WEBVTT - How War in Iran Will Squeeze America's Farmers Even Further 0:00:02.720 --> 0:00:15.840 Bloomberg Audio Studios, Podcasts, radio News. 0:00:18.120 --> 0:00:20.919 Hello and welcome to another episode of the Odd Thoughts podcast. 0:00:21.000 --> 0:00:22.279 I'm Tracy Alloway. 0:00:22.040 --> 0:00:23.200 And I'm Joe Wisenthal. 0:00:23.520 --> 0:00:25.759 Joe, there's a running joke on this podcast. There's a 0:00:25.800 --> 0:00:27.920 few of them, but one of the running jokes is 0:00:28.240 --> 0:00:30.240 farmers are always complaining about something. 0:00:30.880 --> 0:00:33.280 They are they are always complaining about something, But you 0:00:33.320 --> 0:00:35.920 know what, it's okay. We need to eat to live. 0:00:36.560 --> 0:00:40.400 Food is pretty important for sort of human civilization, flourishing, 0:00:40.440 --> 0:00:43.159 et cetera. So if the worst is that they complain 0:00:43.240 --> 0:00:46.640 a little bit about how Musiah they're getting for their 0:00:46.680 --> 0:00:48.159 corn or whatever, I'm okay with that. 0:00:48.200 --> 0:00:50.440 Well, to be fair, we also know that one of 0:00:50.479 --> 0:00:54.319 the defining news stories of the past few decades has 0:00:54.360 --> 0:00:59.080 been the hollowing out of America's small scale agricultural industry 0:00:59.160 --> 0:01:02.600 and farmers. So if you are an independent farmer, there 0:01:02.640 --> 0:01:03.920 is a lot to complain about. 0:01:04.160 --> 0:01:08.039 To be fair, totally, and again with the caveat that 0:01:08.080 --> 0:01:11.000 it's always tough. Very recently, a couple of weeks ago, 0:01:11.080 --> 0:01:16.040 we did the episode about surging fertilizer prices. In that conversation, 0:01:16.160 --> 0:01:19.000 you know, we talked about the fertilizer to corn chart, 0:01:19.080 --> 0:01:22.000 and it is not a good ratio. Now, you know, 0:01:22.040 --> 0:01:24.880 there are many ways to represent an industry, but if 0:01:24.880 --> 0:01:27.759 you just wanted one, that's a very clean way. Fertilizer 0:01:27.800 --> 0:01:32.080 prices way up. Obviously, given the situation in Iran, corn 0:01:32.120 --> 0:01:34.720 price is not nearly anywhere close to their all time 0:01:34.800 --> 0:01:37.240 highs or anything like that. So just by at least 0:01:37.240 --> 0:01:39.440 one measure, that is a clear squeeze. Right. 0:01:39.520 --> 0:01:42.319 So we recorded our fertilizer episode, I guess a week 0:01:42.400 --> 0:01:44.120 or two ago at this point. I think at the 0:01:44.120 --> 0:01:47.360 time when we were discussing it, the possibility that the 0:01:47.360 --> 0:01:49.720 closure of the Strait of Hormuz could actually push up 0:01:49.760 --> 0:01:53.520 fertilizer prices, a lot of people weren't necessarily that aware 0:01:53.560 --> 0:01:57.080 of this dynamic. Since then, it has gone very mainstream, 0:01:57.120 --> 0:01:59.920 and you have officials in the US government talking about 0:02:00.160 --> 0:02:04.840 sourcing alternative fertilizer from Morocco or Venezuela to try to 0:02:04.880 --> 0:02:08.040 offset some of the pain. There is some slightly good 0:02:08.120 --> 0:02:10.720 news if you are a farmer, which is that we 0:02:10.800 --> 0:02:13.920 are seeing grain prices start to go up. But to 0:02:13.960 --> 0:02:17.240 your point, again, it is not at all clear that 0:02:17.280 --> 0:02:20.560 it's going to be enough to offset higher input costs 0:02:20.840 --> 0:02:23.840 like fertilizer or oil totally. 0:02:24.040 --> 0:02:26.600 Well, anyway, you know, we did that episode several weeks 0:02:26.639 --> 0:02:30.800 ago about what it was like to do agribusiness in 0:02:31.040 --> 0:02:35.080 tough markets like particularly Venezuela, Ukraine and so forth. And 0:02:35.120 --> 0:02:38.320 I recall at the very end of that conversation, and 0:02:38.440 --> 0:02:41.720 this was obviously before the fertilizer spike. Yeap, our guests 0:02:41.720 --> 0:02:44.000 who we were talking to said we got a good 0:02:44.040 --> 0:02:47.160 history lesson about Venezuela and Ukraine, but they also said, 0:02:47.360 --> 0:02:49.760 at some point we should talk about the pain that 0:02:49.800 --> 0:02:53.520 American farmers are in right now and so then, so 0:02:53.600 --> 0:02:56.000 that was already the condition. There was sort of this tease. 