Barn Talk - Diving Deep with Conterra: Innovations in Agricultural Finance w/ Paul Erickson

Episode Date: May 15, 2024

Welcome to Barn Talk! We’re hanging out with Paul Erickson from Conterra, and we’re diving into the world of agricultural loans – a niche where these folks have really made a mark. In today’s episode, Paul’s going to unpack how big companies are really starting to see the value in farming through their investments in ag loans. Check out Conterra: https://conterraag.com Facebook https://www.facebook.com/conterraag/ X: @ConterraAg Instagram: Conterra.ag Linkedin: https://www.linkedin.com/company/conterra-asset-management Youtube: https://www.youtube.com/@conterraagcapital3690 10 Year Anniversary: https://www.youtube.com/watch?v=pRIhAuyfKxc Use code BARNTALK for 10% OFF your next order https://farmergrade.com SUBSCRIBE TO THE PODCAST ➱ https://bit.ly/3a7r3nR   SUBSCRIBE TO THIS’LL DO FARM ➱ https://bit.ly/2X8g45c  SUBSCRIBE TO BARN TALK CLIPS ➱ https://bit.ly/3BlZnqq   LISTEN ON: SPOTIFY ➱ https://open.spotify.com/show/3icVr4KWq4eUDl7Oy60YMY  ITUNES ➱ https://podcasts.apple.com/us/podcast/barn-talk/id1574395049 Follow Behind The Scenes👇🏻 ● This’ll Do Farm Instagram ➱ https://bit.ly/30KPBNk   ● Barn Talk TikTok ➱ https://bit.ly/3qciekS   ● Sawyer’s Instagram  ➱ https://bit.ly/3BtX0n4   ● Tork’s Instagram ➱ https://bit.ly/3LGZJxS    00:00 Relevant episode about challenges in ag economy. 09:08 Adapted farm kid thrives at Dupont job. 13:53 Recognized the need for better loan structure. 20:49 Institutions are amazed at AG loan origination. 26:55 Conterra specializes in unique, troubled debt situations. 29:48 Institutions quickly buy up farm ground worldwide. 37:06 Farmers must know the financial position for loans. 38:54 Financial planning, long term rates, reliance on banks. 48:09 Farmers need better financial planning and reporting. 52:57 Generation valued hard manual work, mentality shifted. 01:00:50 US economy resilient, concerns about inflation. COVID response criticized. 01:03:08 Farmers need to expand for sustainable income. 01:08:46 Proactive attitude needed for addressing cash flow. 01:16:02 Immigration is crucial for labor in business. 01:18:08 Politicians out of touch with normal people. 01:23:31 Change of responsibilities and new experiences. 01:32:36 Farmers must diversify debt sources for success. 01:34:49 Content shared across various social media platforms. ------------------------------- ***PLEASE NOTE*** Barn Talk is a significant break from the typical content viewers have come to expect from This’ll Do Farm. Please be advised that we will be exploring a wide variety of topics (some adult-themed) and our younger viewers (and their parents) should be advised that some topics will be for mature audiences only. ⚠NO FINANCIAL ADVICE / DISCLAIMER⚠  The Information discussed and shared on Barn Talk is provided for educational, informational, and entertainment purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness, or success for any particular purpose. The Information contained in or provided from or through this podcast is not... Learn more about your ad choices. Visit megaphone.fm/adchoices

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on anyway i digress so today uh is a bang up episode because uh it's very relevant when we set these guests up you know sometimes sometimes their their story is timeless and sometimes uh the timing of their visit is here or there or whatever but uh we met these guys a few months ago uh and the ag economy is I guess it's kind of a mess right now so our guest today may have some value for people out there trying to navigate what what the farm and operation is going to look like a year from now and talk about some of the challenges and and probably some tools that are out there that maybe you didn't know about, but he's been in the finance world for a long time, grew up on a dairy farm, and he started a company that a lot of you may not have heard of, but it's really tied

into the fabric of agriculture, and they do some really unique things, and he's been around the block a few times. So he's got, he knows things. He knows stuff. without any further ado, let's get into it. Paul Erickson, welcome to Barn Talk. Thanks for having me. We appreciate it. You know, we initially had a call with Paul a few months ago, and we think what you're doing is pretty cool.

It's pretty interesting, and we're going to kind of dive in deep today. But before we get going on all the nitty-gritty and that, why don't you give people a little background of who you are and kind of what your journey has been in the world of finance. Yeah, it certainly didn't start out in the world of finance. I grew up on the Canadian border in Minnesota, last to 10 kids. And my father was 58 years old when I was born. So I believe I was conceived for farm labor at that time.

So, yeah. And, you know, led an unsupervised childhood pretty much as long as I was around to do chores and take care of what I needed to take care of. I was kind of on my own. But, you know, we were talking a little bit before we started about my athletic career, which was related to hockey. It certainly wasn't school. because my high school grades were, well, just leave it at subpar. And my father got cancer first time when I was 14, so I was doing about everything there.

And he died when I was 18. And since no university would take me to go and play hockey, I ended up coming to Iowa and playing juniors in Des Moines for the Des Moines Buccane. Met my beautiful wife and got trapped. Yeah. Yeah. And so, you know, to make a long story short, took her back up to Minnesota, that in my double-wide trailer house, that lasted about six months.

and she was leaving south with or without me, I think, and so I ended up in eastern Iowa working for a farmer and just decided I'd need to get an education because $500 a month and all of the beef and pork and milk I could drink was probably not going to cut it when you start having kids. So, yeah. academically two-year agribusiness degree from DMAC, worked for a year, went to Iowa State, bachelor's, animal science, started on a master's.

Then the second child was born, and so needed to get out and make some money. So that's kind of the early background, I guess. Yes. So where'd you go from there then? Did you got out of college, you graduated, you got that education. So what did you do next? I really wanted to be a pharmaceutical sales rep. Those were the best jobs. And that didn't quite work out. So I sold feed for Vigertone. Eastern Iowa. I was a regional sales manager. We covered all of this area that we're sitting in now. And interestingly, after probably three years,

I saw a job posting for DePont in their biotech division. They were posting for somebody to, when I say posting back then it was a newspaper ad sure you know it wasn't posted there was no indeed back there was no indeed back then or LinkedIn or whatever but um for a uh person to run their remnant uh nutrition research the company was optimum quality grains if you remember the old high oil corn yep yeah grew it all around here so I worked for DuPont ended up becoming the director of business development

in U.S. and Canada three four years. Went through the JV with Pioneer and was part of the group that acquired Pioneer. And so, you know, from that standpoint,

great education there. And, you know, did, didn't really want to enjoy sitting in a cubicle. That's where I was destined. So went to a farm credit of all places. The old Agstar Farm Credit out of Minnesota.

