AVOID SPECULATION

“Yeah. In our farm management practice, which is a part of this business, we see a lot. So let's be first off, you gotta dig deeper in those numbers. I would venture to guess that the dairy numbers are in there. And we have a structural change in dairy to these mega dairy efficiencies that have that business model has taken over. So it's put intense pressure on even the midsize dairy farm. We don't see it in the grain side. A lot of it has to do with the payments. Right? It's been tight, and you're watching working capital.”

“As far as investors go, one of the great things is that you can use options to lower your risk while improving your returns. We're trained to believe that if you want greater returns, you have to take higher risk, which is, generally speaking, true. But when we use some more sophisticated strategies, we're able to kinda tilt that scale just a little bit more in our favor, and that makes a huge difference. If you lose less, I don't have to sell anybody on the concept of losing less. That's great. But if you can make more, even if it's a little bit more, because investing is about compounding, those returns compound at a greater rate, and you just see these exponential benefits over time.”

“For me, one of the main functions that I do as an investor with options is I use this tool that we call the wheel, And we call it the wheel because it kind of rotates from one trade to another, and it's a continuous cyclical process. And there's two components to it. So let me introduce the two components of this thing I call the wheel, which are covered calls and cash secured puts.”

“As you folks probably very well know, crude and corn are incredibly correlated. I think they have an R squared north of 95. With some of our very tight relationships, we're having producers sit in their easy chair on Sunday nights when the overnights open after a weekend of crazy news and everyone's doomscrolling and if crude's up 20 and corn's up 20 following it, maybe if you've only have a little bit hedged for next year, go into your account and hedge a little more. So we've been taking advantage of some of these wild market swings often at weird times.”

“So here's the problem with a covered call portfolio. If you have a portfolio of 10 stocks, let's say, say, you got your 10 stocks in there and you write covered calls in all of them. The problem is is the good stocks, the ones that go up a lot, will get called away, And you will not benefit from that upside. You'll get the downside, but you won't get the upside. So what do you have left? You have a portfolio of mediocre stocks, the ones that aren't going up.”

“You have to understand how to make it work with you, not with what you see on x or what you see on the Internet or some Yahoo out there telling you to take your mortgage out and put it in options. It's stupid. Don't do that. So if it doesn't fit with you, don't do them. If you like the math, you're into the math and it makes sense to you and you can do it properly, I highly recommend getting advice. Ideally, you have to align your strategy with what works for you with your investor psychology, as well as align with your desire of happiness.”

“And the other thing I have a very concern about in that is as we've worked through it, we have sold they the Chinese have bought just enough US beans to keep the Brazilian honest. That's it. So what they do is because the Brazilian say, hey, you're not gonna buy any US beans period. Right? Their prices just keep going higher and higher and higher. Well, all of a sudden, I think the day that they did finally buy a few Brazilian cargos, I think the Brazilian beans probably lost a dollar a bushel.”

“So having started out as a market maker, sometimes referred to them as dealers now, it's kind of the same thing, We traded with a much, much different style. Market makers are just absorbing the liquidity. Market makers say, hey. Look. I'll buy it at $2. I'll sell it at $2.10. I don't really care if I buy it or sell it. I'm gonna hedge off the directional risk anyway. And so when I left the trading floor and started trading in a retail account, I mean, I had all this professional level knowledge, but, gosh, I had to learn a whole different way of trading.”

“One is, you know, there was a friend of mine long ago. He used to say, options are like fire. You can use it to heat your house or to burn it down. And, you know, it's kinda sage advice. Somebody once told me, you know, you shouldn't say that. You're gonna scare people away, but fear is a good emotion.”

“I, was prepping for this, and the University of Illinois puts out a really good series of reports, I believe, under FarmDocsDaily, I believe it's called. And the figure they threw out, at least the one I saw, what I believe was around 75% of fertilizer has already been purchased.”