0:02:56.120 --> 0:02:58.840 Things weren't great. Then you get the fertilizer spike. So 0:02:58.840 --> 0:03:00.680 it's like, it seems like a good time to have 0:03:00.680 --> 0:03:01.200 that conversay. 0:03:01.280 --> 0:03:03.080 Yeah, we were going to wait a little bit to 0:03:03.120 --> 0:03:05.280 do that episode, but it turns out that now is 0:03:05.320 --> 0:03:08.320 actually the perfect time for the perfect guests. Once again, 0:03:08.360 --> 0:03:10.480 we are going to be speaking with Jeff Kazen and 0:03:10.520 --> 0:03:14.240 Mike Rolfson. They are the founders of Agris Academy. So 0:03:14.400 --> 0:03:16.560 Jeff and Mike, thank you so much for coming back 0:03:16.600 --> 0:03:20.120 on Odd Blots. Really appreciate it. First question. You know, 0:03:20.160 --> 0:03:21.720 when we spoke to you last time, we were very 0:03:21.760 --> 0:03:25.320 focused on Venezuela and Ukraine and your experience working at 0:03:25.320 --> 0:03:28.280 Cargil earlier. But can you just tell us what Agress 0:03:28.320 --> 0:03:31.360 Academy actually does. Jeff, why don't we start with you? 0:03:32.760 --> 0:03:35.840 Yeah, thanks for having us on again. So, Agress Academy 0:03:35.880 --> 0:03:38.640 is not a broker and advisory business. Mike and I 0:03:38.680 --> 0:03:41.520 each have thirty years of in depth either commodity or 0:03:41.920 --> 0:03:45.400 involvement in the egg industry, and we decided we wanted 0:03:45.440 --> 0:03:48.680 to start an education and consulting business, so we educate. 0:03:48.760 --> 0:03:53.680 We have a producer practice where we educate producers on 0:03:53.680 --> 0:03:56.080 one level how to manage risk and understand the future 0:03:56.120 --> 0:03:59.400 side of risk, and on another level how to merchandise 0:03:59.680 --> 0:04:02.320 like professional grain operation. Because a lot of farms have 0:04:02.440 --> 0:04:06.160 become effectively elevator managers, there was a gap and still 0:04:06.200 --> 0:04:09.520 is a tremendous knowledge gap en farmers around the world. 0:04:09.560 --> 0:04:13.720 We generally have North American students and clients. And then 0:04:13.720 --> 0:04:16.040 we also have a commercial business where we work with 0:04:16.120 --> 0:04:19.320 businesses that work with various all kinds of commodities, where 0:04:19.320 --> 0:04:22.479 we help them understand the risk walk through how they're 0:04:22.680 --> 0:04:26.080 consolidating that risk, how they're managing that risk in best 0:04:26.120 --> 0:04:29.359 practice form in a boutique consulting type of arrangement. So 0:04:29.400 --> 0:04:33.000 we have both practices and a super rewarding business. Kind 0:04:33.000 --> 0:04:34.680 of a second career for both of us as we 0:04:34.760 --> 0:04:36.919 kicked it off and we wanted to be in a 0:04:37.040 --> 0:04:41.039 very differentiated part of the market that wasn't well well covered, 0:04:41.120 --> 0:04:43.360 and that's been a fantastic We've been in business now 0:04:43.400 --> 0:04:46.120 for four years and grow very very steadily each year. 0:04:47.400 --> 0:04:51.000 Mike, just in case anyone hadn't listened to the episode 0:04:51.000 --> 0:04:52.960 with the two of you before, and just to sort 0:04:52.960 --> 0:04:54.960 of add on to it, Jeffer saying, just give us, 0:04:55.000 --> 0:04:58.159 like the quick your background, your bio, and the long 0:04:58.279 --> 0:05:00.599 experience that you have had in that a space. 0:05:01.600 --> 0:05:03.960 Yeah, about two thirds of my career was spent in 0:05:04.000 --> 0:05:09.480 Cargill doing an array of commercial things, mostly in risk management, trading, 0:05:09.680 --> 0:05:13.120 global supply chain type of things. I got at the 0:05:13.240 --> 0:05:16.159 end there after a stint that Jeff and I both 0:05:16.200 --> 0:05:20.159 did through their emerger and acquisition and corporate strategy group. 