So, yeah, spent 15 years theirs on their executive management team and started Contera 10 years ago. So when you join DuPont, I think I know the answer to this. So that was kind of out. That isn't like something that you were. No. It wasn't in your wheelhouse, but you just, one, you needed a job, and that looked like a good job, but two, you were willing to do whatever you had to do to make it work.

And that is like among the people that we talk to, there is something about a farm kid that because you have to do so many things and half the time if you don't know what you're doing you have to figure it out I mean that's how we were around here if we didn't know how to fix something we either completely broke it in the process of fixing it or we figured out how to fix it but when you learn those lessons as a kid you don't well you don't know you're learning a lesson but when you go to work in a situation like that you just like I feel like people today if you don't come from that environment people want it all laid out for them yeah and they don't realize that you figure it out as you go 100% correct I've you know even the

unsupervised part of my childhood taught me a lot of valuable lessons well one how to get into trouble one how to get out of trouble. And the trouble wasn't necessarily bad trouble. It was, you know, you get stuck, you know, 20 miles from home. You know, how do you get out of it? And so the age of the helicopter parent isn't being very fruitful for our young people, these days in terms of using skills, reasoning, all kinds of different skills

that you learn at a very young age on the farm. Yep. You know, and how to do different things, you know, and trying something and failing. You know, it's all cliche, but the idea that successful people never had a failure is just, I mean, they had a hell of a lot more failures than they have. Yep. They've had wins.

And, you know, that's at its heart. Why, I mean, I love being in the ag business and its finance. You hire people that come from that kind of background. that if they see something that needs to be done, they do it. Might have some questions, but that's fine. But at least they go after it. So you go through the ladder of kind of going through DuPont and then Farm Credit. But you had this vision of Contra.

So tell us a little bit about that vision when you initially were getting out to start this thing. and kind of how it got all, how it, how it, how it got started. Yeah, it, it's, uh, it's an, it's an interesting evolution. Um, whether you're a farm credit borrower or, um, you're borrowing from a bank or an insurance company, um, you know, it's, historically an ag, there's, there's, kind of been those avenues for finance, whether it's real estate or whether it's operating debt. And, you know, sitting in Credit Committee at Farm Credit, you know, you spent a lot of time looking at risk ratings, PD ratings, and trying to fit a borrower in a box.

and that's the structure they're in. I'm not downgrading it, but as a very heavily regulated institution, and there's reasons for that, why they're regulated, that never, I started to struggle with seeing transactions that were good for,

borrower, good borrowers, good farmers. The structure of their debt was not right, too much on the short term and all of that. And I just thought there was a better way to do things. And you want to talk about where luck meets opportunity. how Cantera got at start was really working more as an asset manager for initially Farmer Mac. I was actually at a Twins baseball game with the CEO and the chief credit officer. Farmer Mac buys a lot of guaranteed U.S.DA guaranteed loans from primarily banks around the country. And the administrator of that guarantee, so a bank sells a guarantee to loan to Farmer Mac, there's an intermediary there that collects the payments from the banks who bill and collect, and they essentially shadow account, make sure Farmer Mac's yield is right, and payments are, well, the, the,

the entity that was doing that was in Manhattan. No clue. No idea. And they were really looking for somebody, and they asked me if I knew of an entity or somebody that could take over that. So kind of half-jokingly, I said, well, tell you what, why don't I start an entity

and you give me that portfolio? Yep. the old napkin in the bar after is actually how it happened made some calls pretty quickly had the appropriate amount of capital raised executed the agreements and away we go off you went yeah and so really contara was was founded and still is very much we refer to ourselves as an asset manager, billing, collecting loans. Well, to grow the business, we were selling some loans to Farmer Mac. We really didn't have control of the process or the capital. Yeah, you weren't originating anything. So you were kind of at the mercy of

business, you were kind of at the mercy of how much business was being done, because if nobody was initiating a loan, you didn't have anything to... Yeah, originally that's exactly how it was. But very quickly, we said, okay, part of the original business plan, and this is all actually in the business plan, we actually succeeded in every aspect of the original business plan we wrote, except we were about a year late. Well, that's pretty good. Most people can't say that that happens that way. So you better get on the horse.

Yeah. Right. It's your business plan. Yeah. And we did start originating. And I held a lot of relationships across the United States because that's what I've been doing for Farm Credit. I started a company for them called Agra Access

that was buying loans from banks. So I came from not a dissimilar structure. But what we were able to successfully do is go to New York and sit down with the people that had the money and convince them, educate them first and foremost on agriculture. and then that we knew what we were doing in ag.

The debt providers in ag, whether it's operating or real estate are very traditional. Regulated institutions, it's all held on balance sheet. 95, 6% of the egg debt in this country is on a regulated institution's balance sheet. Well, what, and this came out of the, when I was working for farm credit, it's those good borrowers that didn't fit a risk rating or had had an issue, death, divorce, crop loss, you name it, we've seen it. And the theory I had was, boy, you could do essentially what would be called a troubled debt restructure at a bank, solved for liquidity, working capital, had a lot of equity in the real estate,

and anywhere from a one to three-year loan, and then move them into conventional financing. primarily on real estate debt. And that was wildly successful. Yep. You know, so you think about the time frame, which we're not in a dissimilar time frame now, that kind of late 15, 15, 16, 17, those years,

you know, we looked at probably in three years or less, over $3 billion of applications, loan applications, farmers. And then it got really good for a lot of reasons. And now it's going hard the other way. So that, we've raised and deployed. I should have been prepared with the numbers, but probably around a billion dollars in that, 2016.

And this is what amazes the institutions, all of the ones that you hear about on the news, the very largest institutions that, depending on what your opinions are of them, the interesting thing is they all want to get into ag, a ton of capital, but they can't. I mean, originating an ag loan, in managing an ag loan, especially when all that debt is on somebody else on a regulated institution's balance sheet. You know, Contrera was really the first one that could do it in any volume to satisfy that.