“So a covered call is when I own a stock and I own the stock for the reasons why I would own any stock, even if I'm not considering options. I'm selling that person the right to buy the stock from us at a specific price, which is usually a higher price. So in a lot of ways, it's akin to using a limit order to sell a stock that you believe is overvalued or overpriced. But the really great thing about it is that I'm selling someone that right. I'm collecting money that I get to keep whether or not the stock goes up and that person wants to exercise his or her right to buy the stock from me at that higher price or not.”

“So what has been happening and why you you continue to hear from the farm community about the squeeze, if you look at prices, right, we sent you some price charts. I'm sure you'll be able to put those in. We basically since 2016, the futures prices have not changed. So imagine a business since 2016 where your output has prices have not changed. Then on the flip side, when you look at, let's call it inflation, land prices, I don't have these exacts, have probably doubled.”

“The other concern I have with this is, and trying not to be political is back when we embargoed the Russians it sent a signal to the worlds the world community that we were not a stable supplier. So when that happened, right, that caused a flood of capital to pour in to Brazil and Argentina. Particularly, the Japanese, which were the large buyer global buyer in the global trade back then, but others poured money into infrastructure to get a an alternative. And you would do the same thing. Right? If you were you had one grocery store that was supplied, and you and all of a sudden, they said, either do what I want or you'd go find a secondary supplier. And that is absolutely happening.”

“And in fact, you've seen some of these various government payments that have been pushed through. A lot of those are going straight through the system. So you think about the farmer. Right? He's using that money, he or she actually, I should say, to pay off various pay the land rent or make the payment on equipment or things like that. That money is getting passed through. That's why sometimes you hear the farmers, you say they complain all the time. Like, I don't even get the benefit of this, you know, bridge payment or whatever the latest name is. It's because it's passing straight through the system.”

“I had a client I'd worked with for many years, and he moved to Florida and got a new CPA. I was using covered calls with him to generate extra income. So I get a call, and the client's like, yeah. I'm moving my accounts. I'm like, why? And they're like, well, my CPA said you have me in dangerous options. I was like, did he ask me what I was doing? No. He didn't. Does he know what I'm doing? No. He doesn't. Because covered calls are the most conservative options.”

“We always one of the first things we say is that you wanna make a jump as a producer, you become a risk manager to the farm instead of a speculator. And that's how the biggest companies, right, they have risk managers. Whether they're commodity companies or people who use a lot of commodities, right, they have people that risk manage, and they focus on margin. And so we've really tried to bring that discipline through our classes and through our one on one relationships out to the farm, which never had access to this type of education.”

“So the other thing that you need to understand that has driven land rent, and I think you alluded to it around small farms, is federal crop insurance. You may have heard about this. Right? But it's highly subsidized. And if you think about when you look go out, you spend a thousand dollars an acre to grow a crop. Right? It would be seem to be quite risky. But if you can now, particularly with some additional subsidies, you can ensure most of the loss away through federal crop insurance, which is highly subsidized. One thing's your I do farm at scale in my post, Cargill life, so very involved in this. And think of it as a call option where all of a sudden you've been able to hedge off the downside, but you continue to run the upside for yourself.”

“But there are all kinds of actors. Michael, I think, might wanna comment here, but we often hear they say you're not gonna make any more land. And I really don't we get into this thing. I don't that's not really true. Right? The Brazilians are adding 2,000,000 acres a year, maybe more. The Indonesians and can add palm plantations at a tremendous rate. There obviously, there's lots of potential in Africa still to be unlocked. And then the technology and efficiency per acre has just exploded.”

“Look, investing for yourself is a business. And with any business, there's always barriers to entry. And the more barriers to entry, the more fruitful the business. And the only barrier to entry when it comes to adding options to the investing you're already doing is knowledge. And they say the more you learn, the more you earn, and that is about as true as it can ever be when it comes to investing and especially with options.”

“If you just blindly know nothing about options, do nothing about options, and you sell them, you do, on average, over time, statistically, have this small extra edge, which is important. But that is on average, statistically, over time. It doesn't always exist. Sometimes options are overpriced by two or three or four or 5%, but sometimes they're underpriced. So I'm a fan and advocate of using what we call volatility analysis.”