0:05:20.320 --> 0:05:24.320 I pivoted to ventures, got hooked on that, and I 0:05:24.400 --> 0:05:27.000 left Cargole in two thousand and nine, But since then 0:05:27.000 --> 0:05:29.440 I've been in some sort of an ag tech oriented, 0:05:29.520 --> 0:05:32.240 venture capital oriented type thing and nag across the array 0:05:32.279 --> 0:05:35.280 of topics sub segments with an egg. Jeff and I 0:05:35.279 --> 0:05:36.840 have kicked this off what about three and a half 0:05:36.880 --> 0:05:39.760 four years ago now, And one thing I think that 0:05:39.839 --> 0:05:44.400 helps this conversation today is sure we've probably touched through 0:05:44.440 --> 0:05:48.480 students or through more direct relationships, almost four hundred farms 0:05:48.480 --> 0:05:51.640 now in the US and Canada, so we definitely know 0:05:52.200 --> 0:05:55.880 the vagaries of where this input situation falls in, who's 0:05:55.920 --> 0:05:59.840 positioned and well or otherwise, and what's really going on 0:06:00.120 --> 0:06:01.280 when it hits the farm gate. 0:06:01.560 --> 0:06:01.880 Yeah. 0:06:01.880 --> 0:06:04.520 So on that note, why don't you tell us where 0:06:04.560 --> 0:06:08.239 we are in the sort of agricultural calendar at the moment, 0:06:08.320 --> 0:06:10.839 Because one of the things we learned from our previous 0:06:10.880 --> 0:06:15.520 fertilizer episode is that fertilizer prices are going up kind 0:06:15.520 --> 0:06:18.560 of right when people need it most, which is the 0:06:18.600 --> 0:06:22.520 spring planting season. But my understanding is some people would 0:06:22.520 --> 0:06:25.520 be buying spot fertilizer right now, some people have already 0:06:25.960 --> 0:06:29.560 got their supplies secured. And I'm also very curious about 0:06:29.600 --> 0:06:32.840 where we stand in terms of planting decisions, whether people 0:06:32.920 --> 0:06:35.599 are still making those right now, or whether or not 0:06:35.680 --> 0:06:38.479 people have already decided what they're going to plant for 0:06:38.520 --> 0:06:38.800 the year. 0:06:40.720 --> 0:06:42.520 Yeah, I guess I'll this Jeff, and I'll take this 0:06:42.560 --> 0:06:44.960 one on to start. So, when we're really talking about 0:06:44.960 --> 0:06:47.640 a North American farmer here right towards the end of 0:06:47.680 --> 0:06:50.760 the South American or South Southern hemisphere harvest, whether that's 0:06:50.960 --> 0:06:55.760 generally Australia, Argentina, Brazil, you know, we've already started planting 0:06:55.880 --> 0:06:59.400 corn in places like Texas, even into Mississippi. We have 0:06:59.400 --> 0:07:02.520 clients that have already started and it was eight below 0:07:02.520 --> 0:07:05.320 in Minneapolis and we're not even close here in the 0:07:05.440 --> 0:07:08.640 Upper Midwest. So a lot of the certain amounts of 0:07:08.720 --> 0:07:11.600 nitrogen actually is put down actually in the fall in 0:07:11.640 --> 0:07:14.480 the northern tier where the ground freezes and things kind 0:07:14.480 --> 0:07:17.120 of go into a stasis. For the winner. A fair amount, 0:07:17.200 --> 0:07:20.560 and we're really really talking about nitrogen fertilizer here is 0:07:20.600 --> 0:07:23.320 probably maybe the one that's giving the world the most 0:07:23.360 --> 0:07:26.600 heartache at the moment. Some of it's pre bought, prepositioned. 0:07:27.160 --> 0:07:30.080 I would say the vast majority of what it needs 0:07:30.120 --> 0:07:33.880 to be used in the US crop is already either 0:07:34.080 --> 0:07:38.280 here in warehouses or on its way because you have 0:07:38.320 --> 0:07:40.640 to remember it's a long supply chain, and if we're 0:07:40.680 --> 0:07:44.160 going to plant in earnest starting in early April into 0:07:44.400 --> 0:07:46.720 what we would call the corn belt, that product already 0:07:46.760 --> 0:07:49.600 has to be here. So you can see that in pricing, 0:07:50.120 --> 0:07:53.720 the full call it replacement price of something like your 0:07:53.800 --> 0:07:58.040 rea coming out of the air peninsular