So even though we kind of started out on the asset management side, which is still the core of the business, accounting, reporting, all of those type of things. The origination piece came pretty quickly, one, because of internally what we describe as our rooster funds. That led us down the road to insurance companies. Yep. And so now we invest what we call invest for. so we have committed capital from two insurance companies, soon to be four, the way it appears, where we can go toe to toe and, you know, take a transaction that is all the way from 500,000 to a couple hundred million,

and do that at rates that are below or at what anybody else can do. Why do you think those kind of companies are wanting to move to ag? Is it because of the stability of land of the asset class? Or what's pushing that? What's driving it? Probably, you know, there's a whole myriad of, of reasons or theories that they think about. One that they really don't know until we start talking to them and showing them data is in 10 years,

we have taken no losses. Zero. That looks pretty good to an insurance company. And especially insurance company, ag debt, secured by real. estate farm real estate the only determinant of capital treatment is the CM rating which is only defined an ag production ground on loan to value there's no cash flow test it's very simplified compared to yeah corporate or a farm credit and so they can apply their capital to a loan that is producing a yield that's better than they can get on about any other

CM1 and have the lowest capital treatment. Yeah, low risk. Low risk, higher return. and so that's so that's one thing you know the the thing you hear in the news growing populations you know we you know food all of those type you know they're not making any more land all of those things and without a doubt the United States is the best place in the world to grow food, right? Best transportation systems and a lot less riskier place than other parts of the world.

And they see that population dynamics. They look at this well. How do we get involved in ag? Problem is nobody wants to sell egg debt. Right. Yeah. you know, one of the questions that we have on our list is we wanted to talk about, about the land market. And, you know, the real simple truth is it's a scarcity deal.

You got a lot of people that want to buy land. And in our little world, we look at it as, you know, we know every piece, we know every piece of ground that is going to go for sale or might go for sale or, because you go down the road and you know how old this guy is and this guy and whether they've got any kids and all that. But at the end of the day, county by county, state by state, not very much of that land moves at any one time. And so as a result, everybody wants to know, you know, are we in a bubble? Is this the new normal? What's the trend? It's a scare. We're in scarcity plus exactly what you talked about when you look at. at the world of assets and land being scarce and a lot of uncertainty in a lot of other assets.

I don't think land values are going anywhere but up. Yeah, what are your thoughts on that? What do you think about land values? Do you think it's here to stay? Do you think there's a bubble? What do you think? Well, I am, depends on what you mean by bubble. But just a little bit of background and to close kind of the Contera thing is we're unique from the standpoint that 90% of what we do is high quality low rate business with the nation's farmers across the United States. The other part is on the more of the rooster, the troubled debt stuff is we have the flexibility of capital to take situations that no regulated lender's going to do and we fix them. And so how that relates to land values, right?

So we spend a lot of time on land. But land and values that are in a troubled debt situation tend to really, sell at discounted rates, especially if it's a fire sale. You've got a lot of issues that come with that versus a, you know, George down the road is going to sell a quarter and it's really good land, and you'll have all of the neighbors in there wanting to get a piece of that. So I said earlier, this kind of reminds me of 2016-17 range. During that time, we like in use the Midwest here, you had corn price that probably, I think it hit its high in 14, if I remember, by a little over $7 a bushel.

And then came off pretty hard. land values depending. The first thing we saw was really good land held its value or declined less than poor land. Makes sense. Yep. Okay. But on the average we saw from kind of peak to trough, 15 to 20 percent declines in real estate values depending on. what part of the country you were in.

And, you know, you can look at all kinds of charts that give you that story. It wasn't long after that trough where you were back at record highs. Yeah, it was very quick. It happens very quick. And an important part of that, depending on your, the opinion of this is differing differs depending who I talk to. In the institutional land buyers, when I say institutions,

it's the big ones. It's, it's, you know, where they've raised primarily pension money to invest in land. You know, famous,

or it's a large family office, you know, Bill Gates as an example. Okay. I spoke at a, what's a conference in New York called Global Ag Investing, and it happens every year, and it gets all of these institutions from around the world in, and they took an informal poll, and there was more money stacked up to buy farm ground in that room than there was farm ground for sale in the United States.

So again, the thesis, scarcity, population growth, all of those type of things. Well, so in the last, since then, in the last seven years, they've been in the market in a big way. we finance probably eight of the largest ones. But what's been happening in the last, especially in permanent plantings, almonds, pistachios, tree nut, you know, citrus, they haven't been in the market for two years. Very little has gone to institutions.

And we're seeing now take California, we do a lot of business in California, and you have the added complexity there of water as well. So poor land, poor water, which was at one time when almonds were four bucks, everything in the country was getting planted to almonds, stuff that should never have been planted. But we've seen some track sell at, you're down 50% from what the appraised value was two years ago. But you see the same scenario, good water, good land, holding its value on the other side. So when you talk, I think there's bubbles. I don't necessarily like that term.

There are so many variations by state, by geography, that, you know, I guarantee you around here or north central Iowa, it might come off a little bit or the highs may be lower, but I don't. I think it's really in. Midwest, it is totally, it's practically county by county dependent. It's, hell, it's almost township dependent because, you know, like in our area, it's not going to, it's not, there's, there's enough interested parties that a piece of

ground that comes up for sale, it's definitely not going to dip. Now, if you go one county south or one county south and east, it's, it may be a different story because there again the quality is not quite as good and the the number of interested parties may not be as many but um but yeah and you know the the data that it's hard to actually piece this together but you know what i've heard in in iowa is 70, 80% of the farm ground has no debt on it. Right. And the staying power of a farmer without a big debt load,

you know, they can ride through some stuff. But if you're levered 60, 70% on everything you got, that's what we're starting to see. Now we're seeing now farms that really, didn't do what they needed to do when times were good. Are not fairing. Yes. Yeah.

