HEDGE CROPS

“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, 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 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.”

“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.”

“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 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.”

“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.”

“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.”