area is not 0:07:58.440 --> 0:08:01.440 reflected in US values. So it's one of these you 0:08:01.520 --> 0:08:05.440 generally as a trader with price replacement, but full replacement 0:08:05.520 --> 0:08:08.320 is actually not coming through at the moment. I want 0:08:08.360 --> 0:08:10.360 to think, I don't know the name. Some stone Cks 0:08:10.360 --> 0:08:12.440 people have been putting that out on X kind of 0:08:12.480 --> 0:08:15.280 keeping people upraised of what that is. So you're not 0:08:15.320 --> 0:08:18.120 actually getting the full brunt because a lot of that 0:08:18.200 --> 0:08:20.120 in the northern hemisphere is already here. 0:08:21.000 --> 0:08:24.760 I was prepping for this and the University of Illinois 0:08:24.800 --> 0:08:27.080 puts out a really good series of reports, I believe 0:08:27.160 --> 0:08:29.600 under Farm Docs Daily I believe it's called. And the 0:08:29.640 --> 0:08:31.880 figure they threw out, at least the one I saw, 0:08:32.360 --> 0:08:34.920 what I believe was around seventy five percent of fertilizer 0:08:34.960 --> 0:08:38.040 has already been purchased, okay plus so. 0:08:38.480 --> 0:08:41.720 Okay, well that's I guess that that is relatively good 0:08:41.840 --> 0:08:44.280 news that a lot of it's already been purchased, perhaps 0:08:44.360 --> 0:08:47.040 before the spike. But we're going to talk obviously about 0:08:47.080 --> 0:08:50.200 what conditions are like. We're recording this March seventeenth, twenty 0:08:50.240 --> 0:08:53.440 twenty six. Well, let's talk about what conditions were like 0:08:53.640 --> 0:08:56.400 February seventeenth, twenty twenty six, because at the end of 0:08:56.400 --> 0:08:59.800 our last conversation several weeks ago, you're like, you know, 0:08:59.880 --> 0:09:02.920 we should really talk about this squeeze that's already sort 0:09:02.960 --> 0:09:05.199 of facing American farmers. So why don't you take us 0:09:05.240 --> 0:09:08.920 back to February twenty twenty six or January twenty twenty 0:09:08.960 --> 0:09:12.320 six and just talk about the sort of general macro 0:09:12.480 --> 0:09:16.200 conditions that the people you're working with we're already facing 0:09:16.280 --> 0:09:18.000 prior to the fertilizer spike. 0:09:18.920 --> 0:09:21.160 So let's just take you back. So I want to 0:09:21.200 --> 0:09:24.200 take your listeners to how farming works in the US. 0:09:24.280 --> 0:09:25.880 We have a little bit of an insight that is 0:09:25.920 --> 0:09:28.560 a little bit maybe they haven't seen. So what has 0:09:28.600 --> 0:09:31.680 been happening and why you continue to hear from the 0:09:31.720 --> 0:09:34.880 farm community about the squeeze. If you look at prices, right, 0:09:35.000 --> 0:09:36.520 we sent you some price charts, I'm sure you'll be 0:09:36.559 --> 0:09:39.760 able to put those in. We basically since twenty sixteen, 0:09:39.880 --> 0:09:43.120 the futures prices have not changed. So imagine a business 0:09:43.160 --> 0:09:47.839 since twenty sixteen where your output as prices have not changed. Then, 0:09:47.880 --> 0:09:49.800 on the flip side, when you look at let's call 0:09:49.840 --> 0:09:53.439 it inflation, land prices, I don't have. These exacts have 0:09:53.559 --> 0:09:57.439 probably doubled, okay, right, Equipment prices are probably up forty percent, 0:09:57.960 --> 0:10:00.840 the cost of living, think about things like health insurance, 0:10:01.679 --> 0:10:05.040 all these things. Right, you would look at that massive 0:10:05.080 --> 0:10:07.920 increase in prices and look at that and say, these 0:10:07.920 --> 0:10:11.280 businesses have to be insolvent. So the first piece of 0:10:11.280 --> 0:10:13.600 the puzzle I want to take your listener down is land. 0:10:13.679 --> 0:10:16.559 So when you produce in the big markets, let's call 0:10:16.600 --> 0:10:21.160 it corn, soybeans, cotton, softweet. And I'll apologize because I'm 0:10:21.160 --> 0:10:23.120 not going to cover every crop here the kind of 0:10:23.120 --> 0:10:26.200 that Midwest market. We'll just use Midwest corn. It is 