So that's on their sheet actually. So, you know, it's a difficult time right now for farmers in an agriculture. You know, what are some, you know, what are some key numbers or ratios that, you know,

farmers should be looking at, should be watching, um, to kind of help them, whether the storm or prepare for the next storm to come. Well, you know, there's a whole host of things that we look at in the underwriting side of it. You know, certainly, whether it's a non-ag business or an ag business or a farm,

working capital liquidity is key. If you don't have that in tough times, it makes it hard to get through it, right? So, you know, we look at a total debt coverage. A minimum standard would be one and a quarter to one. So when you look across our portfolio, portfolios, because there's several of them, probably the weighted average is about 1.6. On the more of the alternative side, the rooster stuff, it's less because they've had some issues, but we're solving for that.

So working capital to OPEX is another ratio. At a minimum, we want to see like 115, so 15% margin. we'd like to see more than that, but that's kind of a minimum. So what floors me about our farmers, nations, not all of them, and I don't want to, because I know some ones that are really good at financial management, record keeping, you know, it is inexcusable for a farmer to walk in to a banker and not know their financial position. So, I mean, balance sheets, you know, simple income statement, you know, there's a lot of ways.

We're not, nor do we expect farmers to have audited financial statements. but you just have to and you know know where you're at be able to produce your financial statements and and when you walk into a banker that's going to it's going to give you at least two things it's going to tell that banker okay these guys these guys know where they're at and it's probably even going to get you a lower rate. Yep. And, but I just see way too much.

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and keep everything working together. So you're ready for whatever's next. Learn more about their customizable plans that's we're up.com. Well, I think some of that's a generation. Well, I don't know. I feel like some of that's a generational deal. Because you're 100% right.

And, you know, full disclosure, I'm a customer of the farm credit system. Farm credit down in this area, they decided in the late 90s that financing hog confinements was a good idea. And thus, they did a hell of a bit. And they continue to. It doesn't work quite as well as it used to. But so, you know, when we were,

when we were starting out, their ability to give you a long-term rate, that made a lot of difference for guys when you could lock that rate in. You know, we started these things. We could cash flow them on seven. years, then we went to 10 years, then it's 12 years, and then it's 15 years, and I don't know what

guys are doing now. I pity anybody that would finance a hog billing for 20 years, but I know that that's probably out there because the cost has gotten so far out of hand. But I had a pretty candid conversation with a banker not very long ago, and I just asked him what percentage of people can do that that walk in there. have their balance sheet and their financial statement and can do a cash flow or have a cash flow. And he said that to this day, he said that a majority of his customers count on them to put together a balance sheet and the cash flow for them. And that just floors me because the one thing that I don't think guys even, they don't even think about is at that point, you literally have no,

you have no bargaining power because that, that guy, and I'm not saying that any banker has, um, has a mentality that they've got like their thumb on you, but they know you're not going anywhere else. They know you're not going to shop around because if you can't get your, like if you don't know where you're at, you're asking them to put together your financials, they know pretty much that you're going to do exactly what they tell you to do. And you have to realize that what is the best for the bank, or for that particular bank, may or may not be what is the best for the best. for your farming operation.

And I don't think people, I don't think people understand that, that there are times where, um, it's good to have options. And if you aren't in charge of your finances, if you can't, uh,

if you don't know where you're at, you're not going to have any options. So that's my two cents. Yeah, I, I agree. I'm preaching to the choir. I'm sure he, I'm sure Paul agrees too. I, I can tell you guys. many stories because when times are good nobody yet nobody cares floats when the shit hits a fan

you want to talk about bankers having your thumb on you i you know i've got a couple of situations on very large credits right now that we're trying to to work through and they're just trying to figure out how to get out yeah the the bank right and so At a minimum, if somebody's in the family as an accountant and knows how to do this well, by all means, use that resource. If they're not, there's all kinds of bookkeepers. Yeah. Okay. And, you know, I'm not a big social media person.

Yep. generally it's the scourge of the earth but uh there's exceptions there are exceptions barn talk being one yeah absolutely but um the on lincoln some very specific farm people in this case I know with two ladies that their husband farms and they're holding out a shingle as a bookkeeper. Get your stuff on QuickBooks. You can have at the touch of your finger your reports and all of that. I can guarantee you that if you have a Main Street business or just, you know, a commercial lender going in to lend on a small manufacturing business, I can guarantee you they have their widget accounting.

Yeah. Right. And ag has never had, well, the idea that just to contrast commercial, you know, Main Street business with farm, there was capital up and down the credit and the rate spectrum for that Main Street business. there's never been that for ag period and where that commercial business had to have its act together in terms of its financial reporting and understanding ag i mean quite frankly a lot of the bankers as he said do the balance sheets do you know and and it's it's at a point where um as we head into this down cycle, it's going to get really bloody in places.

And you just have to be able to know that your financial metrics. And if for no other reason, then make a decision not to do something or to do something or, I mean. Never hurts to know where you're at. Something that I'm just, this is just out of curiosity when, and I don't know if there's numbers on this or not, but this is, this is near and dear to my heart because I am right, right in the middle of it and actually a neighbor of mine that we go back and forth with a lot. He's in the exact same situation. So we would fit that, we would fit that. we would fit that demographic of very low debt on land, but very poor cash flow.

And the reason for that is health care because my mother, my father passed away about five years ago, and my mother is in a retirement home. And she's been there five years. and when she entered that home, those bills had an eight in front of them. Today, they're almost 11 in five years. And five years ago, cash flow on the farm, compared to what I'm looking at for crop year 24,

not as good. So you have health care cost going up, you have farm revenue, hopefully flat, hopefully not coming down too far. But as I talk to people around the country, the amount of operations that have some kind of a situation like that, and that's tough. That is really tough because it's really hard to,

you don't know how long that's going to last, and you hate to, you know, we have this conversation around here. You feel guilty having that conversation about, you know, how long is this going to go on? But the reality is that somehow you have to deal with it. And the amount of equity being eaten up in this country, not just from ag businesses,

but from just mom-and-paw businesses that are generational, I don't know what that number is, but it's got to be huge. Yeah, you know, you talk about health care, and we have less than 50 employees, you know, 45-ish, roughly. Yep. And you look at what our health care costs are. And in running this business, it's, and they went up another 12% this year.

