grains feed into different types of well feedstock
Speaker 1: for cows and chickens and pigs and things like that.
Speaker 1: There's a lot going on. But Atie was really great
Speaker 1: at breaking down like all these different things at the
Speaker 1: same time. No, it's great. You know, it's something I
Speaker 1: thought about. Another thing that sort of makes the grain
Speaker 1: market interesting is um. I guess the seasonality of plantings
Speaker 1: is probably like another you know, there's not oil season, right,
Speaker 1: I mean, I don't know, maybe there is a little
Speaker 1: bit of seasonality in some places with like industrial commodities,
Speaker 1: but by large, you know, it's like if there's oil somewhere,
Speaker 1: you're taking out of the ground two seven any time
Speaker 1: a year, or if there's coppers somewhere, you're taking it
Speaker 1: out of the ground all the time. I do think
Speaker 1: like with grains, it's obvious like you could have like
Speaker 1: high fertilizer across right now, but if like the growing
Speaker 1: season was a couple of months ago, then maybe it
Speaker 1: doesn't have a big effect. I would say, like, this
Speaker 1: doesn't feel like an area for like macro tourists to
Speaker 1: like start trading graind Like I would advise people to
Speaker 1: like be really careful if say, like you were like,
Speaker 1: oh I want to I want to start trading corn
Speaker 1: or whatever, because like the number of like variables that
Speaker 1: like go into well, yeah, this time of year is
Speaker 1: not when the you know the conditions but you know
Speaker 1: three three weeks ago, or the weather like at the
Speaker 1: beginning of October, whatever it is, it seemed like to
Speaker 1: make it really intimidating for an outsider. Well even the professionals,
Speaker 1: I mean struggle to forecast a lot of these things, right,
Speaker 1: and and you mentioned, um, the what was it the
Speaker 1: agricultural department like underestimating or I can't remember that, was
Speaker 1: it underestimating or overestimating the initial corn harvest last year
Speaker 1: overestimating and then it came in smaller than expected. So like,
Speaker 1: even the people who do this every day, day in
Speaker 1: and day out, can get things very wrong, much like
Speaker 1: financial journalists. And it really makes me appreciate that we
Speaker 1: have food, I mean obviously like that, like because all
Speaker 1: these things go into it. And granted there is food
Speaker 1: inflation right now, there are not widespread food shortages, but
Speaker 1: given the complexity of all of this, I am I'm
Speaker 1: grateful once again for the farmers of America. Well, it
Speaker 1: kind of reminds me like just in the intro of
Speaker 1: supermarkets being like the foundation of modern society, there's just
Speaker 1: such an enormous mismatch between like the day to day
Speaker 1: immediacy that a supermarket demands versus these sort of like
Speaker 1: eternal seasonal nature of actually growing food and the idea
Speaker 1: that you have to plan everything out, you have to
Speaker 1: wait for the right season to actually plant things, and
Speaker 1: then of course you have to wait for them to
Speaker 1: grow until you can harvest them or slaughter them if
Speaker 1: they're animals. It just seems like such a mismatch between
Speaker 1: the time it takes to actually do that and the
Speaker 1: time frame that people demand that their vegetables or their
Speaker 1: meat or whatever actually shows up on the shelves in
Speaker 1: their local grocery store. I like that. Andie said that
Speaker 1: one of the perhaps solutions for high fertilizer costs is
Speaker 1: prayer that like, you know, there's always so much like
Speaker 1: you know, if there's like a literally you know, it's
Speaker 1: one thing to say, like, okay, the price rations the
Speaker 1: market or whatever, but you know, there hasn't actually been
Speaker 1: I guess, a real physical shortage where a farmer who
Speaker 1: needs fertilizer like can't get it, at least according to
Speaker 1: at least that is my takeaway from Andie's but that
Speaker 1: could in theory at a happened at some point, and
Speaker 1: she's like, yeah, maybe we just have to pray that
Speaker 1: sometime in the next three or four months the market
Speaker 1: sort of balances out. But maybe so maybe that'll be
Speaker 1: one Maybe that'll be one solution to the to the
Speaker 1: to the issue. Well, it would certainly be a sort
Speaker 1: of like time honored technique. I guess praying to the
Speaker 1: gods harvest Okay, yeah, that's exactly right. Farmers have been
Speaker 1: doing that for a few for a long time, I think, yeah,
Speaker 1: all right, this is getting weird. Um, shall we leave
Speaker 1: it here? Let's leave it there, all right. This has
Speaker 1: been another episode of the ad Thoughts Podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway. And
Speaker 1: I'm Joe Wisenthal. You can follow me on Twitter at
Speaker 1: the Stalwark. Follow our guest Angie sets Her. She is
Speaker 1: at Goddess of Grain. Follow our producer Laura Carlson. She's
Speaker 1: at Laura. I'm Carlson. Followed the Bloomberg head of podcast,
Speaker 1: Francesca Levi at Francesca Today. And check out all of
Speaker 1: our podcast at Bloomberg under the handle podcasts. Thanks for listening.