0:10:26.240 --> 0:10:29.560 a tremendous driver of land value. If you take a 0:10:29.720 --> 0:10:31.600 cost to grow an acre of corn, and let's use 0:10:31.600 --> 0:10:34.040 an example, it's one thousand dollars an acre to grow 0:10:34.080 --> 0:10:37.760 the corn, and you're in central Illinois and you're on 0:10:37.800 --> 0:10:42.520 an ideal parcel called a square section, nice flat, black 0:10:42.559 --> 0:10:45.560 and square. The land rents probably going to be half 0:10:45.559 --> 0:10:49.480 your costs, okay, And so obviously you can see that 0:10:49.760 --> 0:10:53.760 tremendous inflation in land rent or the value of the land. 0:10:54.120 --> 0:10:56.320 And a lot of land is rented, right and just 0:10:56.400 --> 0:10:59.720 if you look at the capital constraints and the challenge 0:10:59.720 --> 0:11:02.520 we're i mean as farmers with land and land rental 0:11:02.600 --> 0:11:06.520 values is it's not trading basis. It's economic create value 0:11:06.559 --> 0:11:12.720 creation anymore. It's trading like gold. Okay. So the investor 0:11:12.720 --> 0:11:15.960 community has maybe pulled back a little bit. Land prices 0:11:16.000 --> 0:11:20.120 are actually stable at a very high value today, but 0:11:20.280 --> 0:11:23.080 it represents if you think about, yeah, fertilizer is going up, 0:11:24.000 --> 0:11:25.800 it's actually in the last ten years, isn't the one 0:11:25.840 --> 0:11:28.880 that's gone up as a percentage the most right? Land 0:11:28.920 --> 0:11:31.760 by far. And when you get the promise that cap 0:11:31.840 --> 0:11:34.920 rates are going to be two percent net and you're 0:11:34.920 --> 0:11:37.439 going to get six percent a year, which has actually 0:11:37.520 --> 0:11:40.240 has happened up until maybe the last twenty four months, 0:11:40.640 --> 0:11:44.440 it's attracted a lot outside investors. It's not correlated very 0:11:44.480 --> 0:11:46.880 well to you know, other out investments. So it provides 0:11:46.920 --> 0:11:49.839 a nice portfolio effect to the thing. But it's gotten 0:11:49.840 --> 0:11:52.600 to such levels right that on a cash flow basis, 0:11:52.600 --> 0:11:55.600 it makes very little sense on the investment and land 0:11:55.640 --> 0:11:58.360 you're banking that you know at two percent, you're really 0:11:58.440 --> 0:12:01.400 banking that you're going to continue to get appreciation at 0:12:01.440 --> 0:12:04.960 six percent forever. And that is actually running it, in 0:12:05.000 --> 0:12:08.040 my opinion, the law of big numbers. So the other 0:12:08.080 --> 0:12:10.760 thing that you need to understand that has driven land rent, 0:12:11.160 --> 0:12:13.640 and I think you alluded to it around small farms, 0:12:14.320 --> 0:12:17.839 is federal crop insurance. You may have heard about this, right, 0:12:17.840 --> 0:12:21.319 but it's highly subsidized. And if you think about when 0:12:21.360 --> 0:12:23.200 you look go out, you spend one thousand dollars an 0:12:23.200 --> 0:12:24.880 acre to grow a crop, right, it would be seemed 0:12:24.920 --> 0:12:27.880 to be quite risky. But if you can now, particularly 0:12:27.960 --> 0:12:31.840 with some additional subsidies, you can ensure most of the 0:12:31.920 --> 0:12:36.439 loss away through Federal crop insurance, which is highly subsidized. 0:12:36.880 --> 0:12:39.480 One thing you're like, I do farm at scale in 0:12:39.559 --> 0:12:43.600 my post cardio life, so very involved in this, and 0:12:43.960 --> 0:12:45.480 think of it as a call option where all of 0:12:45.520 --> 0:12:47.559 a sudden you've been able to hedge off the downside, 0:12:47.559 --> 0:12:51.080 but you continue to run the upside for yourself. And 0:12:51.120 --> 0:12:55.120 so what that's done is it's really stabilized land values. 