Now, we'd choose to very much offset that cost for our employees. Yep. But not everybody can do that. Yeah, exactly right. And so when you look at the amount of equity being eaten up in any business in America, especially a farm, you know, there's a lot of reasons, right? there's inflation on everything health care just on your on your inputs on you know and and so to take it back to the kind of the the financial side if farmers ranchers took as much care

in their as they do in their breeding plans for their beef herd or in their planning plans for hybrid selection, all of those type of things. If they took as much care in their financial reporting and understanding as they do in that, and of course, it's one thing, you get the information, but then you've got to make a decision about it. And it's, I mean, we've actually had clients that were on the way. to file bankruptcy and stopped by and traded a combine. I mean, who does that?

Yeah. Right? And, you know, just that. And, you know, I come from a farm where my father did not have a clue, I think, where he was at in any detail. He knew how much money he owed, guarantee you that. and but there was no business financial acumen there and I see it you said as maybe generational I think in part it is um I mean you know a young young person going to college or not going to

college or going to a trade school or going to, you know, to at least or have mentors, you know, parents or grandparents that speak that language is really important in terms of running a business and all the aspects that go with it. and but the the costs are just out of this world yeah it's it's crazy I just feel like

ag's at a point being a farmer at this point like back of the day you always talk about how grandpa he'd be like well how many pigs do we got to sell this week to pay the bills you know it was just like well we got to sell this many pigs to keep her going yeah now

you guys you You can't afford it. It's too competitive. Got to take a load of grain to town. Yeah. It's too competitive now. Grandma needs a new washing machine. Yeah. And that's 100% true too. I mean, there were, part of that is generational in the fact that that's a true story. I was born in 71 and they had just finished, my parents moved to the house that I live in now and they had read,

redone it. And I remember I asked my dad about this. When we, when my wife and I re-did the house that my parents lived in, they called that the honeymoon house, the house that Sawyer lives in now, they live there.

He needs to go to, so he's going to be a honeymoon. And he will be. I will be. Hey, let's face it, it's a honeymoon every day. Every day. Every day in there. Yeah. Yep. But I asked him, I said, when you redid that, I said, did you go borrow the money for that?

And he said, oh, God no, God no. And I told the carpenter that I would pay him every month. And I was farrowing over there in the 20-pen. He had two 20-pen farrowing houses, and then he had 20 pens in this barn. And then he finished the pigs out on alfalfa. And he had it all plotted off. and he said, I had it to where I had a group of hogs to sell every month.

And so Gander would bring me the bill. And then I'd figure out how many pigs we needed to load up. And I'd call them up and they'd bring the straight truck. And then we'd take him to Oscar Meyer and then I'd write him a check. There you go. And I was like, God, I wish it still worked that way. But, you know, it was a whole. And that was the generation, though, that that was the generation that it was

everything to create an asset involved manual labor. So if you could work hard enough, how much money you needed was based, or how much money you could make was based on basically how many hours a day you wanted to work. So if you just outworked everybody, and that was their mentality was you just need to work more. And today, the return on physical labor versus mental labor, It's a whole, it's a different dynamic, but yeah, it's just there's some things you can work as hard as you want. And when the, when the medical bill piles up, you know, it. Numbers got to work. The numbers, no matter how to let you stay up, they got to work.

Yeah, they got to work. They do. And I agree with you. But now for this, a person that really wants to work, and gets out, gets on it, they can still make things work. You know, it's understanding, you know, your parents, my parents, they lived within their means. And they were, you want to talk about working?

I mean, these, and I hate to pick on the kids. I say the kids these days. It's fine. We do it all the time. Sounds like my father, you know. But I don't think they were, most of them, a lot of them, I shouldn't say most of them. A lot of them don't know how to work. And my father was born in 1906.

And so you think about what that man lived through, the depression, all of those time frames. and I tell you, the guy knew how to work and expected his sons and daughters to know how to work as well. As a society, our level of what is a need is significantly higher than what past generations were. And this is a true story. When I was in grade school, like, I don't know if I was in third. or fourth grade somewhere in there. One day our teacher in our home room said,

asked us, go around the room, and she wanted everybody to say one thing they liked, or one reason why they liked coming to school. And I was really anxious about that because I couldn't think of one reason

why I wanted to be at school. I think I probably said something like recess. Right. And this girl, Amy, that was in my class. When it came to her, she said, I love coming to school because it's warm. Because her dad was a tight ass and always kept the house as cold as what anybody could stand. Is that because I didn't have to work for 10 hours a day? I could get some time off. Yeah, exactly. So it's different. And we, you know, we've prospered. As a nation, we've prospered,

but also the expectations. And that's one of the things that I think is, I feel for the generation that's just getting started right now trying to start a family, trying to get a house, trying to get going, because on one hand, it's expensive, and interest rates are not your friend. But on the other hand, the standard is what, as to what you expect that you are going to be able to have starting out based on your upbringing

is so it's so much higher like it what we take for granted is just it's a lot i feel like and it's a lot for another generation to think that they're going to be able to just come out of the gate and have that but we get off a little bit yeah uh what what are your thoughts on interest rates long-term interest rates. What do you think? What's your outlook on it? And what does it mean for farmers? Get my crystal ball. Yeah, yeah, grab that. You should get a magic eight ball. Yeah. Shake it up. I remember those. Well, I'll talk first about maybe the market psychology and where from talking to a lot of farmers what they what they thought was going to, happen and what the they were anticipating happening happening well first answer your your question

it's an election year right so I don't think anything's going to run away are rates going to go lower maybe do I so I so We tend to look a lot at the 10-year treasury as kind of a base for what we're doing. We index a lot alone, you know, do a 10-year fixed rate, even though we can go out to a 30-year straight-up 30-year fixed rate. No one wants a 30-year fixed rate in this environment. Yep. But.

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Could sell the 10-year treasury right now at 440? could it get to four yes could it get to 350 probably unlikely on the inverse of that five see that 550 maybe so in the world has a habit of going contrarian to the event of going contrarian to the events that take place and all the stuff that's going on today in this world. If we are, I would put a lot of money on this, that we are never going to be back at what, at a treasury. The 80s rates. Well, we're never going to be back on the high end at the 80s,

but we're not going to be back to the 50 basis point treasury. It's just not going to happen. Yeah. And as we looked at coming out of those, the lowest rate that I put out, I believe it was a seven-year fixed, was 2.7%. You don't think that'll ever come back.