0:12:56.000 --> 0:13:00.520 And it's also made rents bid up to basically no 0:13:00.640 --> 0:13:04.079 margin because they'll go the farmers will try to get bigger. Right, 0:13:04.120 --> 0:13:07.199 we're looking for economies of scale and efficiency, and it 0:13:07.280 --> 0:13:09.840 runs like a call option. If you graft it out right, 0:13:09.880 --> 0:13:12.760 you lose the downside and you have this hockey stick 0:13:12.920 --> 0:13:16.200 effect to the upside. So that has driven land rends 0:13:16.240 --> 0:13:20.200 extremely high and a lot of places, so you're really 0:13:20.200 --> 0:13:23.000 getting a lot of pressure from your number one cost, 0:13:23.040 --> 0:13:27.360 which is land price. Number two generally be fertilizer. But remember, 0:13:27.440 --> 0:13:30.160 as a percentage, if you've bid the ground up, and 0:13:30.160 --> 0:13:31.839 this is probably why you're getting a lot. If you've 0:13:31.840 --> 0:13:34.559 bid the ground up to a zero margin, and then 0:13:34.559 --> 0:13:37.320 all of a sudden you have a shock to the 0:13:37.320 --> 0:13:41.560 fertilizer system. Now your theorem medical margin that was basically 0:13:41.559 --> 0:13:44.839 you bid to zero to gain scale, and now you're 0:13:44.840 --> 0:13:49.720 one hundred dollars an acre negative, right, And then you 0:13:49.720 --> 0:13:52.800 push that through. When you farm a thousand acres, you've 0:13:52.800 --> 0:13:55.040 lost one hundred thousand dollars. You farm two hundred thousand, 0:13:55.080 --> 0:13:56.959 two hundred acres, and it just keeps them well. It 0:13:56.960 --> 0:13:59.640 gets to be big numbers because the farms have gotten big, 0:14:00.440 --> 0:14:02.400 and so that's where you really when you get a 0:14:02.480 --> 0:14:06.240 shock like fertilizer shock, when you're late in the system. Right, 0:14:06.280 --> 0:14:10.040 you've already agreed on land rents, you've agreed on basically 0:14:10.080 --> 0:14:12.920 most of your input costs are locked down at this point, 0:14:13.160 --> 0:14:15.199 and all of a sudden you don't have everything covered. 0:14:15.679 --> 0:14:19.080 It puts you into negative pretty quick, and so margins 0:14:19.120 --> 0:14:22.360 are very very tight. And in fact, you've seen some 0:14:22.400 --> 0:14:25.160 of these various government payments that have been pushed through. 0:14:25.760 --> 0:14:28.000 A lot of those are going straight through the system. 0:14:28.120 --> 0:14:30.160 So you think about the farmer, right, he's using that 0:14:30.280 --> 0:14:33.520 money he or she actually, I should say, to pay 0:14:33.560 --> 0:14:36.880 off various pay the land rent, or make the payment 0:14:36.920 --> 0:14:39.000 on equipment or things like that. That money is getting 0:14:39.000 --> 0:14:41.160 passed through. That's why sometimes you hear the farmers, you say, 0:14:41.160 --> 0:14:43.360 they complain all the time, like I don't even get 0:14:43.360 --> 0:14:46.360 the benefit of this, you know, bridge payment or whatever 0:14:46.400 --> 0:14:49.680 the latest name is. It's because it's passing straight through 0:14:49.720 --> 0:14:52.360 the system. Which that's why they grumble that. You know, 0:14:52.400 --> 0:14:54.920 it all goes to the various egg co and John 0:14:55.000 --> 0:14:57.720 Deere and Nutrient and some of these companies that people 0:14:57.800 --> 0:15:01.000 are looking at as investment becomes. 0:15:00.800 --> 0:15:04.120 Sort of a hyper channel the monetary inflation. This last 0:15:04.120 --> 0:15:08.440 mechanism that Jeff described, because that money basically passes through 0:15:08.680 --> 0:15:10.960 the all of the producer and then ping pongs in 0:15:11.000 --> 0:15:12.160 the system on the inputs on it. 0:15:28.000 --> 0:15:30.480 Say a little bit more about land rents, And the 0:15:30.520 --> 0:15:33.320 reason I ask is because I read I found a 0:15:33.400 --> 0:15:36.240 random book in a used bookstore called Trees, Why Do 0:15:36.240 --> 0:15:39.160 You Wait? And it was like an anthropological study of 0:15:39.320 --> 0:15:42.080 two towns, two farming towns. I think they were actually 0:15:42.120 --> 0:15:45.120 in North Dakota, both of them in the late nineteen eighties, 0:15:45.680 --> 0:15:48.360 and so a lot of it is about how farmers 0:15:48.360 --> 0:15:51.800 make individual decisions. And so one thing I'm very curious 0:15:51.800 --> 