No. Why do you think that? Well, I think the, it has a lot to do with the condition of the condition of the world economically. And the fact that the U.S. when given a chance is pretty darn resilient. And it amazes me how much money people still have. And you start back at a, I think the worst thing for the long term for this economy would be to go back to those rates. Just what it spurs on in terms of inflation. and variability of rates.

Someone has to show me, I'm not saying it can't happen, but someone has to show me what event or series of events are going to happen that causes the Treasury, U.S. Treasury, or any other group around the night

to have to reduce interest rates to that point ever again. I think COVID was a crock. Yeah, we agree. And some of the things we did. And hopefully we learned some things from that, although I don't know, but... The number one issue with today, is generally this population forgot what we learned 30, 40, 50, 60 years ago.

Yeah, right. Short-term memory. Short-term memory and making some of the same mistakes. My guess is I'll be dead a long time before interest rates ever get back to there again. Yeah. So that said, if you are, if you're a farmer out there and you are, you are trying to figure out how you're going to keep operating and let's face it, you know, just like the situation here, you've got another generation that you're trying to get into that farm.

And the economics tell you that you're going to have to farm a little more than what you're farming now to keep the same level of of income. So when you're looking at that and you're trying to figure out how you can make a land purchase work, what do people have for options? What can you do if you're looking down the barrel of, I want to pull the trigger and buy this, but I'm not sure. And I'm not saying from a troubled position, even from if you're in a decent position, but you're not, I guess you're not flush. Right. But there's, there's going to come a time. And, and, you know, that time is today for a lot of people to where they see a piece of ground come up. And they're trying to, to do exactly what, what you say they're going to do. You know, if you're

levered up to 50, 60 percent, there's not too many that are going to come. You know, there's not too many that are going to come in and borrow that. If you need to borrow that now, because that means if you're levered at that, you've already leveled, your real estate, right? But what we're seeing and what we do routinely is even if we have to take another lender out,

so refinance that. You've got to farm with a bunch of activities. Yep. Right. So, you know, you want to buy this farm coming up. You're just going to have to use the equity from your, from your existing to provide a loan that a bank will do. So I can tell you 50 LTV loans, sub 50 gets you the better, best pricing. You know, right now, I, I, I know you're a farm credit borrower, and that's great. I mean, I like farm credit, right? There's nothing. But their cost of funds and what they need to do today to sell a farm credit bond is their rates aren't that attractive. Yep.

You know, I can get into mid-sixes right now pretty easily. Yeah. And we're in general much more competitive than a farm credit. And we have probably more flexibility around how to structure some of those deals. Sure. And so when you look at ways to put that deal together, there is no magic bullet. Right. It is.

underwrite it, where's your collateral value, how does cash flow look? The thing that we're starting to do a lot more, we have kind of a unique, and it's not necessarily unique, but farm credits don't typically use this or other insurance companies, but if you've got a lot of equity in your real estate and you're not looking for a real estate loan, but you're looking for a low-cost operating line. We'll do five-year revolving lines of credit secured by the real estate. And you draw and payback as you needed, no annual renewal. And you have that liquidity there if you need it.

Yep. Or want it. Generally, operating rates today are, let's call it, seven, say prime, seven, 75 to nine and a half. I'd say if you can find somebody, at least from what I know around here, if it's got a seven in front of it, you should feel pretty good because a lot of them are eight. A lot of them are eight or better.

Yeah, and we can get substantially under that with that real estate secured revolving line of credit. Now, I understand, you know, sometimes farmers don't want to lever their land. but if you're saving a couple points well here's the other you know that's kind of the you got to make tradeoffs you got to look at economically oh things work

here's the other thing and I I think people farmers are forever optimists and I'm one of them my wife will tell you that to a fault because she a lot of times is the voice of reason and I'm maybe sometimes I have unrealistic

We all have that. Just keep that in mind, Sawyer. If you, you know, if you have, if you have, if you're in a situation where your cash flow or you, or your, your operation isn't working today, you need to be proactive because a lot of people, I hear a lot of people saying they don't like these rates, like they don't like these rates. Guys don't want to have to refinance. You something. They don't want to have to use that equity. They don't want to have to do anything because I've got this real estate loan and I've got it locked in and it's four, it's four point seven five percent or it's four percent, but I've got cash flow problems. Okay, I just had this conversation with a guy three days ago. That seven or that eight, that doesn't sound that great. But if you stick your head

in the sand and you wait till next year and then that number's got a 10 on it, well, you're going to think, you're going to look at that interest number and you're like, man, I wish I would have done something when I could have gotten a seven in front of it. And that, you have to have perspective as far as, and I think a lot of people have fond memories of what we were talking about of those ultra low interest rates. And believe me, I sold, the company I used to work for, we sold thousands, literally thousands of hog buildings and that low interest rate was the best thing that ever happened to our business true mean that was like that was like handing out candy because those things cash flowed so well

at those low interest rates and it to give you an example at that we added about a billion close to a billion dollars assets in 20 in 2021 yeah i mean the amount of activity yeah that was was happening at those rates was amazing yeah So anyway, you know, when we talk about these, it isn't, we're not where we used to be, but you still, if you have a problem, dealing with it sooner than later is a lot better, a lot better outcome. Yeah. And so what we saw when, when treasuries started popping up from, you know, 50 basis points and

and went to 350, 400. And then so everybody understands, you take the treasury, you put your lending margin on top of that, and that's the borrower rate. And a really low rate would be, say, 200 over like treasuries. Yep. There's some stuff that goes off a little less than that.

So, you know, at Treasuries at five, you know, the best, maybe you can hope for, seven. But historically, you look at that and say where were rates. Now, people like to bring that out, but costs and expenses were also different in those timeframes. but we couldn't get anybody to take a 20, 30-year fixed rate when that had a four in front of it. They're not taking it when there's a eight or nine in front of it. But on a 10-year, if you could get something with a 7, but what they were doing then instead of taking those longer-term fixes, they were doing three and five-year maturities.

So we actually have a system that we can look and see all the mortgages around the United States, kind of what their rates are at. There's a ton of three-and-five-year maturities coming up. And they were also going variable rates, straight monthly variable. And on the way down, that was a great play, right? Yep.