0:15:55.320 about is the factors going into whether a farmer can 0:15:55.360 --> 0:15:59.880 outright own the land versus rent the land, because certainly 0:16:00.040 --> 0:16:02.920 in the nineteen eighties, in these two small North Dakota towns, 0:16:03.160 --> 0:16:06.160 there's a lot of grumbling about the landowners themselves, and 0:16:06.200 --> 0:16:07.800 I think a lot of people in the towns were 0:16:07.880 --> 0:16:11.400 upset that they would rent land from usually older people 0:16:11.440 --> 0:16:14.400 who would then leave the town and go to Florida 0:16:14.520 --> 0:16:18.560 in the winter and just charge an extraordinarily high amount 0:16:18.640 --> 0:16:22.480 for the right to farm. That particular piece of acreage. 0:16:22.560 --> 0:16:24.640 So I'm very curious what are the factors that go 0:16:24.720 --> 0:16:27.880 into whether a farmer ends up owning or renting. 0:16:28.400 --> 0:16:31.920 So in today's values, right, farmers generally that are in 0:16:31.960 --> 0:16:34.320 the business own a mixture of They have some own 0:16:34.400 --> 0:16:38.080 land and some rented land, and they basically will leverage 0:16:38.400 --> 0:16:41.520 the own land or look at the average kind of 0:16:41.640 --> 0:16:45.880 land cost and they'll buy strategic pieces. In today's market, 0:16:45.920 --> 0:16:48.240 the piece across the fence, right, the one that they've 0:16:48.240 --> 0:16:50.040 watched for years and years, and so you see a 0:16:50.040 --> 0:16:51.760 lot of that. And of course we also have an 0:16:51.800 --> 0:16:55.160 investor community, and we also have a ten to thirty 0:16:55.160 --> 0:16:59.360 one exchange community. All these solar farms and data centers 0:16:59.400 --> 0:17:03.600 are bringing massive amounts of capital back into land, and 0:17:03.680 --> 0:17:06.360 it's really I mean, we have personal friends that are 0:17:06.760 --> 0:17:10.120 being bought out for development. We watched farms trade for 0:17:10.480 --> 0:17:13.040 solar and so you know when they've traded tremendous values 0:17:13.080 --> 0:17:15.560 and the farmers like to rotate that back, that capital 0:17:15.680 --> 0:17:18.399 back in. But when you look at the returns for 0:17:18.600 --> 0:17:21.359 very prime farmland, and I'll be light on this, and 0:17:21.800 --> 0:17:25.800 you're going to pay fifteen thousand dollars an acre Iowa Illinois, 0:17:25.840 --> 0:17:28.800 and I'll probably be a little bit light basis today's values, 0:17:28.840 --> 0:17:32.200 but for easy figuring. So if you want ten percent 0:17:32.760 --> 0:17:34.320 cap rate, you have to have a land round of 0:17:34.359 --> 0:17:37.959 fifteen hundred dollars, right, And that's never going to work, right, 0:17:38.000 --> 0:17:40.879 That's going to be more than the gross revenue. So 0:17:41.000 --> 0:17:43.200 you end up with land rents that have been pushed 0:17:43.440 --> 0:17:45.840 as high as they can stand to this kind of 0:17:45.880 --> 0:17:48.360 I'm using this example of this prime real estate at 0:17:48.400 --> 0:17:51.280 five hundred dollars, this very square, very efficient piece. Not 0:17:51.440 --> 0:17:54.400 every piece of land would garner even garner that kind 0:17:54.440 --> 0:17:57.320 of rent. So it's very hard. You can't make the 0:17:57.359 --> 0:18:00.280 thing cash flow on its own and today's values, I said, 0:18:00.280 --> 0:18:03.600 it has divorced itself from its economic So then you're 0:18:03.640 --> 0:18:06.960 back to renting, right, and then you're in that game 0:18:07.040 --> 0:18:11.480 of securing land based it secures across efficient equipment scale, 0:18:12.040 --> 0:18:14.080 and so you're back to you know, renting at and 0:18:14.160 --> 0:18:16.520 quite frankly, we do see this all the time where 0:18:16.960 --> 0:18:20.040 rents have gotten so high. If grandma had one hundred 0:18:20.040 --> 0:18:22.120 acres that you know, all of a sudden she can 0:18:22.119 --> 0:18:24.680 rent out for five hundred dollars an acre, right, it's 0:18:24.720 --> 0:18:25.800 fifty thousand dollars. 