But there comes a point in time. where it's not and we're at that yeah 100% yeah so do you have any other you have any other hot takes or some things that are on your mind on the just it can be financial in general economy or ag lending or ag finance that you want to talk about uh that we didn't cover that you're kind of like want to talk about. Yeah, I've had some people that shall remain nameless were after me to watch what I, what I say. You know, I watch some of your stuff on Barn Talk and I've got, what's the hot topic? Yeah, those are my favorite. Sometimes, those are my favorite ones. Sometimes they get a little spicy, a little hot, a little hot, a few F bombs here and there.

You know, I, and this is the idea, you know, a lot of things happening in the world, a lot of opinions on both sides of the aisle. And what gets portrayed is, is it's either this or it's this, right? when we think that the vast majority Americans can kind of see both sides of things and have a reasonable discussion, but that's not what gets portrayed in the media. And whether that's immigration, immigration is, our immigration policy is horrible in so many different ways. But whether whether it's H2A or whatever, it's America and especially ag. Yes, 100%.

You know, whether it's milk and cows or doing whatever, relies on immigration. And so, you know, I really wish we could get that figured out, both from a safety and security standpoint, as well as just what it takes to run this country. A good friend of mine you had on here, Mike Nag. Yeah. And, you know, I, you know, he's, well, he ranks us the only political donation I've ever made in my life.

He's a good guy. And, you know, I, I, I, I, I, I know he has some thoughts on immigration and what it means to ag. So that's one thing. I don't know how we figure that out. Yeah, I think one of the, if you talk to anybody that is involved in a business that needs labor, immigration is what they're relying on because we do not have enough people for the labor that needs to be done,

especially in ag. And what really frustrated me when I was, when I went to work for the production side, the vast majority of our pig production, as far as on the sow unit side, is from TNVSA. And it does not need to be, my take on it is that,

there are an awful lot of really good people that want to come here and want to become citizens and our government should make it, should streamline that. The problem that we have, and I think this is the problem we have with so many issues, is when one side has the ball, the other side doesn't really want them to get the credit for fixing it. So they'll stonewall it, and then they'll funder it. on why it's not getting done. And then when it flops and they have the ball, the other side, they're butt hurt because they didn't get,

they couldn't do it. And we end up having in our two-party system, which I don't know, it's what we've got, so it's what we've got to deal with. But Bullseides spend so much time fundraising to defeat, to stay, to get either back in power or stay in power. we spend a lot of money not fixing things. And immigration to me is such a,

it's something that we all agree, we can all agree on that it needs to be fixed. And I just don't understand why we don't have the political fortitude to do it. The vast majority of our politicians on both sides of the aisle do not have a realistic understanding of what goes on. in America. They're in their little bubble. They're arguing about stuff that makes no sense. And so at the end of the day, I mean, I don't even watch the news anymore. I turn on RFD TV in my office. I'll skim a few other channels. But when I just, I can't, it gets me so worked up that I'm like, you know, so the political environments and issues.

I know, you know, we're, and this is not just going to be for agriculture, and I'm not a doomsdayer here by any means, but, you know, the Main Street America, these politicians, you know, they just don't understand that for normal everyday people, the cost of living is outrageous. Yeah, 100% it is. and and they just don't seem to get that. I just hope one day the electorate would come together and say, okay, you guys are idiots. Yeah, and then on the other side of it, I don't fault, you know, like when I think about, we wonder why we got here,

but then at the same time, who in their right mind would want to be a politician? Like, who would want to put themselves through that? have no clue we complain about these guys and these women and how they're a complete narcissists well you'd have to be a complete narcissist because the only person that's going to tell you that you're a good person is the person looking in the mirror my my solution is pay each one of our congressman four hundred thousand dollars a year yeah ban them from any sort of stock trading and put two-year term limits on it yeah and pay them well enough

to attract somebody for a couple of years and they're done. And serve their country. Exactly. Then they leave like it used to be. Yep, I could get behind that real easy. Well, I don't want to dive into that too much.

So, because I know, I know you got to be, you got to be on your tippy toes walking on that. But let's talk about hunting cattle, hockey, rodeo or whiskey. There's got,

we got a few of your hobbies here. that I know you like to dabble into. Yeah, well, the first thing I want to ask you about that is, so now you have come far enough, you got a little bit of perspective. So do you think that you would be further ahead if you could go back, if you would have just tried a little better, a little harder at hockey, do you think that you'd be chewing your food or you think you'd have, I mean, how do you think?

you think you're better off for for not pursuing that harder or my life would have been different yeah yeah in in a variety of ways probably i was never i don't want to make you think that i was this world's best hockey player right played in europe played some you know so i come from a town that it's nothing but hockey right um but I was never good enough to make it to the NHL. I could have prayed pro hockey at a lower level, but I had enough riding buses and all of that. Well, we're pretty uneducated about it down here.

But my question, do you keep up on it? So are you still a fan? To some degree. I used to be a lot more fan, a lot more of a fan as I knew a lot of players in the NHL. I had many people from my hometown were either Olympians. They were on the 1980 Olympic hockey team. You know, they and other Olympic years. And so I'd followed it more.

But all of my kids were baseball, football, Sure. So I kind of got into the baseball and football. But, you know, hockey was, it got me out. I'd never, if it wasn't for hockey. Never made it off the farm. I would have never made it off the farm. And, you know, I went to a little country school. I think I had nine people in my class. And that get aggregated at seventh grade and and you in that six miles south of the canadian border it was you're playing hockey or hunting yeah at least that was mine my my scenario I wasn't doing much while I was doing some other things I shouldn't have been doing yes right that's that's a whole that's yeah that's a that's a that's a that's a other story but no uh you know team roped for um along

time. You know, but when you get married and have kids, Sawyer, you know, some of these, some of these hobbies need to change. And it comes back to the mentality that, okay, I've got new responsibilities, put my head down, make, make things work in, in a certain way. And, you know, it's nothing, you know, it's, I've had to. I've had to. a lot of different experiences in my life, probably more than most, in terms of what I have done and what I've actually failed to do. Do you still make it out to hunt much? What's your... More now. More now. More now as I've got a really good team of people. I've, people think I'm retiring but I'm not but I have hired my successor

who's the president who will be the CEO next year's name is Jake Espin Miller many listening will understand that name and so I'm going to work more of the risk asset side do investor stuff but it gives me more time for hunting so you know I've shot enough white tail in in my day um that now i like going out to wyoming and shooting elk and meal deer and what's your what so what are you using what's your cartridge when you're going out that at that distance 300 wind mag is i bought a christians in arms um one um for my first elk hunt in New Mexico. And it is a Gilling machine. It is, I just bought a suppressor for it. Nice. Got approved in a day and a half. Wow. Really? Yeah. That's not very typical.

So is that, is that, well, I don't know. No, that people are waiting seven to nine months. How did you manage to do that? Did you? Well, it's, I'm such an upstanding guy. I'm sure that was it. No, a guy that knows a guy. No, what I was told is, the, ATF has got hearings at Congress. And one of the things on the agenda is why the long waiting periods and so the people that applied a month ago are still on a track for seven to nine months. The people that have applied within the last months, they're turning them in a day or three day, day, day to three days to get the average wait time down. So instead of, yeah, they're working. they're working at the top of the,

their top of the pile because that's the fastest. They're trying to change those, those, the averages. So apply for suppressors, what you're saying. Well, heck,

you'll get it in a heartbeat. We better cut this short. Yeah, we got some shopping to do. I mean, not that we have any guns to put them on. Yeah, right, right, right.

But if we did have, yeah, we should go, we'll probably get that ball roll. Yep, that's right. But that 300 wind mag is so loud. It's got a ported barrel.

Sure. And when I'm at the range, fine hearing protection but if I happen to be walking along and an elk jumps up or a meal deer I'm like the last thing I'm thinking about is putting it in and you pay for it. My left ear

it's a day to get that back into shape but I'll shoot a lot with that just practice you know comfortable really four 500 600 yards

outside of that I've never shot so I love I love doing that, but I, before I leave, we're going to pick up some firmer grade meats. Heck yes. Heck yes. Yes, sir. I'm a, I'm a meat guy. So I process all my own and I'll make sausages, you know, deer and elk and kids.

You're just checking all the boxes. And he even showed up and brought us a bottle of whiskey. I know, right? I don't know. He's kicking every other. I think we probably should put together a checklist. There could be a man crush going. on.

Yeah, so I'm like that. I do need to do a little bit of shout out for the Utica King. Yeah. Tell us that story. Doug Morgan, investment banking attorney, good guy. He's more of a friend of my partners. I'll call him a close acquaintance of mine. He owns this company called Mount Vernon Barn Company.

He dismantles old Barnes. repurposes them. Well, not or just sets them back up and cool stuff. Well, in this little town of Utica, Ohio, he bought an old mill, a distillery, and it's the old copper kettle, big copper kettle still. And he's, this is supposed to be a Pappy Van Wink. look alike, but tastes like it's good. Yeah. I can't believe it. What's the name of the, what's his name of his distillery?

Mill Street. Mill Street. Yep. Mill Street. Mill Street. So, Mill Street. Yeah, Mill Street. I'm kind of surprised.

I don't have a drink in my hand right now, but that's another subject. Well, we, we would have started a little bit later. Maybe we would have taken it out. I didn't know the dynamics. of the handlers that you brought. I didn't know if somebody was going to slap my hand if I put a glass. So we were taking it, we were taking it easy. We were taking all the precautions.

But believe me, this is a fully functioning. This is a fully stocked barn and one thing that we don't have here is a clock. And that is by purpose. Because when the conversations start, we want you to get lost in it. It takes as long as it takes. Get lost in the conversation in the whiskey. No, you know, on the other top,

I mean, we've hit a lot of good things. You know, the secret to whatever success I've had is because it's not because I'm the smartest SOB in the world. I'm not. It's recognizing an opportunity and finding really good people to help you to do that. And that's one thing. The average tenure at Contrera is, I mean, many of them were with us at the start, including the ones in the room today. And, you know, just good people that approach business with some humility, which is important.

People sometimes will look at me and say, well, he's the last one that should talk about humility. but in reality, that's how you need to approach business and understand your client and really try to do what's best for them. You don't get anywhere the other way. Yeah, correct. Good people, understanding of the business, putting your head down. I mean, starting a business, you guys know this. I saw this this representation one time. It was an upside down bell curve, what it looked to me.

And in the upper left, it's all the euphoria around starting a business. Oh, I'm going to do this. I'm going to. And then you go a little bit further down. It says, well, this is a little tougher than what I thought. Then you get to the bottom of it and says, this absolutely sucks. I don't want to do this. And then it starts getting a little better.

And then you come up the other side. But it's always a challenge to market dynamics and a whole lot of things. Especially for us, we're not capitalized as a lender. We're essentially using someone else's balance sheet. Now, those are some very large balance sheets that, that commit capital. It's committed capital. But there's nothing to say three years from now that X lender.

Yeah. Well, in fact, one that we were investing for got acquired. So they've been shut down for a year and a half. Yeah. And so it's those type of things that come into place. So you always got to be looking out. Yep. and trying to manage a business in that way.

And, you know, farmers are kind of approach lending in the same way they do their favorite equipment or their favorite breed of livestock and this is what I'm going to go with. And that's great, right? one of the things we've seen as operations have gotten bigger, it becomes more and more important to diversify their debt sources. I've got a situation now where it's a deal I'm working on, but the operating lender has both sides of this thing, and they're putting a squeeze, and there's about 260 million worth of debt that I'm trying to restructure, which they really wouldn't have been in that situation

if they would have had a little diversity in that. And people really need to think of that. It's good to have options. It's good to have options. And it's good to know your options. So if people want to know their options, how can they get a hold of Contera? Of course, they can go to the web at canteraag.com.

I honestly don't know our 800 number off top of my head. We'll put your link. We'll put the link to the website in the description. We're on the social media thing. I'm not a big social media guy. I do have an Instagram account. I mainly follow woodworkers and farmers. on it but that's the extent of my stuff but so cantera cantera ag.com and then cantera ag on social

media and we'll have it all linked in the description on youtube and in the audio but paul we appreciate you coming on it was i thought it was really valuable i think it was a really good episode i think people definitely got some value out of it and um we appreciate you uh so that's going to wrap it up guys if you got any value from the show, share it out, leave a review. Go to Farmergrade.com if you want some meat, and we'll see you back here next week for another episode.