0:18:26.080 --> 0:18:26.640 Yeah, not bad. 0:18:26.720 --> 0:18:28.800 Say it's two hundred acres, right, not bad. Right, head 0:18:28.800 --> 0:18:32.280 to a low tax stadium, yeah, and enjoy some life. 0:18:32.320 --> 0:18:34.919 So you get a lot. It's very hard to justify 0:18:34.960 --> 0:18:37.360 as a farm buying land, but we still do buy 0:18:37.359 --> 0:18:41.000 some right strategic pieces I think is what generally in 0:18:41.040 --> 0:18:44.160 today's environment where you get. But there are all kinds 0:18:44.200 --> 0:18:46.919 of actors I think might want to comment here, but 0:18:47.119 --> 0:18:48.679 we often hear they say you're not going to make 0:18:48.720 --> 0:18:52.400 any more land, right, and I really don't we get 0:18:52.400 --> 0:18:54.760 into this thing. I don't. That's not really true. 0:18:54.840 --> 0:18:55.080 Right. 0:18:55.680 --> 0:18:59.199 The Brazilians are adding two million acres a year, maybe 0:18:59.200 --> 0:19:03.639 more the Indonesians and can add palm plantations at a 0:19:03.640 --> 0:19:08.000 tremendous rate there. Obviously there's lots of potential in Africa 0:19:08.080 --> 0:19:11.919 still to be unlocked. And then the technology and efficiency 0:19:11.960 --> 0:19:16.080 per acre has just exploded. And that's actually if you 0:19:16.119 --> 0:19:18.040 look at that chart and say, Jeff, you started saying 0:19:18.040 --> 0:19:21.240 the prices aren't any higher, you have this huge inflationary fact. 0:19:21.320 --> 0:19:24.040 How are farmers surviving? And the answer is we've had 0:19:24.080 --> 0:19:29.000 tremendous productivity gains in farming, particularly North American farming. The 0:19:29.080 --> 0:19:32.159 country quietly should be very proud of its aag sector. 0:19:32.640 --> 0:19:36.800 It's done just it quickly adopts things. It drives technology 0:19:37.440 --> 0:19:41.200 adoption at a tremendous rate. That's lowering its unit costs. 0:19:41.200 --> 0:19:43.400 And that's how we've been surviving for the last ten years. 0:19:43.520 --> 0:19:47.040 If we have lower ever squeeze by inflation, you've got 0:19:47.080 --> 0:19:48.400 to survive in productivity. 0:19:49.000 --> 0:19:51.760 Mike, No, Jeff nailed it. 0:19:51.920 --> 0:19:52.119 You know. 0:19:52.160 --> 0:19:55.679 If you look at the charts, the blips aside, say 0:19:56.200 --> 0:19:59.399 around the twenty one drought in South America and then 0:19:59.440 --> 0:20:02.720 the twenty two issue with the Ukrainian war, if you 0:20:02.760 --> 0:20:05.439 look at it averaged out or even snapshot from ten 0:20:05.520 --> 0:20:08.440 years ago to today, we're almost dead on the same numbers. 0:20:08.680 --> 0:20:12.280 So it's being made up via efficiency gains in a 0:20:12.320 --> 0:20:15.720 significant manner. But the fact of the matter, though is, 0:20:16.080 --> 0:20:19.880 and I'm sure in your world you've heard this many times, 0:20:20.160 --> 0:20:24.120 the real rate of the inflation adjusted real rate of 0:20:24.680 --> 0:20:28.359 commodities over time will fall. They do if you chart. 0:20:28.440 --> 0:20:30.360 I think the best way to do this is chart 0:20:30.400 --> 0:20:33.720 gold against anything. And you can even pick some things 0:20:33.760 --> 0:20:35.879 that have maybe been hotter in the moment, like cocoa 0:20:36.000 --> 0:20:39.159 last year or cattle recently. And if you do a 0:20:39.200 --> 0:20:43.960 long term chart of any basically priced taking very elastic 0:20:44.640 --> 0:20:47.880 supply response commodity, they will all over time, and then 0:20:47.920 --> 0:20:50.120 if you plot it against gold, it's a stunning chart. 0:20:50.280 --> 0:20:51.000 Yeah. 0:20:51.080 --> 0:20:54.400 To be fair, anything these days looks pretty bad relative 0:20:54.440 --> 0:20:56.760 to gold. But I certainly take the point, and to 0:20:56.800 --> 0:21:01.000 some extent that is the definition of grass, right, that 0:21:01.240 --> 0:21:04.480 all of you know, grains and proteins and stuff get 0:21:04.560 --> 0:21:08.960 cheaper over time as we become a wealthier society. But 0:21:09.320 --> 0:21:12.199